After 26 years of sales tax rules, the Supreme Court recently overturned a 1992 decision from the Quill Corporation v. North Dakota case. This decision will change the way many companies handle online transactions and business — including those in the promotional products industry that run online stores.
What is the background?
In 1992, Quill Corporation was selling office equipment and other merchandise by mail order to states outside its home base. North Dakota wasn’t too keen on the idea that Quill didn’t have to charge a North Dakota use tax on all of the products Quill was selling within the state. The state filed an action against Quill to get it to charge that tax. But the Supreme Court didn’t agree, noting that, according to the Constitution, companies that are substantially connected to a specific state shouldn’t collect sales tax from that state.
What is the ruling?
Now, thanks to a new decision by the Supreme Court, the decision in the North Dakota case has been overturned. This time initiated by South Dakota, the case alleged that according to the Government Accountability Office, states were missing out on $13.7 billion in revenue in 2017 alone. Brick-and-mortar stores signed on as well, saying that it isn’t fair that online stores don’t have to charge sales tax, but they do. In response to South Dakota’s case, the Supreme Court ruled that now each state has jurisdiction over whether to force online retailers to pay their state’s sales tax if they’re doing business from another location.
How could it affect your promotional products business?
This decision could have a heavy impact on the way the promotional products business works. Although it will effectively level the playing field for smaller local businesses in the industry that were being beat out by online competitors, other business owners will have to take on extra work.
“The downside of the Supreme Court ruling is that a business will now have to potentially know the sales tax laws of every state, file sales tax forms for every state and be registered to do business in every state,” Stan Hansen, director of tax for the ASI Family of Companies, told ASI. “The sales tax filing requirements put a tremendous burden on a company that sells in every state, such that the company will have to hire outside services or hire additional staff just to comply with the various sales tax laws.”
Each company will also likely have to familiarize themselves with local tax laws as well, depending on where they’re conducting business. Since many companies in the promo products industry still manage their businesses on paper, rather than digitally, it could pose an even bigger challenge and an overwhelming amount of work.
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