Supreme Court: Online shoppers can be forced to pay sales tax

[Vigilante]

High Court: Online shoppers can be forced to pay sales tax

We'll have to wait for the full text and analysis to come out in the next few days, but preliminary scans of the news from my perspective say it looks GREAT for sellers as the platforms and not the sellers will be required by the States to enforce tax collections.

This is a placeholder, but please add to this with any relevant updates or commentary.

 

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[CareCPA]

So I've read through the court opinion, although not all the concurring and dissenting opinions. Some thoughts:

Everyone knew that getting individuals to comply with Use Tax reporting requirements was never going to happen - it's way more efficient to have sellers collect and remit. How many of you, as a consumer, have ever declared Use Tax for something you purchased online and didn't pay sales tax on? My guess is less than 10%.

It also puts everyone on a level playing field, not just between B&M and e-commerce, but between e-commerce and e-commerce. If you live in California, and sell to a California resident, you already have to collect sales tax. What if I come in from PA and sell to a California resident? I can, by default, charge less than you.

I don't see anything in the ruling that indicates collection by the market. For example, if you sell on Amazon, and Amazon does not collect tax for you, that does not absolve you from the requirement to collect and remit once you hit the sales threshold. I know some states require it at the "Amazon level," but not all.
I foresee a lot of action in the next couple years. States will update their laws if they haven't already. Major marketplaces will most likely start to facilitate collection in more states. The Streamlined Sales and Use Tax Agreement will probably become more prevalent. Overall, it's going to be a painful couple of years.

Good news: if you're smaller, your exposure is low. Don't be afraid to wait for a notice from the state, but make sure you keep good records in case they over-assess when they finally get you.

More Good News: as far as I can tell, none of this alters the effect of PL 86-272, meaning just because you may have sales tax nexus, that does not mean you have income tax nexus. Two separate things, at least for now.

We'll see additional guidance coming out as things progress.

As always, consult your tax professional before making any major business decisions.

 

[Supercar]

I think all 4-5 and 5-4 Supreme Court rulings should be automatically and retroactively nullified, all the way down to the beginning of time. If the legal case is as clear as mud, then it should not be up to just 1 random and un-elected person in the country to decide on such matters.

 

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[MJ DeMarco]

At some point, people who can will just say "F*ck it" and refuse to participate in any commerce. I'm at the point where 100 acres in the middle of no where sounds appealing.

 

[Vigilante]

So I've read through the court opinion, although not all the concurring and dissenting opinions. Some thoughts:

Everyone knew that getting individuals to comply with Use Tax reporting requirements was never going to happen - it's way more efficient to have sellers collect and remit. How many of you, as a consumer, have ever declared Use Tax for something you purchased online and didn't pay sales tax on? My guess is less than 10%.

It also puts everyone on a level playing field, not just between B&M and e-commerce, but between e-commerce and e-commerce. If you live in California, and sell to a California resident, you already have to collect sales tax. What if I come in from PA and sell to a California resident? I can, by default, charge less than you.

I don't see anything in the ruling that indicates collection by the market. For example, if you sell on Amazon, and Amazon does not collect tax for you, that does not absolve you from the requirement to collect and remit once you hit the sales threshold. I know some states require it at the "Amazon level," but not all.
I foresee a lot of action in the next couple years. States will update their laws if they haven't already. Major marketplaces will most likely start to facilitate collection in more states. The Streamlined Sales and Use Tax Agreement will probably become more prevalent. Overall, it's going to be a painful couple of years.

Good news: if you're smaller, your exposure is low. Don't be afraid to wait for a notice from the state, but make sure you keep good records in case they over-assess when they finally get you.

More Good News: as far as I can tell, none of this alters the effect of PL 86-272, meaning just because you may have sales tax nexus, that does not mean you have income tax nexus. Two separate things, at least for now.

We'll see additional guidance coming out as things progress.

As always, consult your tax professional before making any major business decisions.

Couple things :

1. If you have sales tax nexus, that means you have a business that is a taxable entity by that State. That's not selective of JUST sales tax. That includes franchise tax, corporate tax, and income tax. There's nothing that would indicate that your taxable entity is just sales tax related.

