U.S. Supreme Court Overturns Quill - Sales Tax

[Enchubben 5509]

Not that this is the most entertaining or politically divisive topic, but the U.S. Supreme Court overturned a historical sales and use tax case today.  The standard from Quill v North Dakota was that a state or local jurisdiction could not constitutionally require businesses to collect their sales/use tax without being physically located in that jurisdiction.  (generally meaning having employees, property etc.)

With the overturning of that case today, states can require that online dealers, remote service companies, foreign inbound sellers etc collect the applicable jurisdictions sales/use tax or exemption certificates, even when they aren't physically located in that state or local jurisdiction.  Each state will now be on their own to determine what is considered substantial nexus which may be making 1 sale in the state, 100 sales, making $1 in sales, $200K in sales etc.

[Bozo_Casanova 26232]

So if you've been thinking about buying Rolex or some other high end item from an online dealer in order to realize a tax savings, now would be the time to do it. 

[elfenix 34168]

any modern ecommerce system already has all the necessary capability built into it, so it should be trivial for anyone already using current platforms.  which is almost everyone.  i don't really have a problem with it from that standpoint. 

Edited June 21, 2018 by elfenix

[DixonHur 11074]

Why did SCOTUS even hear the case?  Isn't the levying of taxes in Congress' purview?

[Mojo Hand 4580]

Good.  It's incredibly annoying to go through all my online order receipts every year at tax time to pay my state's online purchases tax, and even more annoying that I'm probably the only person in the state who actually does it. 

[Captainant 27311]

Just now, DixonHur said:

Why did SCOTUS even hear the case?  Isn't the levying of taxes in Congress' purview?

It's not that SCOTUS is levying taxes, they're saying that states have the power to compel online retailers to collect an already levied tax that may not have been collected before

[bernorange 8346]

2 minutes ago, elfenix said:

any modern ecommerce system already has all the necessary capability built into it, so it should be trivial for anyone already using current platforms.  which is almost everyone.  i don't really have a problem with it from that standpoint. 

Yeah, small retailers are really equipped to collect and remit sales tax for hundreds of local sales tax jurisdictions.  This is dumb and short sighted. It's another barrier to entry for entrepreneurs and small businesses.  Ain't no one got time to keep tabs on local sales tax rates for hundreds of jurisdictions.

[Mojo Hand 4580]

2 minutes ago, bernorange said:

Yeah, small retailers are really equipped to collect and remit sales tax for hundreds of local sales tax jurisdictions.  This is dumb and short sighted. It's another barrier to entry for entrepreneurs and small businesses.  Ain't no one got time to keep tabs on local sales tax rates for hundreds of jurisdictions.

I'd imagine a number of software companies have the time to keep tabs on local sales tax rates and provide online updates to their online point-of-sale software as they change.  Let me know if they don't, because that would be a great business opportunity. 

[elfenix 34168]

6 minutes ago, bernorange said:

Yeah, small retailers are really equipped to collect and remit sales tax for hundreds of local sales tax jurisdictions.  This is dumb and short sighted. It's another barrier to entry for entrepreneurs and small businesses.  Ain't no one got time to keep tabs on local sales tax rates for hundreds of jurisdictions.

do you think that small retailers are building internet sales backends themselves?

[Patrick Bateman 3903]

8 minutes ago, bernorange said:

Yeah, small retailers are really equipped to collect and remit sales tax for hundreds of local sales tax jurisdictions.  This is dumb and short sighted. It's another barrier to entry for entrepreneurs and small businesses.  Ain't no one got time to keep tabs on local sales tax rates for hundreds of jurisdictions.

LOL.... There's already a thriving business space for this service which will undoubtedly grow.  Avalara, Taxjar, Vertex, CCH, etc, etc...... Most online businesses who operate in a multitude of jurisdictions already use these services.

[bernorange 8346]

Just now, elfenix said:

do you think that small retailers are building internet sales backends themselves?

There are thousands of small retailers using commercially sold shopping cart apps on their websites to facilitate internet sales.   Even if the shopping cart app venders endeavored to ship updates for the apps every week updating the software with tax rates for every local jurisdiction in the USA, it's still on the retailer to keep the accounting straight and remit the correct amounts to each jurisdiction.  This is going to be a heavy burden on small business.

