SCOTUS

Stop the Presses!

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I’ve been warning my clients about this for about three years. And, now, it’s time for them- and everyone else-  to react.

About what, you ask? Within a few months (some MUCH sooner), states are going to start collecting sales taxes on sales businesses  generate in their states over the web.

Quill versus North Dakota

The stand-off that has existed since 1992 is now over. Back then, Quill (the biggest national office supply company back then; now Staples and Office Depot are even slighted by Amazon, which seems to be the largest office supply vendor) fought against the imposition of sales taxes by North Dakota. The Supreme Court ruled in Quill Corporation v. North Dakota that companies needed to have a “substantial” connection to the state.  (By the way, the tax commissioner at the time was Heidi Heitkamp, the current junior Senator from North Dakota.) That ruling pretty much meant no sales taxes would be collected unless the business had an office or a salesperson residing in the state.

(BTW, North Dakota has always been pretty aggressive about collecting taxes. I recall having to deal with it when I was serving as the CFO for a wine vendor. We sold a case of wine to someone who had it transshipped [diverted from where we were sending it to satisfy the order] to a location in North Dakota. Some four months later, ND notified us that we were required to fill out [a MOST complicated] wine sales tax form and pay them (including penalties) their due.  After all, that single case of wine, costing all of $ 128, was delivered to their state. Oh, and then they wanted us to continue filing- just in case. We politely declined that situation and notified our shipping firm that NO transshipping may be done outside the state to which our order is directed. Or, they can pay the fines and taxes.)

A few years ago (2012, ending 17 years of battling state tax commissioners), Amazon decided that it would collect and transmit sales taxes for items it directly sells. (This practice did not impose this rule on its third party vendors.) And, that made it perfectly clear that it was only a matter of time before the rest of us would be forced to collect and pay sales taxes.  (In the past few years Walmart and Target have elected to collect and transmit sales taxes on their internet sales.)

But, today, the 21st of June, the Supreme Court in a 5 to 4 decision overruled the Quill case. Justice Anthony Kennedy wrote the majority opinion (the other “winning” justices were Justices Thomas, Ginsburg, Alito, and Gorsuch).

South Dakota versus Wayfair et al

The logic of the brick-and-mortar firms (within a given state) is that they are always at a disadvantage to internet firms who swoop in and make the sale, since without sales taxes, the internet vendor can always be cheaper. And, states are hungry (or is that voracious?) for the billions of dollars in revenue they can collect from every Tom, Dick, and Mary operating on the internet.  (Hmm.  You do realize that the states were already collecting 80% of the potential taxes before this ruling, right?   But,  the $ 15 billion more that consumers will be paying ain’t chump change.)

As I said in the first paragraph, this really wasn’t a surprise. Justice Kennedy hinted he wanted to reconsider the 1992 decision back in 2015. (A few other justices also dropped such hints over the years.) So, South Dakota penned a new law that required any merchant with more than $ 100K in annual sales or more than 200 transactions in the state to collect and transmit the 4.5% sales tax. And, then sued Overstock, Wayfair, and NewEgg to collect. The lower courts (correctly) overruled the new law, stating that the Quill decision obtained. They awaited the decision that arrived today.

The real problem isn’t the state sales tax. It’s the fact that there are multitudes of sales tax jurisdictions in places like Virginia, New York, and California. Each with their own rates and own filing requirements.

Average State Sales Taxes

So, this new ruling is going to force states to rethink and rework these rules. Because small (and, to be frank, big) business is not going to be filing  9988 monthly sales tax forms  (yup- that’s how many sales tax jurisdictions exists- as of today!) all over the US. The states will either have to share the money with their localities or develop a workable system for business compliance.

Fun time for those who play with Excel or write financial programs!

Roy A. Ackerman, Ph.D., E.A.

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24 thoughts on “Stop the Presses!”

    1. Those businesses in Florida that sell to the other states will be responsible for collecting and paying the sales taxes for every state where they have made a sale. (Hopefully, the rules will be one tax collection per state- and only if you have crossed volume thresholds (like the $ 100K and/or 200 sales in the Dakota legislation).
      Thanks for the visit and the comment. (Hmm. Maybe my blog protector thinks Florida = spam. Since you are always in the spam folder. Nah. I know it’s the yahoo domain.)

  1. SC has many cities that have different tax rates. If someone lives in Myrtle Beach city, they pay a higher rate the MB outskirts. People living out side the city limits have been charged the higher percentage and were furious over it.
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    1. That’s the view of the consumer. Imagine some small business in Podunk having to figure out what rate applies in each zip code of the US. Like that won’t create such paperwork hurdles and potentials for errors that the firm may fold- not because it wasn’t a success, but because of the BS that’s being erected against its survival.

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