Flexibility crucial to meet changing US tax law

Heather McIlvaine

12th Jul 2018

Australian retailers selling online in the US will have noticed the recent Supreme Court ruling, which allows local American governments to force online retailers to collect sales tax on purchases made in states where they have no physical presence.

Handed down last month, the ruling backed a South Dakota law enacted in 2016 requiring out-of-state e-commerce companies to collect sales tax if they generated $100,000 or more in sales, or conducted 200 separate transactions in the state.

The decision has been heralded as a way to level the playing field between bricks-and-mortar retailers and large pureplay online businesses like Wayfair and Amazon and echoes the recent implementation of GST on low-value imports in Australia.

But it has also created an air uncertainty for international retailers selling online in the US, as they may need to revamp their systems to comply with the new law.

“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,” said Andy Burton, CEO of Tryzens, an e-commerce solution provider.

Burton noted that 45 states in the US collect sales taxes, and the tax rate varies from state to state.

Although it remains to be seen how the ruling will be applied from state to state and internationally, Burton said Australian online retailers should stay on top of the rapidly evolving US tax regime to avoid getting burnt by the ruling.

“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,” he said.

Burton suggested the recent move to close tax loopholes in the US and Australia is just the beginning of a bigger paradigm shift in the e-commerce landscape.

“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.”