What no one is talking about here is how this would be handled, especially for a small online sellers. There are almost 10,000 tax jurisdictions (https://www.washingtonpost.com/blogs/fact-checker/post/mccon...) and you're not allowed to collect sales tax unless you register for that jurisdiction. There is also a fee collected by most jurisdictions to register and most make you send in periodic reports, even if you didn't collect any taxes for them.
"...South Dakota, whose law requires retailers with more than $100,000 in sales or 200 transactions annually in the state to pay a 4.5 percent tax on purchases"
"..Kennedy’s majority opinion strongly suggested the measure was constitutional, in part because it has the $100,000 threshold and doesn’t try to impose retroactive taxation."
A clear bar is set for what is covered here and what is a burden.
Here's the problem with that $100k/200 transaction law. Small businesses have to do one of three things:
1) Assume that they will hit one of those limits and collect tax from the start. Once they've told the customer that they've been charged tax, they will have to file anyway. I don't see anything that says the first $100k/200 transactions are exempt from the requirement. And if you hit the limits this year, you'll have to collect taxes no matter what from my reading of the bill.
2) Keep track of how much has been sold to South Dakota residents and stop selling if they hit the limits.
3) Give up and tell South Dakota residents that they're out of luck and that a state with less than 900k residents isn't worth putting up with the filing hassles.
If I'm not sure if my business will take off, I'm probably not interesting in paying taxjar or someone else $5000/year just in their filing fees (to make sure I'm covered), so I'm most likely to go with option 3 and start by limiting sales to my home state, those with no sales tax, and those that aren't going to try and make me collect the sales tax for them.
This ultimately comes down to the fact that each state in the US behaves like an individual country in many ways, especially when we talk about taxation. It doesn’t jive well with the current lay of the Internet, and it will be interesting to see the reaction here. In Australia a single GST was introduced (long ago, July 1 2000) and it’s a big simplification for online transactions. The catch: everyone would need to agree to a number.
This is probably a very simple question, buy will someone please clarify:
$100K in sales - does that mean:
1) $100K worth of (3rd party, for an ecommerce platform) product sold via the platform, or
2) $100K revenue accruing to the platform, as the commission earned on sales of whatever amount.
$100,000 in sales is a very low bar. That's equivalent to a business with a single employee, the owner, and they're probably not making a livable wage yet.
$100k of South Dakota revenue is either an almost exclusively local single-owner business or a much larger internet shop.
But regardless, that kind of number is a full time job. If you're selling over the internet and making a full time job out of it, you can handle computing sales tax for SD residents. Yes, it's burdensome. Yes, it would be good to have a simpler federal framework for this. No, it's not the end of the world.
"No tax on the internet" sort of made sense in 1997 when it was a new and exciting market and we wanted to see what would happen. Now, it's just a giant subsidy for Amazon. We can put that money to better uses.
I think you've got it kind of backwards. The absence of tax collection is what allowed Amazon to become Amazon and this change is now a barrier to a new entity challenging Amazon.
Amazon voluntarily started collecting taxes nationwide without a blip to its bottom line.
The new law will in fact put Amazon's first-party goods in parity with 3rd party sales. Third party sellers could often undercut Amazon's own pricing due to the disparity.
This tax change is a huge win for Amazon on many fronts. Any protests they make to the contrary are strategic, imo.
It's a win for a part of Amazon's business, the part that stocks and sells its own products and is already collecting taxes. It's a loss for the other, larger side that gets paid to stock and ship products from 3rd parties who by and large do not collect tax.
This makes it tougher for these small businesses to compete and since Amazon takes 15% of those sales AND makes money off them for fulfillment services.
Perhaps. It could also incentive a new round of internationally based direct-to-consumer dropshippers to take e-commerce to the next logical level, now taking advantage of the differential in international sales tax regimes. Aliexpress is an example.
All this would do is create an opportunity for a SaaS startup or existing payments provider to offer collecting the correct amount of tax for you.
I personally worked on this sort of problem for a large company; most of the work is in figuring out what the business logic ought to be; turning it into code is (largely) trivial.
Figuring out the logic only needs to be done once, and the payments provider is the natural place for it to live.
Indeed, several already do this - Fastspring, Paddle, and there are services like Taxamo (although I'm not sure if Taxamo actually remit the tax on your behalf, or are just an API to calculate what your obligations are).
It could actually be a huge win for Amazon's third party sellers as well, as services such as FBA could handle the tax collection on behalf of the third parties. It just adds to the value that Amazon can provide in its services for sellers.
> $100k of South Dakota revenue is either an almost exclusively local single-owner business or a much larger internet shop.
Note, though, that for South Dakota it is $100k in annual revenue or 200 transactions per year.
Consider a company selling a subscription product/service for $5/month.
If they had a mere 17 customers in South Dakota, their South Dakota annual revenue would be a mere $1020, but they would have 204 transactions per year.
This assumes each re-billing on a subscription counts separately. If it could be counted as a single $60 sales that is merely being billed in 12 equal parts, then they would only have 17 South Dakota transactions.
I think this needs to be upvoted more. The 200 transaction threshold is very low for low priced products - I sell a $20 Photoshop plugin, and $4000 is not much revenue to suddenly have to register for & remit South Dakota taxes. Apparently Vermont will have the same 200 transaction threshold [1].
In practice though, indie retailers will use reseller services that collect & remit the taxes on their behalf, in return for a ~10% cut. I use FastSpring for my shopping cart, others use Paddle or Gumroad. The EU has had similar tax laws on internet sales since the mid 2000s, and Australia will enforce their own 10% internet tax on non-Australian internet businesses from July 1st.
> - I sell a $20 Photoshop plugin, and $4000 is not much revenue to suddenly have to register for & remit South Dakota taxes.
I wonder if Adobe publishes how many noneducational Photoshop licenses South Dakotans buys a year. As I highly doubt you're in any danger of needing to pay SD tax.
But it's not. This line is reasoning is very outdated.
They have built a massive network of warehouses all over the country, and that's the physical presence that a state sales tax collection clause needs to come into effect.
Amazon has been charging people sales tax in many states for a few years now. (I wish I had a number of states, but top jazzy to look it up.)
>But regardless, that kind of number is a full time job. If you're selling over the internet and making a full time job out of it, you can handle computing sales tax for SD residents.
But it isn't just SD, it's hundreds, if not thousands of jurisdictions. One person doesn't have that kind of time.
