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

[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.

 

[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.

 

[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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[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.

 

[MidwestLandlord]

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).

Especially since this is interstate commerce regulation...one of the only valid functions of the federal government to begin with.

 

[LeoistheSun]

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.

Doesnt a LLC protect me from this?

 

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[CareCPA]

Doesnt a LLC protect me from this?

How much do you want to take that chance?
I am not a lawyer. In theory, an LLC provides some protection. However, if you have an LLC, and you're the only person working in it, do you think the state won't come after you if you fail to pay them some taxes? Remember, their lawyers are salaried, they have all the time in the world.
It's a chance I'd rather not take. I wouldn't register everywhere right away, but don't ignore letters that they send you.

 

[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.

 

[Shades]

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.

 

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[prodigy1210]

This is absolutely absurd. I really hope it gets thrown out.

 

[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.

 

[CareCPA]

This is absolutely absurd. I really hope it gets thrown out.

How would a Supreme Court decision get thrown out?

 

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[SquatchMan]

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.

Do you have a citation on that?

I had the Florida Department of Revenue (FDOR) call me up and threaten a fine because I forgot to file my quarterly sales tax return. They waived the fine when I kindly asked them (zero return anyway).

My dad once got fined because the FDOR claimed he remitted $2 in sales tax a day late (he didn't). He disputed that and won.

Those two anecdotes are only somewhat related to your point. However, tax collection departments are brutal. They'll go after you for relatively small amounts (and even lie about it to levy a fine like in my dad's case), so I'm sure they'll figure something out.

 

[rollerskates]

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%.

I always have. I think people don't even know about it, and even now, I only see an option to pay it on my business' state sales tax form.

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

I would gladly turn over a customer's name for this reason. I am against a lot of taxes in theory, but people buying luxuries (which is basically what I sell since they're not necessities) and quibbling about sales tax is stupid. It's like eating at 21 and not tipping.

And the main reason collection of online taxes has become a thing, I think, is because of the VAT taxes being charged in other countries, which online venues are now collecting and remitting. Although, VAT is based solely on the seller's declared value of an item, and I know many sellers will will under declare value at the request of a consumer. So that's a different type of problem, but it still goes into people being dishonest in order to avoid paying taxes.

 

[fhs8]

Woohoo more tax!!

I read somewhere (before this ruling) that the tax only applies to tangible goods. If you have a SaaS that "runs" on your computer but doesn't install, your exempt.

This is not true. It depends on the state and the types of services performed.
Here is an example making my point:
Taxable Services

Examples of data processing include check preparation; accounts payable or receivable preparation; web hosting, web site creation and maintenance; data storage, including offsite backup of electronic files; conversion of data from one type of medium to another (i.e. converting paper documents or videotapes to digital files); and the performance of a totalisator service with the use of computational equipment required by the Texas Racing Act. Data processing services providers include sellers of software as a service and application service providers.

Many states charge tax on lots of SaaS. With economic nexus provisions SaaS will need to remit sales tax if they meet them.

I've been following this today and it I think it sucks. Here is my question though: How will 1000+ taxing entities enforce this on me here in Texas? I pay the franchise tax, state registration (for inspection) for my business, and collect and remit sales tax for Texas customers. 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.

Long-arm statutes because of economic nexus. If the department of revenue for a state determines that you owe them money and you don't pay them then they can get a judgement against you in their own jurisdiction and then simply go to the state court you're in and get a judgement against you to garnish wages and take money in your bank account.

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

They don't need to know. In most states they can send you a letter of determination that you owe them money and estimate how much you owe them and the burden of proof is on you to prove that you don't owe them the money. So get ready to give them all of your customer names, addresses, shipping details, etc...

SJC Holds that Drop-Shipper has Burden of Proving Sales Were Not Subject to Sales Tax; Is Liable for Tax - Lexology

Exactly. It's unenforceable...unless the state governments all make agreements with each other to collect and remit taxes for one another or something draconian like that....

It's already been determined that it's enforceable. It will be enforced.

Doesnt a LLC protect me from this?

No it does not. In most states the owners/officers involved in the LLC are responsible for paying sales tax if the corporation fails to do so. Not only that but if they determine that you did fraud then you might not be able to discharge it from bankruptcy.

California Code, Revenue and Taxation Code - RTC § 6829 | FindLaw

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.

It's now established law and they'll definitely go after sellers if it's going to make them a lot of money. What do you mean most states don't have the ability to go after people for state income tax? From what I've seen they tend to be very aggressive. Notices tend to be sent out automatically if a return isn't filed. In some states it's illegal to not file.