2. I presume that Congress will have to act, my guess would be to place some type of thresh hold on taxable entities. A small eBay seller is simply not capable of registering, collecting, remitting and filing sales tax for every jurisdiction in the United States. TaxJar doesn't handle regulatory compliance... they're just a spreadsheet and filing service. If Congress doesn't intervene, it will have a deleterious effect on tens of thousands of small businesses.

3. It's NOT a level playing field, as the largest companies have tax departments to handle this. The smallest companies will be complianced right out of business, with an arduous burden not minimized by this foolish decision. It may level the playing field between Amazon and Walmart, but not between the bohemiths and the independents.

4. States not required to have a high thresh hold will gravitate to the money grab. They're not required today to exempt ANYONE. You sell a hammer on eBay to a guy in Idaho? Idaho can say you have to collect and remit sales tax.

5. We have to wait and see the full analysis, but the only thing sure at this point is by Q4 2018 it's not going to look anything like it does in Q2 2018.

I enjoyed reading your analysis.

 

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[Vigilante]

Don't forget the potential for sales tax audits under 50 different governments.



No surprise. Capitalism slowly but surely being replaced by corporatism.

The more I study this, the more I think it might crush small entrepreneur eCommerce initiatives. It cannot stand. What a bunch of dumbasses.

 

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[CareCPA]

... How is the State of Ohio going to force me to collect for them? It seems like it's unenforceable for small guys like me.

Simple, if they find out you meet the threshold, they're going to send you some letters. When you don't respond, they're going to bring it to court. Are you really going to fly to Ohio to fight them in court? If not, they get a default judgment against you. Now your business has a lien and you may personally have a lien. You'll never be able to take out credit to grow your business or buy a new house. Don't overpay your income tax, because that refund won't come back to you. Have a job? They may garnish your wages.
It's cheaper just to comply with the rules.

 

[IGP]

Even though I would say this is a terrible and very unAmerican, ruling. I would like to bring some optimism to the thread.

If this does hold, it could produce another barrier to entry to keep very unsophisticated ecommerce wannabes out of the business. As a ecommerce entrepreneur this gives me more motivation to grow and be at a level that can sustain stupid regulations.

Someone will create service and you will just pay fee for them to administer.

I disagree... Unsophisticated businesses will still enter your market, they just won't pay the taxes putting you at a further disadvantage.

This is much like gun control. Criminals don't obey gun control laws and unscrupulous businesses won't obey tax laws.

It's the law abiding people that get squeezed.

 

[CareCPA]

This isnt law at this point. Probably wont be. Its just a not a enforceable thing. Most states dont even have the ability to go after people for not paying state income tax. Now they are gonna somehow track down and make sure every online sale to their residents is taxed? No chance. Theres not enough man hours and money to pay people to do that.

The IRS is the only federal agency that brings in more money for each person they hire than it costs them to hire that person. I imagine state revenue departments are similar. If I can hire a person at $40k a year who can track down and collect $200k of taxes, I'd hire everyone I could until the numbers didn't make sense anymore.

 

[Vigilante]

At some point, people who can will just say "f*ck it" and refuse to participate in any commerce. I'm at the point where 100 acres in the middle of no where sounds appealing.

At some point my plan is to be as Off the Grid as possible. I plan to be invisible.

 

[Vigilante]

Norquist Statement on South Dakota v. Wayfair

Today, Americans for Tax Reform President Grover Norquist issued the following statement on the South Dakota v. Wayfair decision:

"Today the Supreme Court said 'yes—you can be taxed by politicians you do not elect and who act knowing you are powerless to object.' This power can now be used to export sales taxes, personal and corporate income taxes, and opens the door for the European Union to export its tax burden onto American businesses—as they have been demanding.

If physical nexus is no longer required, as the Quill vs. ND case demanded, for sales taxes then it is no longer required for personal or corporate income taxes.

Now, California (or any state or city that loses population through exit) can tax people and businesses who do their best to avoid that state or city.

We fought the American Revolution in large part to oppose the very idea of taxation without representation. Today, the Supreme Court announced, 'oops' governments can now tax those outside their borders—those who have no political power, no vote, no voice."

 

[Vigilante]

Keeping an eye on this thread. Thankfully my products are tax exempt for the most part. But I’m sure some random municipality doesn’t tax exempt grocery and it could be an issue in the future.