Thanks for your assertions. Have you ever acted as a small Internet shop employee in close connection to the 'executives'? I have. From what I have seen, because people in small shops have to be generalists you are often splitting the attention of the people with the most comparative advantage to innovate by increasing their regulation burden. It isn't even the fiduciary cost of the tax that is impressive even though that's unfortunate that their mark is so low. It is the labour cost that adds up when people have to take time away from actually manufacturing product during early stage work.
If you do business nationally, with a million in revenue, $100k for South Dakota might not seem too bad, but $100k for California or Texas starts to feel really claustrophobic.
See [1]. Sales tax as a service is available from seven different providers. Shopping cart integration is available. You pay one bill, they handle the rest.
Governments need to fund their operations, and allowing some businesses to dodge taxes because of arbitrary geographical differences is unfair and distorts markets.
One should note that its not the businesses that are dodging taxes, but rather citizens of the state that are dodging taxes (and not reporting them). From The Tax You Probably Forgot To Report ( https://www.forbes.com/sites/ashleaebeling/2013/04/15/the-ta... )
> Think you got a great deal not paying sales tax on your online purchases last year? In most states, there’s a pesky tax called “use tax” that you are supposed to pay in lieu of sales tax if you buy stuff out of state or online--and bring it in state. Theoretically, you’re supposed to root through all your receipts and credit card statements, calculate what you owe and report it on your state income tax return.
> Use tax is a tax imposed on the use of taxable items and services in a state when the sales tax has not been paid. For example, use tax would be due if taxable property is purchased from a seller located outside of New York, the property is used in New York, and sales tax was not paid on the purchase. With online platforms and sales being increasingly popular currently, this concept is significant. Remote retailers that make sales into a state but do not have any presence there (i.e. an office, store, storage, employees) may not be registered to collect sales tax in that state because of the lack of presence there. However, the use tax reporting requirement that has been recently implemented by a number of states requires remote retailers to notify their customers that they may owe use tax on their purchases.
The problem is not the general idea of paying sales tax. It's the complication of having ten thousand different sales tax jurisdictions. Complying with the law should not be such a nightmare you need to hire a middleman.
It is way more complicated than just 10,000 jurisdictions:
- mapping an address to one or more jurisdictions
- digital deliveries might not have a shipping address
- tax rates often depend on the type of product
- product types have different definitions in different jurisdictions
- some taxes are time dependent (back to school tax holidays)
- some buyers are exempt in some jurisdictions for some products
Yeah, and it makes a barrier to entry, so a lot of potential economic activity does not take place, or it takes place off the records, and generates no tax revenue.
If you don't start a business because of having to pay a SaaS provider to setup tax payment, then you weren't really serious at all. Note this is only required at over 100k in revenue...
I don't think the proper solution to that is to just declare that you don't have to pay taxes at all when you sell to someone far enough away. Simplify things if needed, but don't give a nonsensical advantage to certain businesses.
The proper solution is to put the onus on the payment networks. They're large enough to build out support for this issue without it being overly burdensome. Internet retailers should only be required to report what customers bought and whether taxes were collected. Then payment networks can report to the states who can send taxpayers a report of the use taxes they owe.
How about putting the onus on the party that wants to collect money off transactions between other parties. If a government wants a cut, they can make it reasonably easy to comply or they can get ignored.
Some state sales tax rates are destination-based and others are origin-based. Since sales tax was not designed to consider the internet, things get complicated fast.
I think its a rent seeker when uncle sam either dictates you give them money or buries you in shit you have to pay acme shovel co to dig yourself out of.
I think its more tenable for governments to provide an optional sales tax as a service and remit the money to the states. One singular report to file one party to pay.
If the service they're providing is only necessary because of artificial barriers, then basically yes. The banking cartel that controls the payment system is a huge fan of collecting economic rents, yes.
Yeah, that's kind of the point. Credit cards are mostly supplied by a couple huge companies that aren't interested in improving their rates. It's very rent-seeking, even though there are very feasible alternatives that cost an order of magnitude or two less.
They aren't interested in improving their rates because providing a competitive credit card in the US isn't cheap. You've got cards that provide 2% flat cash back (Citi Double Cash, for example), or cards that provide even higher benefits on rotating or fixed categories. Interchange fees aren't going to drop unless American cardholders are okay with dropping these benefits, and seeing as merchants aren't likely to share the savings I don't see that happening.
The time to lower interchange fees was before reward programs became standard, interest is where card issuers make their money.
Government-sanctioned rent-seekers are not the only kind. The comment by User23 was about payment system rent-seekers in general, with no mention of the government.
The original comment I replied to was about a software as a service company that was a “rent seeker” because it helped businesses manage thier tax liability.
At one small company I worked for, we paid SAAS companies for:
- expense reporting and reimbursement (Concur)
- managing payroll
- Managing retirement benefits
- source control hosting (Github)
- Infrastructure (Microsoft Azure)
- Salesforce (I don’t know what they do)
- Training and Compliance
- Chat (Slack)
- Email, Office software (Microsoft Office 365)
- vending services
Etc.
How are these companies any different than the company that helps businesses manage tax collection? They all saw a business opportunity and my company was glad to pay them so it could focus on its niche.
Not moral, but some would say being a single country imposes a certain practical requirement that the taxes not be too complicated, if we agree commerce is a good thing and waste is a bad thing.
The United States of America is, in the terms of other countries, 50 states that have given up certain powers and responsibilities to a federal government but retain their own powers, including the ability to set tax policy inside their own borders.
The Commerce Clause gives Congress the power: "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." This has been widely construed as meaning that states cannot make taxes that affect other states' citizens unless they are doing business in that state.
The Supreme Court has just ruled that their earlier ruling (that Store A had to have some physical presence in State S in order for S to require A to charge sales tax) is wrong, and no such physical presence is required.
More importantly, it is now clear that American States can tax non-residents, even FOREIGN non-residents who have no connection with the U.S. whatsoever. There will be collateral consequences to this decision. For example, why should I have to pay out-of-state university tuition if I became a state taxpayer due to the sales--and soon to come other--taxes? Drive a car into my state? You have to pay a roads tax. It will be interesting to see how far this goes. Long-arm jurisdiction will become more robust, at the least; another rationale for diversity jurisdiction is removed.
Congress has the ability to nationalize sales tax collection and remittance for online purchases. In fact, there have been bills introduced in the past that proposed to do just that.
We might actually see some movement in this direction now.
It looks like people are downvoting @dsr for, I dunno, being a pedant or something, but I think their point is important: Americans really do seem to value the extreme heterogeneity, and even outright waste, of having 50 different jurisdictions to do business in, rather than passing uniform laws at the federal level.