The implications of the sales tax ruling are much worse than I thought. For example in the state of Washington you were supposed to elect to collect and pay sales tax before Jan 1,2018 if you had more than $10,000 in sales going to Washington. If you didn't do that then you are liable for very harsh penalties. It doesn't matter if you register and collect sales tax.

Remote sellers | Washington Department of Revenue

Beginning January 1, 2018, remote sellers making $10,000 or more in retail sales to Washington purchasers must either:

1. Collect and remit sales/use tax on sales to Washington purchasers
2. Follow the use tax notice and reporting requirements explained below

The law has been found to be implicitly constitutional since Colorado's sales and use tax notification law went to the Supreme Court. This was before the Wayfair decision.

Use tax notice and reporting penalties | Washington Department of Revenue

If you fail to post the required conspicuous notice to Washington purchasers on your website, platform, catalog, etc. or fail to provide notice to customers at the time of sale the penalty is: $20,000


The penalty may be applied only once per year. (RCW 82.13.030(1)(a))

If you fail to provide to the Department of Revenue the required annual report of customers notified, including the required affidavit, the penalty is: $25 for each consumer that should have been included in the report with a minimum of $20,000. (RCW 82.13.030(3))

Example:
Business X is located in another state, but has $500,000 gross retail sales in Washington state in 2018 to 10,000 consumers. Business X is not collecting and sending in sales tax or doing use tax notice and reporting. The following are the penalties Business X will owe for not complying with the Marketplace Fairness law.




Failure to post both platform and invoice notice

$20,000


Failure to provide annual report to customers


+$180,000


Failure to provide annual report to DOR


+$250,000


Total penalty due


=$450,000

The penalties imposed under subsections (1) through (3) are cumulative. RCW 82.13.030(4)
The Department has the authority to estimate the penalties. RCW 82.13.030(6)


Yes you're reading that correct. If you did not comply with the notice and use requirements on Jan 1st, 2018 and you met the $10,000 threshold then you're liable for penalties. In the example above $500,000 in gross sales had a $450,000 penalty. They can also estimate penalties. They don't need proof that you actually did X amount of sales. Even more shocking is that registering for sales tax DOES NOT relieve you from the penalties. In fact it increases it!! The penalty applies to the gross receipts regardless of whether or not you collected tax. ONE violation triggers the penalties as well!

RCW 82.13.030: Penalties.

(1)(a) The department must assess a penalty against any seller, other than a referrer acting in its capacity as a referrer, that fails to provide notice to consumers pursuant to RCW 82.13.020(2)(a), in addition to any other applicable penalties, in the amount of twenty thousand dollars. The department may assess the penalty under this subsection only once per calendar year, regardless of the number of notices a seller fails to provide pursuant to RCW 82.13.020(2)(a) during the calendar year. The department may apply this penalty at any time during a calendar year and no more frequently than annually.
(b) The department must assess a penalty against any referrer that fails to provide notice to consumers pursuant to RCW 82.13.020(3), in addition to any other applicable penalties, in the amount of twenty thousand dollars. The department may apply this penalty at any time during a calendar year and no more frequently than annually.
(2)(a) The department must assess a penalty against a seller who fails to provide a report as required by RCW 82.13.020 (4) or (5), in addition to any other applicable penalties, as follows:
(i) Five thousand dollars if the gross receipts of the seller and through the seller's marketplace from retail sales sourced to this state under RCW 82.32.730 are less than fifty thousand dollars for the calendar year for which the report was required to be made;
(ii) Ten thousand dollars if the gross receipts of the seller and through the seller's marketplace from retail sales sourced to this state under RCW 82.32.730 are at least fifty thousand dollars but less than one hundred fifty thousand dollars;
....

And this is one state out of a few that have these kinds of laws. States such as PA and OK have similar laws. States such as KY actually require corporations to register and pay income tax. One sale in VT triggers notice and reporting requirements. Many states such as VT are now enacting income tax nexuses. Sales tax software doesn't even work. Taxjar for example doesn't seem to support bad debt deductions (chargebacks) and has many other issues. If you think you'll just need to file sales tax returns you're wrong. You're also going to need to file income tax returns.

One last thing is that failing to file a sales tax return when you should can make you liable for jail in the one state you failed to file. If you didn't file in twenty states well you could be sitting in prison for a while.

https://www.ok.gov/tax/documents/AVVN.pdf

For example in Oklahoma:
Failure or refusal to file report or return.
A fine of up to $5,000 or imprisonment for up to 1 year, or both

Violation: Conduct business or activities without a sales tax permit.
Penalty: Penalty in the amount of $5,000 or imprisonment in the county jail for up to one year; enjoined from further operation.

