Online Sales Tax

Tales of Transparency: Collecting Out-of-State Sales Tax

Earlier today, I read, with great interest, an email sent out by one of our competitors to their clientele regarding the collection of online sales tax. In it, the owner expressed his dismay regarding the onerous task of collecting sales tax for states outside his immediate purview. While I can understand his frustration and cause for alarm, I just wanted to point out something he and the rest of the collecting community may not be aware of after doing some due diligence of my own.

The following text was excerpted from the SalesTaxInstitute.com web site and may help to explain why some sellers are collecting sales tax and others are not: “On June 21, 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, Inc., addressing South Dakota’s economic nexus law. This decision overruled the physical presence rule for sales tax nexus for sales made over the internet. States now have right to require tax collection from online retailers and other remote sellers that do not have physical presence in their states. Looking strictly at the South Dakota economic nexus legislation addressed in the case, South Dakota’s law minimizes the burden on online and out-of-state sellers. The legislation provides a safe harbor for small sellers: a remote seller must make in-state sales exceeding $100,000 or makes 200 or more separate sales transactions in the previous or current calendar year for the nexus provision to apply. The legislation also ensures that the nexus provision does not apply retroactively.”

So, in effect, unless the seller is doing a truly bang up job in a particular state, they are exempted from this Supreme Court ruling by this so-called safe harbor. Online sellers such as Amazon and eBay are clearly exceeding these thresholds, which is why they are currently tacking on sales tax to online transactions made in states mandating the collection of sales tax. Now, should things change from a legislative standpoint or we start doing incredibly well such that we are meeting or exceeding these thresholds, then I doubt a retailer of our size and stature will have to collect and remit sales tax for states other than New York, our nexus, which is where we are currently located.

As states seek to raise revenue in the wake of store closings and online sales continue to increase vis. a vis. brick-and-mortar businesses, this ruling will likely be reviewed again and possibly amended to reflect the state-of-affairs. Until such time, however, we will continue to collect sales tax from customers located in New York but will certainly notify everyone if it appears as if we must follow suit and start collecting sales tax from and for other states.

 
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The Online Sales Tax Debate is Finally Being Heard

 

On Tuesday, April 17th, the US Supreme Court will hear the case for imposing sales tax on all online purchases even if an online retailer does not have a physical presence in the state where the purchase is being made. While the debate will likely rage for some time, and advocates on both sides will present their case, we are of the opinion that the Court will likely rule in favor of imposing the tax on all online purchases, thereby leveling the playing field somewhat with brick-and-mortar stores and helping to raise revenue for many cash-strapped states. If they do rule in favor of the tax, it will likely go into effect beginning in 2019, obviously making it more costly to shop online, no matter if you purchase from an online megalith such as Amazon or a vastly smaller operation such as The Motor Pool.

For us, it will make the collection and disbursement of said taxes across all fifty states extremely cumbersome and time-consuming, requiring added paperwork and a revamped infrastructure that monitors when sales tax fluctuates across the entire nation, on a county-by-county basis. If the Court is indeed serious about levying an Internet sales tax, they might want to consider a low-rate flat tax of say 4% across the entire nation, thereby making the collection of taxes, particularly for smaller businesses, a less problematic issue.

We’ll keep an eye on the Supreme Court’s ruling when it breaks and let everyone know how we will approach things going forward should the Court rule in favor of the tax imposition.

 

 
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