[sidis 9713]

6 minutes ago, Mojo Hand said:

I'd imagine a number of software companies have the time to keep tabs on local sales tax rates and provide online updates to their online point-of-sale software as they change.  Let me know if they don't, because that would be a great business opportunity. 

it's just a damned database that surely someone has built at some point that needs to just be kept up with.

 

[sidis 9713]

1 minute ago, bernorange said:

There are thousands of small retailers using commercially sold shopping cart apps on their websites to facilitate internet sales.   Even if the shopping cart app venders endeavored to ship updates for the apps every week updating the software with tax rates for every local jurisdiction in the USA, it's still on the retailer to keep the accounting straight and remit the correct amounts to each jurisdiction.  This is going to be a heavy burden on small business.

i know what you are saying but what about the small businesses that are actually local and competitively disadvantaged on pricing because their competitors don't pay local taxes?

do you think there should just be a flat tax rate that applies to all online sales?

[bernorange 8346]

Just now, Patrick Bateman said:

 Most online businesses who operate in a multitude of jurisdictions already use these services.

What do you mean by "operate in"?  As I understand it, the SCOTUS ruling effectively means any vendor selling anything over the internet to a client in the USA is now liable to collect and remit sales tax for the jurisdiction where the client lives.  That's effectively every town and city in the country.

[elfenix 34168]

1 minute ago, bernorange said:

What do you mean by "operate in"?  As I understand it, the SCOTUS ruling effectively means any vendor selling anything over the internet to a client in the USA is now liable to collect and remit sales tax for the jurisdiction where the client lives.  That's effectively every town and city in the country.

and they'll just use a service like they already do. 

[Brisketexan 104465]

2 minutes ago, bernorange said:

There are thousands of small retailers using commercially sold shopping cart apps on their websites to facilitate internet sales.   Even if the shopping cart app venders endeavored to ship updates for the apps every week updating the software with tax rates for every local jurisdiction in the USA, it's still on the retailer to keep the accounting straight and remit the correct amounts to each jurisdiction.  This is going to be a heavy burden on small business.

It will be, but technology is already addressing much of the burden, and will surely address the rest.  If I make a sale to someone in Iowa City, the cart will (1) automatically calculate the appropriate sales tax, and then (2) when payment is made, allocate that sales tax into an Iowa City-specific account.  A the end of the month/quarter/other interval, I select the "disburse" option, and all of my segregated accounts (Iowa City, Tulsa, Memphis, etc.) are disbursed to the appropriate, pre-programmed recipient of each account.

Yes, the software that gives me that functionality will cost me money.  BUT, that's a cost of having access to markets that I wouldn't otherwise have.  I used to sell sweet crocheted toilet paper covers at my knick-knack shop in my hometown of Waco.  I paid state and local sales tax.  Now, I can sell those nationwide -- my market is MUCH larger than in my brick-and-mortar days.  And instead of having to drive to trade shows and craft expos all over the country, I can do it from my computer.  I pay for some software that helps me do that.  Yes, it's a cost of doing business, and every cost counts.  But it's a cost-benefit.  If having access to the market for crocheted toilet paper covers in Tulsa is worth it (and it's Tulsa, so I bet it is), then I still come out way ahead.

[bernorange 8346]

@elfenix - not sure if you are trolling or seriously myopic.  I was being generous when I said "thousands".  You apparently have little appreciation for how much internet commerce takes place with small business using basic merchant credit card services in conjunction with shopping cart apps.

[retsevlys 408]

14 minutes ago, sidis said:

i know what you are saying but what about the small businesses that are actually local and competitively disadvantaged on pricing because their competitors don't pay local taxes?

do you think there should just be a flat tax rate that applies to all online sales?

Alabama allows out of state companies to collect and remit a Simplified Seller's Use tax from their customers.  The rate is a flat 8%.  The tax is then divided up.  4% goes to the state,  2% is divided among the counties based on census population, and 2% is divided among the cities based on population.

