The U.S. Supreme Court just destroyed many existing small businesses and start-up dreams.
The bizarre 5-4 ruling will also result in higher costs for every online purchase in America.
Here are 6 sad realities you should know:
- Online sales taxes are coming.
The Supreme Court ruled in South Dakota v. Wayfair Inc. that some 13,000 state and local tax jurisdictions can charge sales taxes to online retailers.
The ruling overturned a 1992 Supreme Court decision – Quill Corp v. North Dakota – that exempted online retailers and catalogs from having to pay the burdensome and complex maze of taxes on their sales.
- Catastrophe for small online businesses.
This ruling will destroy hundreds of thousands of small online businesses which now face compliance issues with multiple tax entities.
- Differing tax rates in differing jurisdictions
- Disagreements over an array of exemption rules
- Multiple expensive audits
It will be a nightmare…
- Online shoppers will be burdened with higher prices.
All online sales will raise money for government at the expense of the consumer.
Not only will online prices rise to cover the taxes companies will be required to collect … prices will rise to cover the business costs of compliance with a myriad of tax rules, exemption rules and tax rates.
- Who benefits from the ruling.
There are several big winners from the Supreme Court decision:
- Big online retailers like Amazon and Walmart – they already pay sales taxes and can easily handle the compliance complexities using their existing staff accountants. They will also have less competition from other online businesses that weren’t previously adding sales taxes to their prices.
- Brick and mortar retailers – the online marketplace will no longer have a competitive advantage.
- Tax compliance software companies are big winners – TaxJar, Avalara, AvaTax, Vertex … even Amazon.
- States are expected to rake in $13 billion or more … plus billions more from county, special district and city taxes.
President Trump joined most Democrats – and state governors – in supporting the new taxes.
- Congress must now take action.
Only Congress can avert the ensuing chaos this irrational and unfair ruling will cause.
The Executive Director of the American Catalog Mailer Association had this to say:
“By ruling against remote sellers and customers all across America, the High Court’s decision means companies who sell only 100 orders a year must not collect sales taxes for every South Dakota order. This is a ridiculously small threshold. A merchant might sell only 100 $20 orders and now be forced to comply with laws well outside its capacity and be subject to horrendous complexity.”
In his dissenting opinion, Chief Justice John Roberts said it best:
“The Court, for example, breezily disregards the costs that its decision will impose on retailers. Correctly calculating and remitting sales taxes on all ecommerce sales will likely prove baffling for many retailers. Over 10,000 jurisdictions levy sales taxes, each with ‘different tax rates, different rules governing tax-exempt goods and services, different product category definitions, and different standards for determining whether an out-of-state seller has a substantial presence’ in the jurisdiction (Sales Tax Report 3).”
Roberts then cited what he saw as inconsistencies in tax regulations, such as in New Jersey, where “knitters pay sales tax on yarn purchased for art projects, but not on yarn earmarked for sweaters,” and in Texas, where plain deodorant is taxed at 6.25% but there is no tax on deodorant with antiperspirant.
- The Sad Truth: Legislating from the Bench.
The Court never should have interfered with the market. Congress has the constitutional authority and responsibility to rule tax policy.
Said Chief Justice Roberts: “Any alternation to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress.”
“An unlimited power to tax involves, necessarily, a power to destroy.”
~ Daniel Webster, in McCulloch v. Maryland, 1819
A lot of small companies are about to be exterminated by one bad ruling.
What do you think? Write me at [email protected]