What BigCommerce Merchants Need To Know About South Dakota V. Wayfair
This week, the Supreme Court will hear South Dakota v. Wayfair, a case about how ecommerce businesses collect sales tax that could radically disrupt the industry. Read on for an explainer about what’s happening and how it could affect your business.
What’s Happening In The Courts?
Back in the 90s, a Supreme Court ruling set an important precedent: companies only had to collect sales tax in states where they had a physical presence, such as a store or warehouse.
This effectively excused ecommerce companies from collecting sales tax, which has always given them a price advantage over brick-and-mortar stores. Back in the 90s, ecommerce was so niche that it didn’t matter much – in fact, the law was actually written with catalogue shopping in mind.
However, with the explosion of online shopping, states now feel that the missing revenue is worth collecting on. And brick and mortar businesses say that ecommerce retailers have an unfair advantage because customers know they can get goods cheaper online.
The Court will begin hearing arguments this week and will likely release a ruling in June. What they decide could cause major shake-ups for ecommerce merchants.
Arguments For And Against
Proponents of the tax reform say that the law is outdated. Ecommerce is now so widespread that it must be subjected to further regulation. They believe the price advantage that ecommerce merchants have hurts brick and mortar retailers, particularly small businesses.
They also argue that the lost revenue has a direct, negative effect on the states themselves – particularly in states like South Dakota, one of nine U.S. states that does not have an income tax.
Opponents of the changes say that it will cause major disruptions to ecommerce merchants and smaller ecommerce stores will feel it most. Not only will ecommerce merchants lose their competitive pricing edge (the raison d’etre for many businesses), but figuring out how to actually calculate and charge the tax would present a huge logistical challenge.
Ecommerce representatives haven’t shied away from criticism, saying the proposed changes will introduce “chaos” and present “an existential crisis” for merchants.
Potential Impact on BigCommerce Merchants
While no one is sure of the specifics of the Court’s ruling, experts have raised a number of potential issues and challenges.
You might have to raise prices – or face a tighter margin. The main detrimental effect of this change is that the competitive pricing edge that ecommerce retailers enjoy might disappear.
It’s not just states who set sales tax. There are 12,000 taxing jurisdictions in the US, meaning the actual breakdown of what you owe could be really, really complicated.
Smaller businesses will feel the biggest impact. Small businesses may be charged billions in tax in the year that the changes go into effect. They’re also generally less equipped to swallow costs and deal with complicated logistics.
But major players like Amazon will feel the crunch too. Amazon collects sales tax on what it sells directly but not through third-party sellers. However, if third-party sellers are forced to raise their prices, that could hurt Amazon’s bottom line and reputation as a place to get cheap goods.
No one is sure of the details. One of the major complaints from the opposition is how the new changes would go into effect. How would the taxes be calculated and collected? Would merchants owe back taxes? Proponents say that software exists to easily take care of logistical concerns, but, ultimately, no one is sure.
What’s Next For Ecommerce Merchants?
Until Court actually releases their ruling, no one is sure what will happen or how any decisions that are made are implemented. But watch this space for more updates on this and the other ecommerce news that merchants need to know most.