[HtownHorn 14446]

32 minutes ago, Mojo Hand said:

I'd imagine a number of software companies have the time to keep tabs on local sales tax rates and provide online updates to their online point-of-sale software as they change.  Let me know if they don't, because that would be a great business opportunity. 

Yep, you could make a lot of sales to smaller online vendors that don't have the man hours that amazon would to figure this out.

Edited June 21, 2018 by HtownHorn

[elfenix 34168]

@bernorange and the shopping cart app vendors already know the tax rate of every jurisdiction in the country.  they've already got clients in texas needing to collect for every jurisdiction in texas, clients in NY needing to collect for every jurisdiction in NY, etc.  it should be fairly simple for that vendor to update its software and push it out. if not, like Mojo Hand said, there's a market opportunity. 

Edited June 21, 2018 by elfenix

[Mojo Hand 4580]

16 minutes ago, Brisketexan said:

It will be, but technology is already addressing much of the burden, and will surely address the rest.  If I make a sale to someone in Iowa City, the cart will (1) automatically calculate the appropriate sales tax, and then (2) when payment is made, allocate that sales tax into an Iowa City-specific account.  A the end of the month/quarter/other interval, I select the "disburse" option, and all of my segregated accounts (Iowa City, Tulsa, Memphis, etc.) are disbursed to the appropriate, pre-programmed recipient of each account.

Yes, the software that gives me that functionality will cost me money.  BUT, that's a cost of having access to markets that I wouldn't otherwise have.  I used to sell sweet crocheted toilet paper covers at my knick-knack shop in my hometown of Waco.  I paid state and local sales tax.  Now, I can sell those nationwide -- my market is MUCH larger than in my brick-and-mortar days.  And instead of having to drive to trade shows and craft expos all over the country, I can do it from my computer.  I pay for some software that helps me do that.  Yes, it's a cost of doing business, and every cost counts.  But it's a cost-benefit.  If having access to the market for crocheted toilet paper covers in Tulsa is worth it (and it's Tulsa, so I bet it is), then I still come out way ahead.

And your knick-knack shop in Waco will also no longer be disadvantaged on sales tax grounds when selling to Wacoans who can buy the same thing without sales tax from an out-of-state seller.   

[DanRydell 799]

Yeah, small retailers are really equipped to collect and remit sales tax for hundreds of local sales tax jurisdictions.  This is dumb and short sighted. It's another barrier to entry for entrepreneurs and small businesses.  Ain't no one got time to keep tabs on local sales tax rates for hundreds of jurisdictions.

Dumb and shortsighted is a policy argument, not a constitutional one.

[Enchubben 5509]

56 minutes ago, Mojo Hand said:

Good.  It's incredibly annoying to go through all my online order receipts every year at tax time to pay my state's online purchases tax, and even more annoying that I'm probably the only person in the state who actually does it. 

you are one of 2 people i have ever come across in my lifetime that does this.  Congratulations.  On the flip side, every once in a while individuals get popped for bringing in artwork, furniture etc.

[Enchubben 5509]

 

1 hour ago, Bozo_Casanova said:

So if you've been thinking about buying Rolex or some other high end item from an online dealer in order to realize a tax savings, now would be the time to do it. 

The popular play here in Texas i hear about is for wedding rings and jewelry.  Go to a jewelry store in Louisiana, have them ship the ring to you in Texas - since they aren't located here in Texas - they don't collect sales tax.  Voila - instant 8.25% savings in Houston.

[Enchubben 5509]

49 minutes ago, Mojo Hand said:

I'd imagine a number of software companies have the time to keep tabs on local sales tax rates and provide online updates to their online point-of-sale software as they change.  Let me know if they don't, because that would be a great business opportunity. 

You would be correct that there are software and SaaS models outthere, quite a few actually, - but it's expensive and they have to be maintained.  There are other factors that small vendors will have to account for as well, exemption certificate maintenance, actual return filings, audits etc. It's not a cheap or easy transition.

[Enchubben 5509]

44 minutes ago, Patrick Bateman said:

LOL.... There's already a thriving business space for this service which will undoubtedly grow.  Avalara, Taxjar, Vertex, CCH, etc, etc...... Most online businesses who operate in a multitude of jurisdictions already use these services.

