Sales Taxes - Supreme Court Decision

From The Washington Post 06/21/18

A divided Supreme Court ruled Thursday that states may require online retailers to collect billions of dollars of sales tax revenue owed to them. The decision was 5 to 4. More than 40 states and the Trump administration asked the Supreme Court to overturn its 1992 decision in Quill v. North Dakota that restricts states from collecting sales tax from retailers without a physical presence in those states. They said a decision in a case involving mail-order catalogues is obsolete in an era of e-commerce.

This is going to be interesting. I suspect that we will see State Legislators across the country eager to collect sales taxes for their state and laws will come into play in the upcoming months (maybe years) to that effect. This also looks to be a huge, massive headache. I can't imagine filling out all those state sales tax forms and submitting them once a month as it will take hours and hours.

Right now I only collect sales tax for Virginia, for purchases delivered in Virginia or made at the store itself. Looks as though this is going to all change down the road.

I'm so glad I got mine last month...

In discussion with an Accountant friend who is pretty sharp, she says that states now can argue nexus with this decision and require mechants selling out-of-state to file state income taxes in their states they sell to. Imagine that! 40 + tax returns and 40 + State Income Tax Returns! What a mess that will make if it comes down to that.

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Originally Posted by drcollie

In discussion with an Accountant friend who is pretty sharp, she says that states now can argue nexus with this decision and require mechants selling out-of-state to file state income taxes in their states they sell to. Imagine that! 40 + tax returns and 40 + State Income Tax Returns! What a mess that will make if it comes down to that.

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One small piece of relief in this messy news - apparently, there is a $100,000 minimum annual sales volume exclusion, so that should leave out at least a few of those 40 states for you to deal with.

I am sure it doesn't take that many H&M sofas to add up to 100,00.00 in sales volume.

<laughing> No worries there, I don't do $ 100K in any one state except Virginia, although California and Texas are pretty close to that for my store.

So, in this scenario: One year, a couple of orders come in for sofa's and chairs in 2 or 3 states. Suddenly you are getting more orders than usual from New York and these orders push you over the line in California and Texas. They want them for Christmas or for a big New Years Eve party they are having, and those orders will just push you over the limit and mean you have to file in an additional or even 2 or 3 additional states. What do you do? Lol. I better order my chair and ottoman before this goes into effect. Although, on the honor system, of coarse I already report this to my state in CT and pay taxes on it.

I have a good friend who is a tax attorney for one of the largest companies in the USA. He emails me (as a point of discussion):

This is a really complicated set of issues. What the US Supreme Court just did was remove a Federal guideline that had been in place for over 25 years. The Federal requirement of physical presence has been wiped-out. I know the attorneys who represent the defendants in this matter and who argued the Supreme Court case. I'm also involved with several organizations that lobby Congress on sales tax matters.

However, there are no clear rules on what the States can do to require businesses to collect sales tax. That is one of the current problems - no clear rules on a national level. Most estimates show between 12,000 and 15,000 state and local taxing authorities in the US. Many have their own sets of rules on what is taxable as well as set their individual rates. This is a really big issue for medium and large businesses. Lucky for you that most States that have addressed this issue have incorporated some "small business exceptions" into their laws. Of course, different States have imposed different rules. They are defining the concept of "doing significant business" within their State. Some define that as $100,000 of gross sales within their State, others are as low as $10,000. Some say that if you have over 200 transactions per month (or per year), you have to register and collect sales tax.

Are you selling more than $100,000 to customers in SD? If not, then you don't have to do anything. If so, then you need to register with SD and begin collecting and remitting SD sales tax on those SD sales. As I mentioned above, the problem now is that each State can define what it means to conduct enough business within their state that would require you to register and then collect their tax. The worst part about this is that the sales tax rules don't make a lot of logical sense and the rates vary tremendously. Then, you have sales tax holidays for a variety of reasons (back-to-school, emergency preparedness, Holiday Season, etc) where the rules get changed on targeted items for a few days.

In theory, there is software available ("free") that helps small business comply with the rules and the filing requirements. And, don't worry, if you don't do it correctly, the States and Localities will let you know how much you owe when they audit you.

To give you a sense of scale, my company files over 15,000 sales tax returns MONTHLY.

The income tax issue is a concern, but the rules for income tax nexus are different than for sales tax nexus. One of the secondary hats that I wear is advising the company on payroll tax issues and helping to support payroll tax audits (mostly at the state level). The States love asking about how many employees have traveled to their state and then getting us to withhold additional state income taxes. Some States are very aggressive. We are required to produce payroll records (on everybody) and then travel records (on everybody) so they can determine the correct withholding taxes that we should have applied. If we don't withhold correctly, they make us pay - tax, penalty, and interest. While the States focus on the executives who travel, they don't limit the inquiries to executives. Someone mentioned pro-athletes. Yes, there are special rules for pro-athletes and performers who come to a venue for events. All kinds of tricky allocation rules which is why some of the athlete contracts are written to provide bonuses at certain times. Of course, under current law, each State is free to make their own rules. We have been working on Federal legislation for years trying to get a standard rule applied. Some states (CA) say that you are required to withhold tax on the next paycheck when someone travels to CA for business - even for one day! Other states (NY) have a 14 day rule in place - if an employee exceeds 14 days of travel to NY, you need to withhold tax on the allocated percentage of their income for that year. It's a mess.

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Originally Posted by drcollie

<laughing> No worries there, I don't do $ 100K in any one state except Virginia, although California and Texas are pretty close to that for my store.

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OK. My needs are not so time sensitive...let me know and I'll work around your California orders....;) And, I don't think there is sales tax in Texas!

Any changes are going to be awhile in coming - they may not affect small business much at all. Its up the individual state legislators in all the states to see how it will be implemented. Doubtful you will see much happen the remainder of 2018.