Although I do agree that in this case it's a bit of a disaster and going to be a huge pain, sometimes it is nice having 50 different jurisdictions.
Most things are pretty similar state-by-state, but it can be really nice being able to pick your laws if you have to. Maybe you love weed and you want to pick a state with legal weed. Or maybe you like drones and want to pick a state with fewer drone laws. So many things differ state-to-state, from REAL ID to trans rights to surveillance to taxes to guns to driving age to social aid to public transit. Gay marriage, slavery, and interracial marriage were all issues of the past but they were very important in their day too.
I do think it's an important part of what makes America America, and being able to "pick your laws" is an amazing freedom that most people don't have.
Now, the actual ability to move wherever you want can sometimes be limited. If you're in Vermont and you want New Hampshire laws, well, that's easy. (Differences: weed, guns, advertising, taxes, many more.) But if you're in Maine and you want Hawaii laws, a move like that probably isn't doable. Still, I think it's a valuable freedom.
With fee, do you mean that you have to pay a yearly fee for simply registering as possibly collecting taxes for that jurisdiction? Not sure what most is, but ~30-50 pay-to-play fee's a year will certainly hurt the small businesses.
I think it's good to start harmonizing the sales taxes, but such a fee (if I understand you correctly) should be removed...
I'm in Colorado and I had to pay $66 up front. $50 is a deposit and $16 is the fee every two years. I see that California doesn't have a fee but I know other states do.
TaxJar will register for you in the States that you need for ~$100 per state, plus their fees (https://www.taxjar.com/state-registrations/) -- I'm sure Avalara does something similar but that's ~$5000 that a small business probably won't have.
Colorado has home rule cities with their own tax license, rules, submission. Even due dates van be different per municipality.
It's a system designed ages ago, not only pre-internet, but even pre-car.
For internet businesses it's really unworkable to require they submit anything other than state sales tax but even that is onerous due to registration fees and old and nonstandardized submission systems.
The US system of local sales taxes doesn't look awesome ever. If there were one economic reform I would push in the US it would be advertised price is final price (i.e. if you say "I'm selling this for $9.99" then that's all you pay, and the taxes are all inclusive) this would pretty much force underlying tax reform as businesses lost their shit having to deal with the insanity.
Note that the disaster area that is US regulatory overlap means passing a law like this is probably impossible without constitutional amendment.
Right now in the US it's often difficult, and sometimes impossible, to know how much you'll actually be paying in any transaction. It's ridiculous, and from a pure Econ 101 perspective it's a first order problem in the market.
I've worked on price display for a large-ish company. The funny thing is that our company, and probably others, would really like to show all-in pricing! It's easier for us because we wouldn't have to do things differently in different countries.
But we can't make the switch unilaterally because if we're the only ones doing it, then we look more expensive than everyone else and lose sales. Even if the final price is the same, consumers tend to just look at the up-front cost when making buying decisions. So we'd need everyone in our market to switch, or nobody can. So basically it would need to be mandated by the government.
And unless you are extremely familiar with local tax law you have no idea which purchases are even going to be taxed. If you go to the grocery store and buy the following:
tampons
raw chicken
rotisserie chicken
prepared sandwich
bread and cold cuts
toilet paper
condoms
20 oz soda
12 pack soda
juice
milk
prepackaged donuts
donuts from the bakery
cat food
beer
DO you know which of those items are going to be taxed and at which rate? Me neither!
>Note that the disaster area that is US regulatory overlap means passing a law like this is probably impossible without constitutional amendment.
I actually don't think so. The FTC covers truth-in-advertising laws.
You just use tax software to do it. Then you can just classify each item. Most small businesses only sell a few thousand products and others sell less than a hundred. How does it take to classify all of those? A few hours tops. After that the software does the rest....condoms going to 32932 zip...taxable...raw rice going to 92322 zip...exempt. very easy for a computer to do. The software provider would do all the research.
This still requires vendors to correctly mark up their products-- to a level of detail that handles all the local rate differences, and shopping carts to be retooled to store said classifications and pass them to whatever tax-calculation service you need. Not to mention paying for the service to query.
It's probably less of a problem for someone starting from zero, but I'd imagine there's a type of vendor that's a huge nightmare. The firm that basically said "we can sell anything we can get from our vendor", and stocked their cart with thousands of SKUs, many of which exist only as lines in CSV files so they may not even know what they are offhand. The cart was probably built in the Eisenhower administration so good luck extending it.
It would be interesting to see some states offer a "trade convenience for savings" model-- rather than try to navigate a maze of regional rates and product categories to decide if a widget is taxed at 8.2% or 8.3, just file a one-page form and charge everyone 8.5% on everything. Saying "pay us $50 per year more in taxes, rather than spend $50k and ongoing service subscriptions to optimize the rates down to the penny" is a pretty compelling argument.
1) I was talking about a consumer in a grocery store not having a clue as to what they'll actually pay until they get to the register, not a company shipping products.
2) Zip codes have zero to do with taxing jurisdictions; zip codes merely tell you where the closest post office is.
Certainly trying to use Truth in Advertising was always my first thought, but Truth in advertising laws are pretty toothless and I imagine any attempt to do something like this using that mechanism would get tied up in the courts for a long time.
I would love someone to at least make the case -- it seems like a non-partisan thing, surely the free market types should be in favor of price transparency, while liberals should be against misleading consumers.
The free market types I know are generally opposed to requiring tax be included because they think it would hide the "true" cost of the tax from consumers. They seem to like when a consumer is disappointed by the difference between the base and "plus tax" price because they think it will motivate people to try to get sales taxes reduced or eliminated.
> The free market types I know are generally opposed to requiring tax be included because they think it would hide the "true" cost of the tax from consumers.
In this case the "hidden cost" would be clearly printed on the receipt.
Exactly: If someone wants to argue that there's a dollar-amount that represents a "deeper truth" -- as opposed the amount the customer actually has to pass over the counter -- then why stop halfway at taxes?
A rhetorical question, since obviously because it serves the agenda of the merchants, who want to set up a "let's you and him fight" situation between consumers and government.
If we really start peeling the onion, we can talk about the merchants' profit margins, and then also externalized costs in the form of stuff like pollution and bankruptcies (and the tax money spent to clean those up.)
It has a very large effect on what shows up next to the "sales tax" label on your receipt. Sure if they were honest it would say "fee to make the developer's interest payments", but it never says that.
Yeah Australian GST is a flat 10% and doesn’t allow you to display ex GST pricing to the end customers where it applies.
I recall going to a cafe in India, looking at the menu price, handing over cash then being asked for more. It would be impossible for me to account for which taxes would be applied at what rate to work out the end price before paying.
