Supremes Voted That States Allowed To Require Internet Sellers To Collect Sales Tax

Based on how California has enforced its use tax, which has applied to internet transactions for several years, it's fairly simple. A state picks a large online retailer that can be presumed to have customers within the state. They go through a shopping cart transaction to verify that the retailer will ship to the state. In some cases they may place a small token order to verify that tax is not charged, or they may look at procurement records of other state agencies to find internet purchases where sales tax was not a line item in the invoice. They check their records to verify that the retailer has not remitted tax in the past year or two. They send a demand letter and if needed, sue the retailer to collect the tax. They enter into a settlement agreement that requires the retailer to electronically submit anonymized sales reports with tax amounts.

States will focus on large retailers where enforcement efforts have a positive ROI, then move down the food chain to smaller ones. In some cases, small retailers who voluntarily pay the tax will report known non-paying competitors to the state. Enforcement letters follow.

The bureaucracy in every state will grow as states add enforcement officers to pursue new millions in revenue.

Ah, but which state's sales tax is to be collected by the seller - the seller's or the buyer's?

If the buyer's, there will be no tax for the states that do not currently have sales taxes (Oregon, Montana, New Hampshire, Delaware, and Alaska).

It's based on location of the buyer.

The possibility of this occurring may have been one of the reasons that ebay decided to move payment processing in-house. They can easily apply sales tax to invoices and file returns for aggregated ebay sales in each state or each tax district. Providing this service would also give them a competitive advantage over individual web site owners.

Tax filing in some states can be ridiculous. Washington State, for example, requires filing a "destination based" sales tax. Each taxing district adding on local sales taxes and RTA (Regional Transit Authority) overlay district rates are different for every municipal, county or RTA entity in the state. RTA district boundaries do not neatly coincide with municipal or ZIP code boundaries. An address lookup is needed to determine the exact tax in cities or unincorporated county areas bisected by an RTA district lines. Stores only have to determine their taxing district once for each location. Ditto for stamp bourses. Mail order on the other hand becomes a nightmare. Many small sellers ignore the RTA district boundaries and charge the RTA tax to non-RTA district residents. How many maintain their own GIS or pay a tax service to do on-line lookups while processing orders?

Finally, how will businesses buying wholesale inventory from out of state qualify for a sales tax exemption? Stamp auctions will also be affected because lots purchased by out of state buyers will now be taxable.

Bad news all around for the stamp marketplace. Perhaps it is time to lobby for second-hand items to be exempt from sales tax. After all, the US government doesn't charge sales tax on postage stamps sold at the post office.

Reminds me of the 1980s, and my boss's wrangles with customs and excise about payment of VAT on second-hand goods (as our stock was bought from individuals, we had no VAT payment to set against it). Cue an incredibly complex scheme by which he started a new "company" every three days or so to avoid sales' approaching the VAT minimum.

Wow.

You sound like a real sweet seller. I'll be sure to run right over to your store...

I consider this fair but adds a burden on seller to collect taxes for states that want them but then that is a matter of software. The problem is it hard to police. States will not go after Joe the stamp seller that sold only $300 for the state.

If every seller had to be registered to sell in that state that would really change things.

Cue the lengthy court challenges. In the meantime I assume that the States will move forward grabbing money and spending it with the usual care and efficiency.

"Bad news all around for the stamp marketplace. Perhaps it is time to lobby for second-hand items to be exempt from sales tax. After all, the US government doesn't charge sales tax on postage stamps sold at the post office."

Clark, actually I think this is positive for stamp shows. Few show dealers charge sales tax to retail buyers and most of those, like me, pay it to that State on an annual basis. Don't get me started on inefficient & bureaucrat State tax divisions dealing with non-resident sellers, but the best, in my opinion, is Virginia: download a half page PDF once a year and send payment - simple.

In the UK & Europe, there are significant VAT (sales tax) breaks for "second-hand goods, works of art, antiques & collectors' items". Not that I'm advocating a national sales tax Stateside...I'll leave that one to the political forums.

Steve Taylor www.stephentaylor.co.uk

I think the more likely outcome is some federal legislation that may effectively reverse the Supreme Court opinion, but who knows.

I agree with Clark that ebay is likely to generate a solution in which they handle state sales taxes on seller's behalf, or at least collect the appropriate tax and the data to enable sellers to determine where filings must be made. I certainly hope ebay does this - I'm in no position to handle dozens of state filings and I don't even track where things are being sold through ebay.

For my own part, I collect and remit Ohio sales tax on my sales within Ohio, which is a pretty simple and straightforward process. The returns are filed twice a year online and it's only a few lines of data.

The implications for buyers are bad too. I'm particularly worried about it since I buy for resale, which at least here in Ohio makes me sales tax exempt, but I don't know if similar rules apply in every state and I can't imagine the amount of time and effort I'd burn having to address the exemption and provide paperwork every time I buy something. (again, this is something ebay could centralize, but it would apply to a small number of their users so I would have to think would not be a large priority).

ebay could collect the tax and remit it to each state for a small fee like $100,000 per year per state . Then after the system works ,then a small increase up to $250,000 a year.

The case the court ruled on involved a 2016 law passed by South Dakota, which said it was losing out on an estimated $50 million a year in sales tax not collected by out-of-state sellers. Lawmakers in the state, which has no income tax, passed a law designed to directly challenge the physical presence rule. The law requires out-of-state sellers who do more than $100,000 of business in the state or more than 200 transactions annually with state residents to collect sales tax and send it to the state.

http://www.chicagotribune.com/news/...1-story.html

Email from ebay today...





Link to petition
https://www.ebaymainstreet.com/peti...-tax-sellers


Don

I am conflicted over all this. Part of me says to make the game even for brick and mortar stores versus internet retail, state taxes should be collected under same rules. At same time, the logistics behind internet sellers to collect and pay different sales tax to different states may prove to be difficult.

But one thing I know for sure is ebay has its own self interest in mind. I am not a fan.

ebay went public in September of 1998 and just like every other public company they have a fiduciary responsibility to their shareholders. So if they do not follow their 'self-interest' (being profitable and growing) they would have legal exposure from the shareholders.

ebay (and Wall Street) clearly view this new ruling as a negative event for online commerce.
Don