Continue to conduct business or operations after forfeiture of required bond.
Penalty: $5,000 fine or imprisonment for up to one year; enjoined from further operating.

Violation: Willfully or intentionally refuse to honor a 100% disabled veteran’s sales tax exemption.
1st Offense: An administrative fine of $500 per offense.
2nd or subsequent offense: Constitutes a misdemeanor and a fine of $500 per such offense in addition to any administrative fine.



Disclaimer: I am not a legal professional and I do not give professional legal advice.

 

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[Supercar]

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.

When they send the letters, will they say how much I owe them, and will they ask for that exact amount without unreasonable penalties? If it is the same amount, I would rather wait for the letters than bother figuring out how much to send and to which address.

I would raise all my prices 8%. If a state doesn't send me the bill, I will keep the money.

 

[CareCPA]

When they send the letters, will they say how much I owe them, and will they ask for that exact amount without unreasonable penalties? If it is the same amount, I would rather wait for the letters than bother figuring out how much to send and to which address.

I would raise all my prices 8%. If a state doesn't send me the bill, I will keep the money.

It will probably be a punitive assessment. I.e. they'll say you owe $50k, and you have to prove it's only $400. Then they will still hit you with a penalty for not filing.

If you can just raise your prices 8%, why aren't you already doing that?

 

[Supercar]

It will probably be a punitive assessment. I.e. they'll say you owe $50k, and you have to prove it's only $400. Then they will still hit you with a penalty for not filing.

That's quite diabolical. My reasonable response then would be to send each state $1 and have them prove that I owe anything different. Who knows, maybe $1 would get me off the hit list.

If you can just raise your prices 8%, why aren't you already doing that?

If I raise my prices, I will lose a lot of sales to those who didn't. If everyone raises prices, everyone will lose sales. The consumers aren't just going to automatically cough up 8% more.

 

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[CareCPA]

That's quite diabolical. My reasonable response then would be to send each state $1 and have them prove that I owe anything different. Who knows, maybe $1 would get me off the hit list.

Let me get this straight. You're going to take the time to register in every state?

So now every state knows you exist, and they're still going to send you a punitive assessment because no state will reasonably believe $1 covers your liability. Plus now you've told them you have taxable sales in their state.

On top of that, once you're registered, some states require you to continue filing even if you have no taxable sales during that period. If you don't, you're going to get hit with another penalty for not filing.

Also, now that you're registered, do you have the manpower to deal with a sales tax audit from all the states? Because if you send them $1, they will all audit you.

It seems cheaper and easier to just comply. It's a cost of doing business, just like buying inventory and paying for a website.

 

[fhs8]

When they send the letters, will they say how much I owe them, and will they ask for that exact amount without unreasonable penalties? If it is the same amount, I would rather wait for the letters than bother figuring out how much to send and to which address.

I would raise all my prices 8%. If a state doesn't send me the bill, I will keep the money.

Raising your prices 8% is going to hurt your conversion rates, increase the cost of credit card fees, and will be decreased after you pay income taxes. So you'll end up with more like 5% per order and you'll get less orders.

You do NOT want to wait for the letters to come. They will go after you for the entire period that you didn't pay taxes when you were supposed to and the statute of limitations when you don't file or file what they believe is a fraudulent return can be from 8 years to no limit on how far back they can go.

They can almost make up any number they want and now the ball is in your court to disprove them. Even worse is that appeal rights are VERY limited. For example in CA if you lose the one appeal you have before the CDTFA you must pay the entire balance owed in FULL before you can go to a normal court. People lost cases before the CDTFA/SBOE only to win in superior court. However if you don't have the money to pay the fine you're out of luck.

They'll also revoke your sales tax license and if you continue to sell in the state they'll go after you criminally.

That's quite diabolical. My reasonable response then would be to send each state $1 and have them prove that I owe anything different. Who knows, maybe $1 would get me off the hit list.

If I raise my prices, I will lose a lot of sales to those who didn't. If everyone raises prices, everyone will lose sales. The consumers aren't just going to automatically cough up 8% more.

That's pretty stupid since it would be considered tax fraud. Why don't you pay the IRS one dollar as well to get off their hit list?

