Waterbury, Connecticut

US Sales Tax for ecommerce

South Dakota v. Wayfair, Inc., Supreme Court Decision 2018

In the past, as per the prior ruling under Quill Corp v. North Dakota, interstate internet sales were exempt from sales tax, as long as the seller had no physical presence (nexus) in the buyer’s state. 

This new court decision has overturned that law. In this particular ruling, an exemption was set for South Dakota for small businesses. If the business has fewer than 200 customers in that state, and less than $100,000 in sales in that state, they are not required to collect and remit sales tax. 

However, that exemption is ONLY for South Dakota. It leaves every state, county, and locality that charges sales tax free reign to set their own minimums… or none at all.

As an example, in the past if I sold a print from my website (I’m based in New York) to someone in Miami, Florida, no sales tax would be due. Now, however, I’ve got to research Miami, determine if there is sales tax due to the city, the county, the state, how much, register for that sales tax number, and collect and remit sales tax for that transaction on a monthly, quarterly, or annual basis – whatever the locality mandates. If there is no minimum, that means a $40 sale could result in ten hours or more worth of research, paperwork, and headaches. If I don’t make the required payments, I could get penalized with late fees and/or interest. 

This is a huge change in how we do business and, as small businesses without a staff of tax accountants, places a huge undue burden upon us as internet retailers for research and paperwork. 

Even if you DON’T actually owe money, it is possible you have to spend considerable time and energy proving it. Here’s an example that happened to a friend of mine, a professional artist who sells her art at conventions. 

T goes to Los Angeles to sell her art at a convention. The convention is three days, and she has the required State of California seller’s permit. She collects and remits taxes as required, as per the information the convention provided. 

She received a letter some time later from the RMS Tax Discovery Unit of the City of Los Angeles, insisting that she was delinquent in paying an obscure city tax she’d never heard of. She was exempt, but the Code mandates she needed to file for an exemption every year before Feb 28 – before she even knew she would be doing business in LA. This is only required for residents of LA, which she could prove she was NOT, but they wouldn’t listen to that part. They required her to physically come in with 1099s and IRS papers to calculate how big a penalty she owed. She lives in Colorado. They were told they had to PROVE they had no ongoing business in LA. How do you prove a negative?  There is no mechanism set to clear yourself of the charges.

Countless hours spent on the phone with several different people at several different offices finally resulted in, days later, finding ONE person who was able to say no, you don’t owe this. Sorry.

The harshest part of this was the original collection effort was farmed out to a private collection agency, which are notorious for using scare tactics and strong-arm methods to collect the debt, no matter what. Add to that the byzantine and outdated communication channels of most government bureaucratic agencies, and you get a nightmare. Now multiply that not just by 50 states but by the cities and counties and other municipalities across the country that may do the same thing.

My friend T has shut down her online website sales completely until this is resolved. It’s a huge hurt on her small business, as that is a decent chunk of her income. However, she can’t risk wasting so much time on each incident until rules are in place.

There is a useful article that is keeping track of the thresholds by state here: https://blog.taxjar.com/economic-nexus-laws/

Fair warning. This might be a huge chaotic mess for several years. 

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