The recent South Dakota v Wayfair ruling, which will allow US States to collect sales and use taxes from “remote sellers”, could have wide-reaching implications for international retailers.
This is according to e-commerce specialist Tryzens, who warns that Australian retailers are well-advised to study the rapidly evolving US tax regime and ensure their e-commerce platforms are able to accommodate state-by-state variability, to avoid getting burned by the ruling.
In June, the Supreme Court of the United States issued its widely anticipated decision in South Dakota v. Wayfair, et al. The court ruled that the physical presence rule for state tax jurisdiction is incorrect and not a requirement under the Commerce Clause of the U.S. Constitution. This in effect means that individual states will be able to collect sales taxes from out-of-state sellers, overturning a decades-old Supreme Court decision which said sellers only had to collect state sales taxes if they had a warehouse or office in the state.
Tryzens said that although it remains to be seen how the ruling will be applied from state-to-state and internationally, individual states may attempt to assert taxing rights over foreign-based companies even if they lack a physical presence in that particular state.
CEO, Andy Burton, said this is a watershed ruling.
“Faced with a market that is increasingly mature, many Australian retailers are looking to break into new territories, like the US, and the beauty of e-commerce is that they can do so with little to no physical infrastructure, albeit with other technical and fulfilment challenges.
“But the Wayfair ruling is a real paradigm shift and creates a precedent that is likely to run on. Retailers will need to do more thorough due diligence on how to accommodate these changes relating to ‘remote sellers’ as the picture evolves over time, state-by-state, in order to be able to comply with the new tests, which are known as ‘economic nexus standards’.
“Whilst there is still a lot of ambiguity about how this will work in practice, Australian retailers that sell in to the US would do well to start preparing for the changes ahead.”
Mr Burton said the trading landscape in the US is complex.
“45 States in the US collect sales taxes, and, to make things more complicated still, sales tax rates differ from state to state.
“Australian retailers will need to ensure that these differences are accommodated for in their e-commerce platforms and CRM systems, as well as considering pricing implications due to the variability of the rates by state to stay on the right side of the IRS.”