Florida Sales Tax Crimes | FL Sales Tax Criminal Attorney

Sales tax fraud can consist of:

• Submitting fraudulent tax records
• Helping another to submit fraudulent tax records
• Falsifying records in order to evade tax responsibilities
• Failure to file taxes
• Failure to report correct gross and exempt sales
• Failure to pay taxes owed
• Making false claims on sales tax returns

Additionally you can add a perjury charge on top of it since most states require you to file under the penalty of perjury which can carry a four year sentence. So you're willing to go to prison for the rest of your life? You'd be charged in each state separately so once you've completed the sentence in one state you'll have to serve time in another.

Disclaimer: I am not a legal professional and I do not give professional legal advice.

 

[Supercar]

This too shall pass.

 

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[Vigilante]

This too shall pass.

Likley.

 

[Texan]

Looks like New Hampshire is trying to protect their citizens and businesses:

Officials throw down gauntlet on internet sales tax | News, Sports, Jobs - The Nashua Telegraph

 

[LeoistheSun]

They don't need to know. In most states they can send you a letter of determination that you owe them money and estimate how much you owe them and the burden of proof is on you to prove that you don't owe them the money. So get ready to give them all of your customer names, addresses, shipping details, etc...

SJC Holds that Drop-Shipper has Burden of Proving Sales Were Not Subject to Sales Tax; Is Liable for Tax - Lexology

So, they can just send me a random letter even if I am not registered in that state? Whats stopping them now from assuming I have a business, but I currently dont?

 

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[fhs8]

So, they can just send me a random letter even if I am not registered in that state? Whats stopping them now from assuming I have a business, but I currently dont?

Nothing is stopping them from doing that. The burden of proof for civil issues isn't the same as criminal issues. I've done a lot of research on this and sales tax laws greatly favor states over businesses. For example many states put the burden of proof on the business to prove the assessment or penalty amount as incorrect yet they don't need any proof that you owe the stated amount that they say you do. They can simply estimate it.

Use tax notice and reporting penalties | Washington Department of Revenue

• The Department has the authority to estimate the penalties. RCW 82.13.030(6)

So if you get sent a letter you're going to have to send EVERYTHING you have to try and convince the auditor that they are incorrect. You only get a certain period of time to respond back and if you don't respond then the notice of determination becomes final and then they'll just start taking money out of your bank account.

States are already going out of their way to harass out of state sellers.

Kentucky for example has added to it's definition for what a retailer "engaged in business" is.

http://www.lrc.ky.gov/recorddocuments/bill/18RS/HB366/bill.pdf
pg 123 - 124

HB 366 which took effect Jul 1, 2018 defines a "retailer engaged in business" as any remote seller with 200 or more separate transactions in the previous or current year. It includes either tangible personal property or digital property. Why is this important? All retailers engaged in business MUST also register with the secretary of state, get a service of process, and file tax returns. Depending on the entity type you may need to do both a gross receipts tax AND income tax return OR gross receipts tax and personal tax return!! KRS 141.010(25) defines what "doing business in this state" includes but is not limited to.

http://www.lrc.ky.gov/statutes/statute.aspx?id=39500
KRS 141.010(25)

https://finance.ky.gov/services/legalsvcs/Documents/2017 regs filed/103 KAR 16 240 Nexus standard for corporations and PTE's.pdf

KRS 141.040(1) requires non-exempt corporations doing business in Kentucky to pay corporation income tax and file the required tax forms for that tax.

Just try to register for a sales tax license through the Kentucky Onestop website. If you select an LLC or S-corp it won't let you go through until you register with the Kentucky secretary of state and registered agent IN Kentucky for your corporation!

This is something that can't be ignored. The MINIMUM fine from Washington State alone is $45,000 for not complying with the use tax notification law and meeting the $10,000 threshold by Jan 1, 2018. Many other states are passing laws as well.

Disclaimer: I am not a legal professional and I do not give professional legal advice.

 

[LeoistheSun]

Looks like New Hampshire is trying to protect their citizens and businesses:

Officials throw down gauntlet on internet sales tax | News, Sports, Jobs - The Nashua Telegraph

I like this!

 

[Vigilante]

Alabama will start collecting online sales taxes Oct. 1

 

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[IGP]

Alabama will start collecting online sales taxes Oct. 1

Ya, but that's for over $250K in sales within the state. That applies to very few people. Going for the big boys.

 

[Vigilante]

Ya, but that's for over $250K in sales within the state. That applies to very few people. Going for the big boys.

It's not that big. Plus, what the article doesn't state is there will also be a unit litmus test and that will be a much lower threshold. In South Dakota, it's only 200 units. Almost every single seller that sells on Amazon of of any scale would meet that low bar.

Get ready for 50 states worth of craziness.