States that tax groceries (rate if not fully taxed): Alabama, Arkansas (3%), Hawaii, Idaho, Illinois (1%), Kansas, Mississippi, Missouri (1.225%), Oklahoma, South Dakota, Tennessee (5.5%), Utah (1.75%), Virginia (1.5% + 1% local option tax), and West Virginia (5%).

 

[CareCPA]

1. If you have sales tax nexus, that means you have a business that is a taxable entity by that State. That's not selective of JUST sales tax. That includes franchise tax, corporate tax, and income tax. There's nothing that would indicate that your taxable entity is just sales tax related.

But this does not mean you have a filing requirement for income tax. Public Law 86-272 still allows you to "Solicit sales of tangible personal property (directly or indirectly)" without creating an income tax filing requirement.

ETA: I do agree with your other points, although the term "level playing field" is open to many interpretations. For example, the remote seller may otherwise have lower overhead than the in-state brick and mortar. I don't think this creates a un-level playing field, it's merely a business advantage. The collection of sales taxes on one entity and not another, when the same good is provided is, in my opinion, an un-level playing field.
That being said, I don't encourage my clients to voluntarily remit sales taxes. We remit only when mandated.

 

[Scot]

States that tax groceries (rate if not fully taxed): Alabama, Arkansas (3%), Hawaii, Idaho, Illinois (1%), Kansas, Mississippi, Missouri (1.225%), Oklahoma, South Dakota, Tennessee (5.5%), Utah (1.75%), Virginia (1.5% + 1% local option tax), and West Virginia (5%).

Well... shit. Ok, I suddenly became more interested in this law.

 

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[million$$$smile]

The only way I can see this working long term would be a Nationwide Flat Tax on online sales. I doubt many small businesses would set aside enough tax on each sale for tax payments times 50 states if it were paid lump sum, end of year.

Ideally, if there were an app created whereupon for each sale, the tax would be deducted and sent to each states coffers immediately on collection of payment for goods sold. If that were available, I believe most customers and small businesses would accept and charge the % as part of the purchase.

If not immediately, then no later than months end similar to fees like Paypal, Ebay or Amazon.
I just don't see how it would work any other way...

Otherwise, the hassle of business just ain't worth it

 

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[Supercar]

I am not seeing anything positive in this. The states get more revenue, small retailers are hurting, fewer online sales, large retailers on average are unaffected.

Will there be an exception for small retailers, like in the 2016 South Dakota's law?

 

[Tom.V]

What's going to be the first SaaS to do this for you? Going to be a big winner.

Yup. Then a quiet acquisition by a major platform (like Shopify) to add to their growing list of baked in goodies.

Bad news for consumers, huge time sucks for online retailers. Just a giant cash grab that is just going to be messy from beginning to end.

 

[Vigilante]

Keep in mind also that even though a state like SD has a moderate thresh hold of $100,000 in revenues before required sales tax collection, they have a LOW unit thresh hold of 200 units.

If your ASP is $20, that's only $4,000 in sales. So it's not really shielded for small businesses when it is an either $100,000 or 200 unit trigger.

 

[CareCPA]

Keep in mind also that even though a state like SD has a moderate thresh hold of $100,000 in revenues before required sales tax collection, they have a LOW unit thresh hold of 200 units.

If your ASP is $20, that's only $4,000 in sales. So it's not really shielded for small businesses when it is an either $100,000 or 200 unit trigger.

Exactly.

And the worst part: this is one state's threshold. It could be different for literally every state.

 

[CareCPA]

The more I study this, the more I think it might crush small entrepreneur eCommerce initiatives. It cannot stand. What a bunch of dumbasses.

I believe it's such a mess because Congress essentially left it up to the Courts to decide our commerce rules.

This is one of the very few times I wish the federal government would step in. Let states pick their own rate, but have the rules be the same across the states. Bonus points if the Federal government collects the taxes and remits them back down to the states (that way we only have to fill out one return, and pay one entity).

 

[Vigilante]

Simple, if they find out you meet the threshold, they're going to send you some letters. When you don't respond, they're going to bring it to court. Are you really going to fly to Ohio to fight them in court? If not, they get a default judgment against you. Now your business has a lien and you may personally have a lien. You'll never be able to take out credit to grow your business or buy a new house. Don't overpay your income tax, because that refund won't come back to you. Have a job? They may garnish your wages.
It's cheaper just to comply with the rules.

