On Thursday, the Supreme Court announced a new decision: all online businesses must charge a sales tax on purchases from the state of South Dakota. It might not sound like a big deal, but its impact will be devastating for small businesses like mine.
Prior to Thursday’s decision, online businesses only charged sales tax on South Dakotan purchases if they had a physical presence in the state. Now, any business that earns more than $100,000 or 200 transactions from South Dakota annually must collect a sales tax from clients. That’s not a problem for large companies like Amazon that are already equipped to handle these requirements – but it’s horrible for smaller business like Company Folders that simply aren’t.
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It’s impossible for us to anticipate whether or not we’ll hit a threshold of $100,000 year-to-year. Just one large purchase could send us over the edge. Are we supposed to charge everyone from South Dakota a sales tax and then refund them later if it turns out the tax isn’t required? That would be a logistical nightmare and require an expensive new software solution that we can’t afford. We also can’t exactly charge clients a sales tax after the fact if it turns out the tax is required; we respect our clients too much to push that hassle onto them.
As it stands, the Supreme Court’s decision only applies to South Dakota, but with the Trump administration’s vocal support of the state, I’m concerned that other states will follow in South Dakota’s footsteps. My company (as well as other small businesses across the country) would have to register tax permits and stay on top of each jurisdiction’s unique tax regulations, filing taxes annually, monthly, or even twice a month. With about 12,000 jurisdictions in the country to keep track of, the cost of all that (plus the new software we would need to collect the taxes in the first place) would vastly outweigh our income; our prices would have to skyrocket just to turn a profit.
Supporters of the Supreme Court’s decision insist that it will benefit businesses in South Dakota, but its implications are disastrous for the entire country’s economy. How many jobs will be lost as small businesses struggle to keep up with these complicated requirements?
Unless South Dakotan legislators take action, soon the only businesses that consumers will be able to access are big, impersonal corporations-and that’s bad for everyone.
Vladimir Gendelman is founder and CEO of Pontiac-based Company Folders, Inc.