Why am I being charged Sales Tax?

While customers in New York are well accustomed to being charged Sales Tax by Proper Cloth, recently Proper Cloth has begun collecting sales tax for customers in other US states as well.  While we’re not lawyers, we’ll do our best to explain what’s going on here. 

On June 21, 2018, the Supreme Court ruled in the case South Dakota v. Wayfair, Inc that “states may charge tax on purchases made from out-of-state sellers, even if the seller doesn’t have a physical presence in the taxing state.”  

Prior to this decision, ecommerce companies were only required to charge Sales Tax to customers in the states they had physical operations in, but with this ruling, the Supreme Court determined that ecommerce companies can be liable for Sales Tax in other states as well. 

Immediately after the Supreme Court decision, it was unclear how each state was going to handle collecting sales tax from out-of-state retailers, so we didn’t take any action.  However, more recently many states have made it clear they intend to chase out-of-state ecommerce companies for Sales Tax charges (we’ve gotten a lot of scary letters in the mail). 

Not every state is approaching this the same.  Some states have decided they won’t collect sales tax from out-of-state retailers at all.  Other states have set thresholds based on the number of transactions or total revenue that an out-of-state retailer has in their state.  Based on these guidelines, Proper Cloth has begun collecting sales tax where we believe we will be liable for it. 

For more information on sales tax, here is a helpful article.