This. The assumption they have to collect from you in your state is erroneous. They'll do the opposite. The jurisdiction is in their state in the venue is in their state not yours.

 

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[Kak]

I am not seeing anything positive in this. The states get more revenue, small retailers are hurting, fewer online sales, large retailers on average are unaffected.

Will there be an exception for small retailers, like in the 2016 South Dakota's law?

On the contrary. Because this will hurt the complete idiots dukeing it out for a few hundred bucks, the smooth operators making an actual living can take back some advantage. There will be ways to comply.

I’m very anti tax, but, I have found operating within my ecosystem instead of bitching about it has served me better.

It’s just a Supreme Court decision on constitutionality. Not law yet.

 

[fhs8]

Congress is the best remedy. Another Court test could take years.

There's no way the court is going to overturn this. Even the dissenting opinion (Roberts) said that Bellas Hess was wrongly decided. The Supreme Court gets 10,000 court cases a year and only accepts 80 of them. We would be lucky if an issue regarding sales tax makes it in the next 20 years. They didn't even accept Colorado's use tax notification case.

I apologize that I've found myself bogged down with this particular thread. Did the Supreme Court say that retailers are obligated to collect and account for taxes for all jurisdictions nationally? Or is this only an assumed obligation, while the actual decision applies only to what the law requires of customers? I'm not clear on whether this ruling means it's time to panic right away, or outsource all tax and billing handling to some nationwide third party. Or is it only a warning sign of potential problems, something to watch but it doesn't require immediate action?

The Supreme Court threw out Bellas Hess and Quill. Those decisions basically said that physical presence in a state is a requirement for sales tax. The Supreme Court only said that laws where out of state retailers have to pay sales tax are no longer a burden on interstate commerce. So now all states will be able to enforce the laws they have on the books.

It requires immediate action. In fact you should've taken action back months ago. Not only that but a troubling trend is that states are starting to define remote seller sales tax collection as "maintaining a place of business in this state" which means income tax returns, pass through corporation, and registered agent. How does 30+ state income tax filings a year sound along with the cost of a pass through entity (pass-through LLC in CA is a minimum $800 a year)?

Many states already have very broad income nexuses and I would be shocked if they don't include sales tax.

In fact this decision will likely be the end of many tight margin online businesses. You're not going to be able to outsource a lot such as audits, sales tax permit renewals, sales tax fidelity bonds, sales tax permit cost, notices to respond to, state income taxes, pass-through corps, and registered agents.

You should also check the cost of automated sales tax software. In the supreme court the plaintiff said it would cost $19 to comply. When I checked it would be at least $10,000+/yr from the cheapest solution. Some solutions are $50,000/yr.

 

[Vigilante]

A quick read from an attorney that I follow said that this didn't resolve the 3P tax issue one way or another.

Now I am curious as to the impact for web site operators.

 

[Charnell]

What's going to be the first SaaS to do this for you? Going to be a big winner.

 

[Vigilante]

Exactly.

And the worst part: this is one state's threshold. It could be different for literally every state.

It WILL be absent of congressional intervention.

 

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[Vigilante]

Why Amazon is the winner of the Supreme Court sales tax ruling

 

[MidwestLandlord]

What about franchise tax

Corporate income tax per state

And that stage percentage of state income tax for monies earned as a percent to total

Don't forget the potential for sales tax audits under 50 different governments.

Why Amazon is the winner of the Supreme Court sales tax ruling

No surprise. Capitalism slowly but surely being replaced by corporatism.

 

[Patrickg]

Even though I would say this is a terrible and very unAmerican, ruling. I would like to bring some optimism to the thread.

If this does hold, it could produce another barrier to entry to keep very unsophisticated ecommerce wannabes out of the business. As a ecommerce entrepreneur this gives me more motivation to grow and be at a level that can sustain stupid regulations.

Someone will create service and you will just pay fee for them to administer.

 

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[CareCPA]

How do they even know you sold to someone in Ohio? Hmm...

If you sell on any major marketplace (Amazon, etc), the states are starting to force them to turn over seller data.
If you own a Shopify store, and sell a couple grand worth of goods into a state, you're unlikely to hit the threshold. Even if you do, your chances of getting caught are probably low.

Think of it from the states' point of view. They're going to go after the biggest payoff with the least effort. They're going to hit the Amazon, Wayfair, Newegg, etc level first. Then they'll worry about the little guys.