For e-commerce merchants, dealing with sales tax can be quite a headache. Customers can purchase goods from across the United States, which means that merchants have to collect sales tax in every state that they sell products in – so long as they meet the scale requirements. For smaller merchants, this is not generally a huge concern. For larger e-commerce merchants doing hundreds of thousands of dollars in sales across multiple states, collecting and paying the right amount of sales tax is absolutely crucial.

The penalties for merchants that don’t collect sales tax are steep, and something that every business should try to avoid if at all possible. In fact, there are both civil and criminal penalties involved with failure to file and pay sales tax.

 

What ISOs Need to Know

Depending on your business model, your ISO could be receiving residuals from e-commerce merchants that are required to charge sales tax across a variety of states in which they are doing business. Providing your merchants with knowledge about how they should be charging sales tax and the penalties for not doing so will benefit both parties. The merchants won’t be liable for unpaid sales tax on goods sold, and your ISO will continue to see healthy residuals from more merchants because they won’t be forced to deal with unpaid sales tax.

You need to know the tax requirements for your own business as well. If you are charging customers and clients for a product and you meet the requirements for sales tax nexus in any state, you could also be liable for any uncollected tax. 

The requirement to charge sales tax for states that you are not headquartered or have a physical presence in stems from a key ruling: South Dakota vs. Wayfair, Inc. 

 

South Dakota vs. Wayfair, Inc.

Back in June 2018, the United States Supreme Court passed down a very impactful ruling in the case of South Dakota vs. Wayfair, Inc. The ruling set the precedent that South Dakota had the authority to impose state-level sales tax on transactions completed within South Dakota, regardless of whether the merchant, in this case Wayfair, Inc., has no physical presence within the state.

The debate began when South Dakota passed a state law requiring all online merchants to collect and pay taxes for sales made in South Dakota, provided the merchant made more than $100,000 in gross sales, or over 200 individual sales in the state each year. 

This is based on the concept of sales tax nexus, which simply means that the entity in question must collect and pay sales tax from customers within a state. The South Dakota v. Wayfair, Inc. ruling expanded the concept of a sales tax nexus to include economic activity, while before it was primarily based on if the merchant had a physical presence in the state. 

 

Key ISO Takeaways

Use the Right Tools

South Dakota v. Wayfair, Inc. makes it absolutely crucial for every ISO to know their sales tax laws and what may be applicable to their business. Tools like TaxJar, which IRIS CRM uses, make it far easier to understand the taxes your business needs to collect. 

We recommend finding a solution like TaxJar to help clarify these difficult questions for your specific business, which will ensure that you are 100% compliant with all state tax laws. No one wants to be handed a bill for the past-due tax that wasn’t collected, because then the business will be forced to pay back the missing sales tax that could have simply come out of the customers’ pockets originally. 

 

Share Your Knowledge

Make sure that you are on top of your responsibilities as a business owner when it comes to collecting and paying sales taxes because otherwise you are headed for a major headache and business challenge. In addition, sharing this knowledge with your merchants can be beneficial for both parties.

Encourage your merchants to stay on top of tax laws for every state where they could be held accountable for collecting sales tax. Your merchants will be in a better spot with this key knowledge, and your residual portfolio will become stronger without the risk of one of your merchants going under because of unpaid taxes.

 

Get Started Now

Ensuring that your business is compliant with tax laws is not something you can do later this month, or next year, or whenever you like. Do your best to become fully compliant as soon as possible. 

Otherwise, you could be losing revenue at this very minute in the form of uncollected sales tax – which your business will be required to pay back to any state that you aren’t collecting sales tax in. 

 

How This Has Impacted IRIS CRM

As an internet-based software company, IRIS CRM is also required to comply with state tax laws based on the South Dakota v. Wayfair, Inc. ruling. While the ruling went into effect last year, IRIS CRM is just now starting to include the applicable tax for relevant states. 

In 2020, IRIS CRM absorbed all taxes that would be due to clients, which will now be included in applicable IRIS CRM invoices. 

Interested in learning more? Set up a free guided demonstration with our team today!