While I appreciate the simplicity of “tax-inclusive pricing”, I think that “tax is added” vs. “tax is included” pricing is highly important for transparency. Frustrating as it may be for other reasons, I like that a buyer is reminded every time they walk up to checkout how much they are paying the government for the privilege. I think that’s part of the reason why EU VAT rates are so much higher than US sales tax rates. With tax-exclusive pricing, buyers are very aware of the tax.
I also think it sets it up so that sales taxes are actually paid by the intended target - they buyer. When Ireland changed its VAT rate from 21% to 23%, I suspect very few coffee shops changed the price of their latte from €3.00 to €3.06. So it feels like the tax increase can end up being paid by the seller, not the buyer.
As someone from (and in) the EU, I'm very much aware of the VAT. It's almost literally printed on every fucking thing. It's certainly very much apparent on any bill, receipt, invoice, sales printout and whatever piece of paper or data we get during economic exchanges.
Since VAT is a tax that is paid by the customer but usually remitted to the tax authority by the merchant, it has to be shown on the receipt.
When I'm buying privately I care about the price I pay - not the price a business can pay when reclaiming the VAT. It's not like VAT is going away with next change of govt, or even with Brexit. Everything gives you a receipt breaking out the VAT or shows it in the online basket and checkout for those that care, or reclaim, so I don't see how it lacks transparency.
Why does it matter who of buyer or retailer covers the few pennies, or if retailer makes a small price change to stick at a .99 or .00 price point? Retailers have done this forever in both directions.
Its worst at the liquor store where taxes are some significant percentage more, so the price is $18.99 but I know I'll pay some amount between $22 and $27.
This is so true. I'm not a smoker, but cigarettes are a great example of this as they are often sold as "tax priced in" because they are taxed at such an extra high rate compared to standard sales taxes.
As an example; the sales tax rate in my region is 7%, but cigarettes are then flat taxed $1.36 a pack so roughly 20% tax at the state level, plus often times there is an added "local option tax" which adds on top of this.
(1) very large organizations with retail over a wide area as a core business focus would handle relations with taxing jurisdictions directly as a central function.
(2) medium scale organizations would outsource tax compliance to specialized vendors that would handle it.
(3) very small organizations would either do the same as medium orgs (assuming vendors handle them) or just not sell into many jurisdictions.
Agree lots of people here are overly sensational. In the most basic terms it simply consists of getting somethig like avalara, configuring it correcrtly and then avalara does the rest. No different than setting up quickbooks. Yet people here make it sound like it is the end of the world.
Truth be told most here are just mad that their online sales tax loophole is getting closed.
That's just the exemption SD chose to apply, and which they could change at any time. Other states may choose to not have such an exemption.
You are also now open to tax audits from all other states, since you may need to prove you are below any exemption limit.
It's a bad deal for small business no matter how you slice it. I think that if your revenue is below ~$100m annually, the future is beginning to look bleak. Very helpful to the big players like Amazon in killing off small competition.
That’s a bit of a leap. It looks like fully automated compliance from the existing services. From collection to remittance is about 3-5k a year. With more competition it will likely become cheaper.
Why would it? Why in particular wouldn't the fact that you are required to pay for their services allow the entire industry to jack up prices substantially?
Why wants to win by being the asshole who did it for $500 instead of say a percentage of revenue?
>Why would it? Why in particular wouldn't the fact that you are required to pay for their services allow the entire industry to jack up prices substantially?
Basic economic principles. You compete by lowering your price. So more competing providers would make it highly likely that price moves closer to cost, because there is a higher chance that one will defect from the current price structure.
To put it plainly. You run a gas station but the guy across the street gets all the customers. You both charge $3 but your cost is only $2. What do you do to get more customers? Lower the price.
> With more competition it will likely become cheaper.
I wish I shared that faith in market forces. What seems more likely to the cynic in me is that a big player like PayPal will incorporate it into their merchant services, obtain some overly broad patents on the process, use those to stifle competition, and make the service a nominally cheap add-on (but only for their own customers).
The case was about whether physical shipments using common carriers constituted a local nexus and required collecting local sales tax. SaaS and other services without a common carrier would not meet that standard.
Funny, I hear anti-competitive not business opportunity.
It's a business opportunity now, but as with many government laws, in the future businesses end up depending on government forcing their markets existence. So then they lobby for the government to keep the system, even if it's out dated or badly thought out. We can't stream line anything, because entrenched businesses don't want anything to change.
Tax Jar is another. I dont have a problem paying the fees but as stated above, the filing in all jurisdictions is such a pain it will knock out alot of small sellers online. The seller will have to pay a bond in nearly every state and some cities which can add upto thousands of $$. No clue how the Chinese sellers will handle it, they probably just wont remit.
I think eBay and Etsy side hustle sellers especially should be worried. This helps large internet retailers like Amazon. They have the systems in place to charge and remit sales tax for 3rd party merchants, they've just been waiting until this ruling happened.
If only we had .. machines which can look up an item in a huge list of items and find some specific properties about it.. just think! We could sell maybe two or three of these machines a year.
then states need to step in and set "online" rates that trump the local rates. many states already do similar with Ad valorem taxes on automobiles. Taxes aren't your only problem, there local restrictions on items sales that one area considers hazardous or regulated that another doesn't even acknowledge.
I mentioned it elsewhere in this thread too, but some companies like Paddle & Fastspring (and I think 2Checkout/Avangate) already do this.
As far as I know, Stripe doesn't do this, they only provide integrations for services that will calculate your tax obligations. (My guess is governments will eventually force Stripe to pay the taxes themselves directly.) Here's Stripe's page with tax calculation integration options:
> What no one is talking about here is how this would be handled, especially for a small online sellers.
Strange huh? Seems like the little guy is being attacked by the elites in every manner possible. Whether it is small online sellers, small time youtubers, independent freelance journalists, small time artists, writers, etc, seems like the rules are being changed to favor corporations and the heavy hitters. Heck, even search and social media results/algorithms are changing to cater to corporations.
Odd that this story hasn't gotten that much traction anywhere either. You'd think something this important would be all over hacker news and social media. I remember Bezos used to be very vocal whenever internet tax issues came up. He's been awfully quiet. Oh that's right, amzn is no longer a small time book and music seller.
Well, since zip codes don't map to taxing districts it's pretty much screen doors in submarines. Not possible to compute taxes via zip code for the 50 US states plus territories.
