Yesterday, the US Supreme Court affirmed Colorado’s right to require online merchants to collect sales tax from Colorado residents who buy from them.

Until now, buying online from a merchant located in anther state has required the buyer to pay sales tax directly to the state, rather than requiring the merchant to collect tax, in behalf of the state. States prefer the latter because individual payments directly to the state are a “hit or miss” proposition. The state can more easily hold a merchant accountable than it can hold thousands of individuals accountable.

If other states adopt a similar requirement on merchants, it could have a significant impact on their costs of doing business since each state sets its own tax laws, and there’s a lot inconsistency that would have to be managed by the merchant. Further, some state allow cities or counties to impose a supplementary sales tax to fund the local government.

Sorting out the tax requirements will require sophisticated software and, as state laws change, that software will require continual updating.

For more about this Supreme Curt ruling, see the article on the ruling in the
Total Retail blog:

Supreme Court Lets Colorado’s ‘Amazon Tax’ Law Stand

Of course, the large retailers will be able to adapt, but small businesses may be driven from the online marketplace because the costs of compliance may eat into their profits so much that their prices will have to rise until they become noncompetitive.

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