This is true as well except its not cheap. Saying most remote sellers use this type of software is generous. I would guess its more like 10% - and that's from my experience of dealing with large companies that are much more likely to be able to afford them.

[Enchubben 5509]

26 minutes ago, retsevlys said:

Alabama allows out of state companies to collect and remit a Simplified Seller's Use tax from their customers.  The rate is a flat 8%.  The tax is then divided up.  4% goes to the state,  2% is divided among the counties based on census population, and 2% is divided among the cities based on population.

This is true and caused quite a bit of disagreement with your big box retailers who you normally think would be happy about it. Certain areas of Alabama are over 12% meaning remote sellers collect less sales tax than in-state retailers.

[Mojo Hand 4580]

Wouldn't it be fair to guess that the cost will go down significantly now that online sellers nationwide will all be buying this kind of software and service?   There will be a competition for the business, and there can't be that much relative cost increase from the providers to scale this out.

[retsevlys 408]

6 minutes ago, Enchubben said:

This is true and caused quite a bit of disagreement with your big box retailers who you normally think would be happy about it. Certain areas of Alabama are over 12% meaning remote sellers collect less sales tax than in-state retailers.

A lot of municipalities were upset about it as well, because in most cases, their tax rate is over 2%.  This is money they weren't getting in the first place, though.

[TwiceHorn 31184]

This is terrible and wrong!  The constitution is not adaptable to modern realities and progress!  You have to amend it to do this!!!11!!1  This is the worst kind of judicial activism evar!

 

Gotdamn GOP activist judges!

 

(the librul justices' dissent objecting to the majority's haste to overrule is actually fairly persuasive)

 

👹👹

 

 

Edited June 21, 2018 by TwiceHorn

[elnimo 55]

This ruling has been a long time coming.  State budgets are tight, and they are going after every dollar they can.  There have been efforts to harmonize the sales tax regimes so that the states have a more streamlined reporting structure in an effort to get buy in from online retailers to collect sales tax.  I'm guessing there will be more gas poured on that fire after this decision.

[bolverk 29360]

Can someone please straighten out for me this question?

If I'm a knick-knack dealer located in Abilene and I sell/ship a product to someone in Amarillo, who gets the local sales tax dollars now? Abilene or Amarillo?

At the moment, I have no idea what the rate is in either jurisdiction but I do know that one penny on the dollar goes to the local municipality and that up to one other penny can go to various local option uses (economic development, transit, property tax relief etc.). The State of Texas would get 6.25 cents on every dollar of purchase regardless.

I know the question may sound trivial, but local communities are desperate for every cent out there. If, for example, a local knick-knack dealer is successful, I'd hope that my local community collects the taxes as opposed to where their customer lives.

Edited June 21, 2018 by bolverk

[bolverk 29360]

meant to hit edit - not quote

Edited June 21, 2018 by bolverk

[retsevlys 408]

20 minutes ago, bolverk said:

Can someone please straighten out for me this question?

If I'm a knick-knack dealer located in Abilene and I sell/ship a product to someone in Amarillo, who gets the local sales tax dollars now? Abilene or Amarillo?

At the moment, I have no idea what the rate is in either jurisdiction but I do know that one penny on the dollar goes to the local municipality and that up to one other penny can go to various local option uses (economic development, transit, property tax relief etc.). The State of Texas would get 6.25 cents on every dollar of purchase regardless.

I know the question may sound trivial, but local communities are desperate for every cent out there. If, for example, a local knick-knack dealer is successful, I'd hope that my local community collects the taxes as opposed to where their customer lives.

In Alabama it's where title is transferred.  I would assume it's the same in all states.  So if you ship it to Amarillo, that is where the tax it due.  Previously, if you have no nexus(presence) in Amarillo or Potter County, you would only need to collect state taxes.  I haven't read the whole ruling yet, but it should allow the states to set a threshold for a requirement to collect tax.  So for instance, if your sales to New Mexico were $150,000 a year and New Mexico requires sales tax to be collected if your sales are over $100,000 than you would have to collect tax on sales to New Mexico.  Let's say Texas has the same threshold and your sales to Amarillo were over $100,000, then you would have to collect Amarillo local taxes.