I have a hunch that this will, in the end, be a massive win for large retailers vs. small ones. The task of figuring out how to calculate tax for all states is more or less the same amount of work regardless of size, which means for someone like Amazon it's more or less trivial, but for a mom-and-pop store it's a major hassle.
Thankfully with Shopify it is extremely easy and straightforward to manage for my wife's small online store. Their platform does a great job properly charging taxes by state, county and city in certain situations. Then using an inexpensive plan from https://www.taxjar.com/ the entire filing and paying process is 100% automated.
In 10 minutes I was able to file and pay all the sales taxes to several state, dozens of California counties and a handful of cities that charge additional taxes on top.
This assumes these mom and pop shops have heard of these services. Personally I was helping someone get their little internet store off the ground and it was a huge hassle even with woocommerce.
If they accept credit cards online, their credit card solution ought to include tax management feature.
Usually, small shops can ignore stuff like this until they get a bill from an authority, or get big enough for it to matter. As long as they save money for estimated tax liability (approximately equal to their local tax rate), they are fine.
And what would it look like if Mom & Pop were starting an ice-cream shop instead of an online storefront? Would they _not_ have to pay tax then?
I get that being subject to regulation or taxation is more burdensome than not being subject to it, of course that's the case. But it does not follow that requiring sellers to pay sales tax is unduly burdensome.
If the underlying complication of tax is the problem, fix that.
> And what would it look like if Mom & Pop were starting an ice-cream shop instead of an online storefront? Would they _not_ have to pay tax then?
They would only have to pay sales tax in one tax jurisdiction, the one in which they are physically based and in which they can vote to change those taxes.
> But it does not follow that requiring sellers to pay sales tax is unduly burdensome.
What follows is requiring sellers to track and remit sales tax in some 10,000 jurisdictions is burdensome.
With a brick-and-mortar storefront, they have to figure out one jurisdiction's salestax (rate and what is taxable), their own. That is quite literally orders of magnitude simpler than this.
How do you handle knowing what items are taxable vs non-taxable for each item and taxing district? How do you handle customers who are tax-exempt? How do you handle tax holidays and reduced tax on school items in August?
How much do you end up having to pay for TaxJar? It looked to me like the monthly plan was cheap but you'd get totally hosed if you tried to use them to auto-file all the taxes. Are you filing yourself?
So you assume. As a small business you are unlikely to be audited, but that software could easily be wrong creating a huge minefield and potential liability.
So that would be the software companies' liability. And such business practice can differentiate good ones from the bad ones. I'm seeing a new business market here even.
There is zero economic gain from more complex tax rules. Further, the software does not absolve you of liability. At best they may agree to cover it, but that's unlikely and they can also go broke if they get it wrong.
Actually, current sales tax software provided by South Dakota and other states does absolve a merchant for liability if used to calculate sales tax due.
Actually, the federal government should oblige each member state to provide the algorithm, and sign it cryptographically and have it expire every X fixed time interval, and have signed algorithms for the current and next time interval, so that software can automatically fetch and stay up to date.
Then the "business opportunity" of navigating FUD evaporates. Currently any such enterprise charging for such a service can spend a fraction of their budget lobbying against harmonization...
Since it would be an obligation of the states to the federal government, these algorithms (provided by each member state) should be hosted on a fixed federal government site.
This would reduce costs of tax collection for all parties.
What is the most convenient format for this layered geographic data? Are the tax district boundary polygons already otherwise available as open data?
What do localities call these? Sales tax tables, sales tax database, machine-readable flat files in an open format with a common schema?
How much tax revenue should it cost to provide such a service on a national level?
States, Counties, Cities, 'Tax Zones'(?) could be required to host tax.state.us.gov or similar with something like Project Open Data JSONLD /data.json that could be aggregated and shared by a server with a URL registry, a task queue service, and a CDN service.
While the Bitcoin tax payments bill passed the Senate and House in Arizona, it was vetoed in May 2018. Seminole County in Florida now allows tax payment with crytocurrencies such as Bitcoin:
> According to a press release, the county will begin accepting Bitcoin (BTC) and Bitcoin Cash (BCH) to pay for services, including property taxes, driver license and ID card fees, as well as tags and titles. The Seminole County Tax Collector will reportedly employ blockchain payments company BitPay, which will allow the county to receive settlement the next business day directly to its bank account in US dollars.
This could also help reduce the costs of tax collection and possibly increase the likelihood of compliance with the forthcoming tax bills!
these are all very good questions, and only a community discussion of people with the right skills and interests can draft a petition, if enough people contribute to the discussion we can make the proposal more reasonable and robust against valid criticisms... but I believe we can make this happen by just starting the discussion. We can bitch on Hacker News, or we can draft a proposal for the different government levels. The more reasonable we draft it, the higher the probability the petition will be a success. I think it wouldn't be hard to argue against this proposal that a legally enforced computation should be open source, i.e. not just the algorithm for the computation but also all the data lists and boundary polygons used in the algorithm...
>here’s zero national economic gain from _any_ variation in law from state to state
Yes there is. States compete with each other and this prevents any one of them from having laws that are much crappier and more oppressive than average because when that happens businesses and people leave.
So competition might prevent one of many downsides to different states having different laws? I don't see why this means there's any benefit to that situation over just having one set of laws?
The model [1] GP alludes to claims that competition forces small governments to provide better (more efficient, more optimally chosen, etc) local services than monopoly governments, for the same reasons that competitive companies are expected to provide better services at a lower price.
I think you are conflating several different types of liability here.
If: i)your accountant messes up due to negligence or worse, ii) you get audited, and iii) it turns out you owe far more than you thought, then you are liable to the Govt for the extra amount owed. The accountant may be liable to you for professional negligence, damages etc. Your damages against the accountant are not the extra amount owed (because it is what you should have paid in the first place), but losses caused by the mistake. In the above scenario, the Gov't may assess a "penalty" and/or "fee" for late payment of taxes, but those fees are usually waived and/or extremely nominal. In the above-scenario, criminal liability simply does not happen. The above is not legal advice.
Many online payment gateways already offer some kind of sales tax API. Keep in mind in California, sales tax changes per county. In places like Tennessee, the tax rate can change if your item is a grocery or isn't a grocery.
There are companies that already sell massive lookup tables or API access to calculate a lot of this stuff. I think for most retailers, this won't be that big a change.
Most mom-and-pop online stores have disappeared too. Gone are the days when you went to Pricewatch.com and Pricescan.com. Now all the individual shops just create a store on Newegg, Amazon and eBay. I'm pretty sure the big players will start offering up tools to do these calculations for them as well.
