The Supreme Court's decision yesterday allowing states to require online collection of sales tax is going to be really tough for a lot of small businesses and entrepreneurs. And that doesn't mean collecting sales tax only for your state. It's potentially collection of taxes for any state you sell into.

Whether you're dealing with patents in the U.S., data privacy in the E.U., or virtually anything else, courts can upend you in a moment.

After spending much of yesterday speaking with tax and business experts, I have bad news and good news. The bad is just how wrenching this will be if you sell online. The good is that there are several potential solutions to mitigate, if not eliminate, the pain. First, let's get through the distasteful parts.

This is a massive and complex problem sitting in your lap

Collecting sales tax is not easy, because knowing when to do so is complicated. But you now officially can't get around it. Here are some of the issues:

  • Not all items are taxable in all states, and there are no rules that are applicable in all jurisdictions. You need to know the details in each case.
  • You may find that local governments also start to demand sales tax. The ruling was on a state law, but it seems likely that counties and cities might extend the reach. That could mean thousands of tax jurisdictions.
  • Some states have different sales tax rates for varying regions, so even without local sales taxes, you may find that one number doesn't fit all even within a given state.
  • There are entities exempt from state tax, including nonprofits, government agencies, and retailers buying items for resale. You'll need documentation to prove each one is entitled to forgo sales tax.
  • Some companies may have agreements with their states to directly pay sales tax, in which case you need provisions to allow them to do so.
  • States will have different compliance threshold levels. In South Dakota, which was party to the case as home furnishings seller Wayfair was, the trigger is either $100,000 of sales or 200 transactions in a year. You'll need to know when you have to start collecting depending on where the order ships to.
  • There may be retroactive considerations. Does a threshold mean that you now have to remit sales taxes for all the sales you've made in that state to date? Or just the ones past that point?

It's going to cost you time and money

You can't get around this part, either. You'll need to spend time to change your systems and business processes, and also watch unfolding developments in the law and courts to see how the implications could change. Many states haven't yet passed laws requiring sales tax collection by online businesses.

Then there's the money part. Unless you're already set up to collect sales tax, and few smaller businesses are, you will need systems to do so.

And that's just to determine the taxes. Remittance generally will happen quarterly for each jurisdiction -- state or local -- that wants the tax money (and here's a hint: They pretty much all want the tax money). That could run $20, $40, or $60 per remittance filing, according to one large accounting firm I spoke with, unless the state is one that has a way to do this for free online.

Even if only the states take advantage of this and you sell in half, that could be hundreds of dollars a quarter in additional pure cost, because you don't get the lower prices without some significant volume. If you sell more widely into localities that want their cut, this could run into the thousands.

You're already late

A number of states had already passed laws mandating sales tax collection if the Wayfair decision, or one like it, came down. They don't necessarily offer grace periods and you're already supposed to be in compliance. A lack of compliance could mean audits, fines, and penalties.

Three ways to handle the problem

Even though the issue is thorny and you're already late in getting things done, there are three potential strategies that will help reduce the pain, although not eliminate all of it.

  1. Reduce your sales. That may sound counterintuitive, but if you pick and choose, you might find a set of states that offer the most reward for less pain, or at the very least maybe more time to implement your strategy. Avoid the ones where the downside is too high. It's not optimum, but it might work for some businesses.
  2. Use an existing system. There are software as a service (or whatever else "as a service" variations are in use) companies that provide this type of sales tax coverage. Your systems would use calls into theirs to get the right amounts. You'd need to check, however, whether they provide remittance systems. If not, you'll need an additional service.
  3. Use an e-commerce platform. An existing e-commerce platform may have the existing sophistication to manage sales tax, or at least the calculation. Be sure to find out. If it doesn't, consider an expedited move to another. You don't want to wait for someone else to eventually become compliant.

And good luck.