That's how it would work in Alabama anyway.

[retsevlys 408]

South Dakota's threshold is $100,000.  Alabama's is $250,000.

[RDCanecutter 26239]

So I need to charge less than $100,000 for a painting.

[bolverk 29360]

11 minutes ago, retsevlys said:

In Alabama it's where title is transferred.  I would assume it's the same in all states.  So if you ship it to Amarillo, that is where the tax it due.  Previously, if you have no nexus(presence) in Amarillo or Potter County, you would only need to collect state taxes.  I haven't read the whole ruling yet, but it should allow the states to set a threshold for a requirement to collect tax.  So for instance, if your sales to New Mexico were $150,000 a year and New Mexico requires sales tax to be collected if your sales are over $100,000 than you would have to collect tax on sales to New Mexico.  Let's say Texas has the same threshold and your sales to Amarillo were over $100,000, then you would have to collect Amarillo local taxes.

That's how it would work in Alabama anyway.

So the point of purchase is considered to be where the customer is located and not the vendor? That sucks for the community in which the brick & mortar store is actually present and seems counterintuitive. Let's say I live in Abilene and drive up to Amarillo to buy something. In that case, I'm paying Amarillo's sales tax, not Abilene's.

In other words, no advantage is conferred to the community for fostering a local enterprise.

[retsevlys 408]

1 minute ago, bolverk said:

So the point of purchase is considered to be where the customer is located and not the vendor? That sucks for the community in which the brick & mortar store is actually present and seems counterintuitive. Let's say I live in Abilene and drive up to Amarillo to buy something. In that case, I'm paying Amarillo's sales tax, not Abilene's.

In other words, no advantage is conferred to the community for fostering a local enterprise.

Local occupational taxes and any sales from the storefront would be the only advantage.

[RDCanecutter 26239]

13 minutes ago, bolverk said:

 

In other words, no advantage is conferred to the community for fostering a local enterprise.

The alternative would be that Bentonville Arkansas gets half the sales tax for the country, and Seattle gets the rest.

Edited June 21, 2018 by RDCanecutter

[bolverk 29360]

5 minutes ago, RDCanecutter said:

The alternative would be that Bentonville Arkansas gets half the sales tax for the country, and Seattle gets the rest.

That's a very good point.

I work in economic development, however, and specialize in downtown revitalization. One strategy that I'd been considering was encouraging local communities to help their local Etsy-like people transition into a downtown storefront while also still serving online customers. The advantage for the town would obviously be 1) an occupied storefront, 2) increased property taxes, and 3) gain additional sales tax through online purchases.

So much for 3).

[bolverk 29360]

Or, say, you're a community where an Amazon distribution center is located whose infrastructure is suffering under the weight of all the truck traffic coming and going. It seems a bit like a corporate giveaway that the DC isn't bearing the full weight of its local impact.

[TwiceHorn 31184]

Actually, it appears that your Texas clients are in luck, Bolverk. 

 

Quote

Texas is a origin-based sales tax state, which means sales tax rates are determined by the location of the vendor, not by the location of the buyer. The origin-based method of determining sales tax is less complicated for vendors than destination-based sales tax, because all in-state buyers are charged the same sales tax rate regardless of their location.

https://www.salestaxhandbook.com/texas

[bolverk 29360]

Thank you, Twice! Sorry, I'm out of hearts for the day!

[Enchubben 5509]

1 hour ago, bolverk said:

Can someone please straighten out for me this question?

If I'm a knick-knack dealer located in Abilene and I sell/ship a product to someone in Amarillo, who gets the local sales tax dollars now? Abilene or Amarillo?

At the moment, I have no idea what the rate is in either jurisdiction but I do know that one penny on the dollar goes to the local municipality and that up to one other penny can go to various local option uses (economic development, transit, property tax relief etc.). The State of Texas would get 6.25 cents on every dollar of purchase regardless.

I know the question may sound trivial, but local communities are desperate for every cent out there. If, for example, a local knick-knack dealer is successful, I'd hope that my local community collects the taxes as opposed to where their customer lives.