Tennessee also has a "Sales Tax Holiday" on which certain items are tax exempt during certain times (during the holiday). And because we know how much programmers love date and time manipulations, it starts on "the last Friday in July" (I mean, it kinda had to, to be a weekend).
An exemption such as this is one of those things that I'd say is not worth supporting unless you're based out of TN, or do enough of sales there to make it worth your while. Sure, I'd implement it if it's required but every special case is just another point of failure.
But if you don't support it, are you liable for collecting more tax than required? How do you "not support" it? Just reject purchases from people in TN during the holiday?
Disclaimer: I am not an accountant. I would figure tax holidays are optional and might even require an application to take advantage of. So you would charge the regular sales tax and remit it to the state.
UPDATE: Out of curiosity I looked it up. And it looks like sales tax holidays depend as usual on the state. The MO back to school one is optional if less than 2% of merchandise is affected. But the TN one doesn't look optional.
"Under color of law" means that you're a law enforcement official. Collecting extra tax and then remitting to the state will almost certainly not cause you any issues.
I'm pretty sure that in most states so long as you remit the tax to the state, they are happy to take it, even if you didn't have to collect it. You only really get in trouble if you collect the tax from customers then pocket it.
You dont have to participate in the holidays though. If you charge a tax on an exempt item during the holidays then you just have to remit the tax. No system changes required.
> Keep in mind in California, sales tax changes per county.
More than that. Sales tax in California can change arbitrarily, not just by county. E.g. different cities in the same county can have different sales tax. To further complicate things, shipping address may have a city on it but they might not actually "live" in that city.
E.g. in SoCal there is a city of "Westlake Village", which spans the Ventura-LA county border, which technically is a city in LA County, but technically is just a neighborhood within the city of Thousand Oaks in Ventura County.
When I last looked at this a few years ago for a project, for certain problem addresses, no one got them right. Not Macy's, not Amazon, etc.
The only real way to properly calculate sales tax is to geolocate their location.
The ruling is technically limited to states which do not impose burdensome restrictions on interstate commerce. The ruling specifically notes that South Dakota streamlined its sales tax process.
It doesn't matter what Westlake Village wants to charge in sales tax to Amazon. In order for the sales tax to survive South Dakota v. Wayfair, it must be minimally restrictive on an out-of-state vendor. This means that it can't include local sales taxes, because an out-of-state vendor can't be expected to know about such taxes unless they do sufficient business with that locality. Note that both of the current federal sales tax laws before Congress also disallow local sales taxes in favor of state-level sales taxes.
Long story short: there will be up to 50 sales taxes that online stores must deal with.
In order for the sales tax to survive South Dakota v. Wayfair, it must be minimally restrictive on an out-of-state vendor.
While the outcome you describe might be a good one, I think you are greatly overstating when you read into this decision a new standard of "minimally restrictive". Major vendors already charge local sales taxes to the best of their abilities, and almost certainly will continue to do so.
This decision merely says that there is nothing inherently unconstitutional about a particular South Dakota law requiring a retailer without a physical presence to collect sales tax on behalf of the state. This does mean that a law in another state with similarly restricted characteristics is likely to survive review as well. But it doesn't (yet) create any line that says all of same characteristics must be met.
If New York City were to attempt to enforce the same law, it might find enforcement difficult, but it likely would not have constitutional impediments. If another state were to choose some wider scope, it too might well be judged constitutional. At the least, we wouldn't know until more cases have been decided: it's not yet clear how much 'stare decisis' has been thrown out here.
Instead, this case sets a standard for what is clearly constitutionally allowed, saying that there no longer a requirement of physical presence, but doesn't say much about what else would be required. It gives Congress an opening to pass a clearer national law about what the standards need to be, but doesn't create such a standard itself.
Still reading the case in detail, but these quotes address your comments head on and indicate that SCOTUS likely would not support a state scheme allowing for a multitude of local sales taxes (a la California).
EDIT: While it is true that the dissenting opinions wanted Congress to solve this problem for them, the physical nexus rule was (and generally always has been) a construct of the Courts, and should have been struck down by the courts. Having a legislative counterpart is no excuse for letting bad decisions live.
EDIT2: Also, SCOTUS did not strike down the nexus requirement, only the specific physical nexus requirement of Quill. The dicta quoted below strongly suggests that complex sales tax system would require stronger nexus than the South Dakota regime.
"Complex state tax systems could have the effect of
discriminating against interstate commerce."
"That said, South Dakota’s tax system includes several features that appear designed to prevent discrimination against or undue burdens upon interstate commerce. First, the Act applies a safe harbor to those who transact only limited business in South Dakota. Second, the Act ensures that no obligation to remit the sales tax may be applied retroactively. S. B. 106, §5. Third, South Dakota is one of more than 20 States that have adopted the Streamlined Sales and Use Tax Agreement. This system standardizes taxes to reduce administrative and compliance costs: It requires a single, state level tax administration, uniform definitions of products and services, simplified tax rate structures, and other uniform rules."
Also, SCOTUS did not strike down the nexus requirement, only the specific physical nexus requirement of Quill.
Yes, this is important to note. Still, much of logic involved in the decision makes it sound like in the future nexus may be defined quite loosely, based largely on the states' desire to collect the tax and the practical difficulties involved, rather than just being a redefinition of "substantial nexus". Consider this part:
Under this Court’s decisions in Bellas Hess and Quill, South Dakota may not require a business to collect its sales tax if the business lacks a physical presence in the State. Without that physical presence, South Dakota instead must rely on its residents to pay the use tax owed on their purchases from out-of-state sellers. "[T]he impracticability of [this] collection from the multitude of individual purchasers is obvious." [[cite]] And consumer compliance rates are notoriously low.
This might be good change socially, but it feels more like the court is pushing a policy change rather than offering a reinterpretation of the constitutional requirements. In this part of the logic, there's no change of the interpretation of nexus (since it's based on only the customer's failure to obey other existing laws), and yet it's used as justification for why the state has a right to demand action from an otherwise out-of-jurisidiction company. Same nexus (or lack thereof), but different constitutionality.
While one would hope for a balance between burden and benefit, I think it points to a much more inclusive concept of nexus. In the absence of a clear national law, until there is a case showing the limits in the other direction, I'd guess that states will pass more and more inclusive laws on who is required to collect on their behalf. We'll likely end up in a situation where a multitude of state laws technically require most retailers to collect, but selective enforcement means that only the large (or unpopular) players are pursued. I didn't like this previous approach of on-the-books but unenforced use taxes, but I'm uneasy about this outcome too.
But that's only if you're company doesn't have a point of presence in that state right? If you have an office in California, then you do have to use a service/API that handles all those crazy local taxes cases (or at least attempts to).
As a fellow former resident of the county-spanning Westlake area, I can tell you that even the people that live there don't know where they live. I was debating with a friend of mine just the other day, and her and her mom couldn't even agree what city they lived in. Then I looked it up on the map, and different maps gave different answers. And they keep building new houses, so who the hell knows which tax jurisdiction each individual house is in? The people that live in them can't even keep track!
Programming one of these for a Canadian website for provincial tax to hook into another recurring payment script, that hooked into PayPal was an annoying overhead especially when the company was bootstrapped and had like $0 revenue to even care about at that point.
I would hope Stripe or people using online services like Shopify will quickly add support for everyone. But the state by state, county by county, grocery vs non grocery stuff sounds like a goddamn nightmare.
EDIT: You won't be able to just be some just launch it break stuff and fix later SASS. You will have to keep track of all this shit and send out 50 different cheques, or track when your company has reached the minimum to have to pay sales tax back.
The support for this has been there on Shopify for quite some time. With a tool like https://www.taxjar.com/ I was able to easily pay all the state, county and city taxes in a few minutes for my wife's small online shop.
Still, tested correctness is different from guaranteed correctness. Either the taxation is unambiguously defined in law (howver scattered within the law) or it is not and we have void for vagueness.
The people who define the taxation are payed by taxes, so why not require the deliverable to include a cryptographically signed algorithm? Then all the shops can have free peace of mind:
What is likely to happen is Congress will finally pass the Marketplace Fairness Act which requires states to comply with the Streamlined Sales and Use Tax Agreement before they can collect the sales tax. 23 states already fully comply with the agreement.
As part of the agreement those entities without a physical presence in the state pay only a single state agency all sales tax and not have to pay tax to individual localities within the state. For each state the type of products subject to tax and the rates of tax on them are uniform across the state.
The states are also required to make available free of charge databases with boundaries and the tax rate on goods within each boundary. States must not hold any businesses liable for the under or over collection of taxes based upon any errors in their database. In addition the Streamlined Sales Tax Board of Governors certifies service providers. If a busines uses a certified service provider they are not liable for under or over collection of taxes based upon an error by the service provider. There are currently 7 certified providers. The certified service providers provide data regarding what taxes need to be collected on a transaction, will collect the tax on behalf of the business and submit it to the state on behalf of the business. Many e-commerce platforms already integrate with one or more CSPs. I imagine those that don't today will quickly do so or if large enough become a CSP themselves.
When I launch a single brick and mortar store, I have to worry about the tax jurisdiction that store is in.
When I launch a single small web app, I have to worry about everything single tax jurisdiction in the country.
I'm super not opposed to taxes, but I do think this is an area that the federal government should step in. If only to provide a standardized system for different jurisdictions to report their sales tax laws.
It seems like a very very clear use of the commerce clause and regulation of interstate commerce.
That analogy is not perfect, if you restrict your web app to only serve people within the same single tax jurisdiction as the brick and mortar store, then there is no need to worry about every single tax jurisdiction.
But I fully agree with you regarding the need for the federal government standardizing.
Congress has had decades to step in. They declined to, largely due to an anti-tax sentiment among a large block of them. Absent a resolution from Congress, and no indication that they'd do anything, the courts had to work with what they were given.
We should differentiate between 1) standardizing the tax calculation algorithm, and 2) standardizing the taxation rates
As long as the two are conflated nothing will change. Irrespective of political/personal/ideological position on nr.2) I think most of us can agree on nr.1)... (except for the bigger chains, and the FUD navigation services.
Yes, there are affordable sales tax APIs available for calculating sales tax. Usually massive lookup tables are at the zip / postal code level and don't provide enough granular detail by jurisdiction to accurately collect sales tax. They also don't contain logic around product exemptions, customer exemptions, shipping taxability, sales tax holidays, etc. I recommend using an API if you want to avoid under-collecting or over-collecting sales tax.
However, this is a HUGE change. Instead of registering for a sales tax permit and remitting tax for one state, smaller merchants will have to do this in many states if they meet a certain threshold. They will likely have to use sales tax compliance software to aggregate all of their transaction data across multiple platforms (Amazon, eBay, Walmart, etc) and their shopping cart, then report / remit accordingly.
It's not just rates, it's product categories that matter. The rules separating one product category from another can get incredibly arcane. Here in Minnesota, a pizza ordered from Papa John's is taxed but from Papa Murphy's it isn't - because the Papa Murphy's isn't cooked. Clothing isn't taxed, but determining what is or isn't considered clothing isn't always easy out at the margins. If you live in a state you can get guidance on this stuff, but if you don't you might not even know to look.
> In places like Tennessee, the tax rate can change if your item is a grocery or isn't a grocery.
That's not even the half of it. Grocery vs. non-grocery changes the rate. Some services that are tax exempt in other states are not in Tennessee.
And in Tennessee, you have the state level of 7%, and the ability for it to rise up to 9.75% based on a whole lot of inter-dependent local tax overlays.
The 2.75% difference comes from county, state, school district, transportation district, and "special purpose district" levies. All of which are optional to levy and voted on at the local level, and which may or may not overlap with each other to "stack" up to that cap at 9.75%.
Avalara, which is the de-facto owner of the sales tax calculation software space, has a good write up[1].
One of the things I've been wondering is if "state sales tax" in this ruling includes cities, counties, other subdivisions, or just full state level taxes only.
> There are companies that already sell massive lookup tables or API access to calculate a lot of this stuff. I think for most retailers, this won't be that big a change.
Ok great so you know the tax to collect. How do you remit to a vast amount of jurisdictions? You think that's trivial? It's not.
Hopefully you're right and that there will be/are services that make it fairly easy/cheap for anyone of any size to be compliant without a lot of extra work. While there are a lot of edge cases, the reality is that companies using a payment processor will probably be fine even though there's a mistake here and there--which no one will actually know about.
And the reality is that small businesses will mostly just fly under the radar if they want to even if some states don't have a floor for the sales that trigger taxes.
The South Dakota tax only applies if you sell more than $100k or send more than 200 shipments, which factored into the decision:
Respondents argue that “the physical presence rule has permitted start-ups and small businesses to use the Internet as a means to grow their companies and access a national market, without exposing them to the daunting complexity and business-development obstacles of nationwide sales tax collection.” These burdens may pose legitimate concerns in some instances, particularly for small businesses that make a small volume of sales to customers in many States. State taxes differ, not only in the rate imposed but also in the categories of goods that are taxed and, sometimes, the relevant date of purchase. Eventually, software that is available at a reasonable cost may make it easier for small businesses to cope with these problems. Indeed, as the physical presence rule no longer controls, those systems may well become available in a short period of time, either from private providers or from state taxing agencies themselves. And in all events, Congress may legislate to address these problems if it deems it necessary and fit to do so.