States differ on how they source local sales and use tax.  Texas is kind of an outlier in that it is an origin based state, meaning the local tax is imposed based on the seller's place of business. Lot's of factors go into determining the correct place of business if you have multiple locations, sell in store and online etc,, but for simplicity sake, Texas imposes sales tax on where the order is received or shipped from.  In your example Abilene local tax is charged.  (There are exceptions to that for cable TV/internet/real property construction etc)

Fulfillment centers used to get around this by people making orders in a showroom then having it delivered from a warehouse outside of a local taxing jurisdiction, but changes have been made to the taxing statute and regulations since then.

Most states are destination based meaning they collect tax where the product is shipped to, picked up, or where the benefit of the service is.

 

[Hornius Emeritus 12403]

5 hours ago, Captainant said:

It's not that SCOTUS is levying taxes, they're saying that states have the power to compel online retailers to collect an already levied tax that may not have been collected before

 

So .... some state could really gain an advantage re: attracting new businesses that sell on the web by not applying the sales tax to such businesses.  If I make widgets and sell them online, I'd love to be able to open a factory in a state that doesn't require me to charge sales taxes to my out-of-state customers.  In the case of Texas, that gives me an 8.25% price advantage over my competition.

Edited June 21, 2018 by Hornius Emeritus

[Enchubben 5509]

Just now, Hornius Emeritus said:

 

So .... some state could really gain an advantage re: attracting new businesses that use the web by not applying the sales tax to such businesses.  If I make widgets and sell them online, I'd love to be able to open a factory in a state that doesn't require me to charge sales taxes to my out-of-state customers.  In the case of Texas, that gives me an 8.25% price advantage over my competition.

It doesn't matter that you are located in one state vs another at this point. If you are selling online, it doesn't matter what state you are manufacturing or storing, it matters where you are delivering.

Honestly the biggest changes to come from this will be on the small mom and pop's that sell online (they are going to have a huge administrative burden to comply relative to the benefit of selling cross state lines), and to service providers who sell into states with no physical presence who tax the services they provide. 

For example - most states do not tax information or data processing services; Texas does. Think of all the NY based data/insurance/financial services providers, or California based SaaS providers that don't have people or physical locations in Texas and have never collected sales tax.  They are about to have a huge undertaking and will bear most of the new tax burden (which will be passed onto the consumer)

[Enchubben 5509]

58 minutes ago, retsevlys said:

In Alabama it's where title is transferred.  I would assume it's the same in all states.  So if you ship it to Amarillo, that is where the tax it due.  Previously, if you have no nexus(presence) in Amarillo or Potter County, you would only need to collect state taxes.  I haven't read the whole ruling yet, but it should allow the states to set a threshold for a requirement to collect tax.  So for instance, if your sales to New Mexico were $150,000 a year and New Mexico requires sales tax to be collected if your sales are over $100,000 than you would have to collect tax on sales to New Mexico.  Let's say Texas has the same threshold and your sales to Amarillo were over $100,000, then you would have to collect Amarillo local taxes.

That's how it would work in Alabama anyway.

A lot of states already have those requirements and thresholds in place, they just weren't imposing them until a decision came down. The retroactive practices and policies of the various states will be interesting to watch if they believe the tax was due all along.  States still need to follow the guidance from the Complete auto case which requires substantial nexus with the taxing jurisdiction to be Constitutionally compliant.  In my mind, states will actually see more challenges now because the term substantial nexus is subjective without a physical presence requirement.  

Is $100K in sales substantial when I sell $1B a year?  Is 100 transactions in the state substantial when I make 2 million annually?  What if I make 10K 5 cent transactions, is that substantial? What about 1 transaction for $1M?  Since physical presence is no longer required, does it still mandate a collection responsibility?  All questions that need to get sorted out.

[Enchubben 5509]

4 hours ago, Mojo Hand said:

Wouldn't it be fair to guess that the cost will go down significantly now that online sellers nationwide will all be buying this kind of software and service?   There will be a competition for the business, and there can't be that much relative cost increase from the providers to scale this out.

Supply/demand, how does it work?

[Mojo Hand 4580]

41 minutes ago, Enchubben said:

Supply/demand, how does it work?

Marginal cost, how does it work? 

[Gil Bang 25865]

magnets, how do they work?