In this case, however, South Dakota affords small merchants a reasonable degree of protection. The law at issue requires a merchant to collect the tax only if it does a considerable amount of business in the State; the law is not retroactive; and South Dakota is a party to the Streamlined Sales and Use Tax Agreement, see infra at 23.
That's still difficult to comply with. Imagine 50 different laws like that, each with their own tiers, and consider the difficulty accounting for them all and staying in compliance. That's not even getting into municipal taxes.
I'm curious where your 2% margin came from in this estimate. From what I can tell, that number is often quoted as Amazon's profit margins, but I'm not sure smaller more-specialized online retailers necessarily need to match Amazon's low margins.
If you are manufacturing something then the profit margins can be much higher. However, for retail 2% is fairly solid and likely above average when you include people losing money, but not outstanding.
Yes, those platforms may handle sales tax calculations automatically for you for their specific platform. That's only the very first step. Merchants will then need to report and remit their sales tax to each state. If those platforms plan to handle the entire process, trust me they have a ton of work ahead of them if they decide to handle it in-house.
Arguments like this annoy me. Someone has it figured out so it's OK for these complex tax implementations to exist. No, it's not OK, and it's not a solved problem. We recently implemented sales tax collection using the TaxJar API combined with Stripe. It took at least a month to integrate. These integrations are huge drains on business productivity. Government has to stop creating these complex rules. Create simple rules and stop treating everyone's time with such reckless abandon.
The problem is each government wants to make rules of their own and no one can agree to streamline. Then comes the issue with democrat and republican politics. Republicans will want low tax and little services while democrats the opposite. Good luck getting them to agree.
The end result is smaller busineeses get stomped. Only solution i see is to streamline it with software. Software is getting easier to use so hopefully it becomes less burdensome.
We don't. We're one of those mom-and-pop businesses that uses a self-hosted shopping cart, and use Braintree as our payment processor which has no sales tax recording system that I'm aware of.
Paying sales taxes online for the one state where I have a business that does retail sales takes between 10 and 30 minutes, depending on how complex that quarter's sales were.
Multiply by 50 states, and it's up to 25 hours a month of work.
For those of you who have never done this, sales taxes are a lot more complicated than they seem. In the three states where I've had retail businesses, different types of products have different sales taxes and each has to be reported individually.
It gets exponentially more complicated if your state also has use, consumption, or other retail taxes; and if it requires you to report purchases your company made out of state.
If I had a popular company, even with small sales, I could easily see this becoming a week-long headache I offload onto my accountant, who will then charge me extra.
So not only do I have to raise prices to include the sales tax for various states, I have to factor in the extra accounting expense.
But if the cutoff really is $200k per state, and you really had 50 states to take care of -- You'd be looking at a minimum of $10M in annual sales. If you're a $10M company, I think one of your accountants could spare the 6 hours per week taking care of it.
I've worked with a lot of small businesses so I don't mean to disparage things but this seems like a really obvious law that should be enforced.
That's a pretty big if. The $200k cutoff from the article is South Dakota. I've never had a business in a state that had any cutoff at all. Only sell $1 this quarter? Pay the tax.
Or you could just outsource it to companies like TaxJar that specialize in this and pay a few bucks to have to all done automatically. After this ruling I expect more and more platforms will have this sort of thing built in. One or two more fields to fill out for your products, but otherwise completely automated.
That page doesn't appear to factor in filing costs, which run up to $5000/year.
Also, I wouldn't generally classify it as "a little more work", since in many cases the old system could be hard-coded and the new system requires reworking the checkout flow to capture the full mailing address and pass it through an external API before calculating the transaction total.
200 shipments is nothing, and $100k isn't particularly meaningful revenue, either. I don't know what kind of margins people get, but I'd guess $100k yearly revenue isn't even enough for one person to live decently, let alone afford to handle keeping up with a business.
It's 200 shipments or $100k in North Dakota which would be impressive for any mom and pop eCommerce site that isn't somehow focused on ND. Almost no one lives there.
Congrats to Avalara on their recent IPO, pretty good timing... this is a Seattle-area firm that does local/state/etc. tax calculations. In the end, it's a huge tax on infrastructure.
I find it highly unlikely that mom-and-pop stores will have to collect and remit taxes to other states.
From they very start of Quill they said: "we ruled that a "seller whose only connection ... is by common carrier ... lacked the requisite minimum contacts with the State." So the issue was: how substantial does the seller's contact have to be?
The court ends this decision by saying "the first prong ... asks whether the tax applies to an activity with a substantial nexus with the taxing State... sellers who engage in a significant quantity ... are large, national companies ... undoubtedly maintain an extensive virtual presence." So the issue remains: how substantial does the seller's contact have to be?
The underlying logic of the law hasn't changed, they just fixed some imprudently broad language referring to a physical presence.
So I doubt the SCOTUS abandoned one bright-line rule for being flawed in favor of another bright-line rule that equally fails to address the underlying issue of substantiality (e.g. imposing a "single-sale" rule).
In order to enforce this ruling a State Attorney General would have to file a lawsuit against a company and get an injunction requiring them to collect taxes and get a judgement for back taxes.
Small businesses will just ignore this because there will be no enforcement unless you are operating at a scale large enough (millions in taxes) to justify enforcement.
Payment processing services will most likely provide a solution to do this automatically. Charging credit cards is already pretty complicated, and they abstract it away already, so it would make sense for them to provide this as an additional service.
Agreed. I envision "tax compliance as a service" being offered by processors or third parties.
My only question is then whether individual municipalities in states that allow them to have their own sales tax will also now be able to force compliance. If that's the case, what a nightmare for online retailers.
That's how large retailers do it already. I worked at a company that created software for calculating sales and use tax for large retailers. It was an incredible headache and I doubt any retailer would do it themselves since they can also point to the vendor as the liable party when a mistake is made, and those mistakes will be made.
We even had areas where we could not find the correct tax because the government in charge refused to tell us
And... I've conflicting info from different states as to when the sales tax should be calculated. I'm dealing with a project right now that is both "pay now" and "delivery and services paid for later". At least one state said they'd prefer us to calculate the tax both at 'time of sale' and after money is collected after the service is provided/delivered, and because the rate may have changed (between months, for example) and they want the higher amount.
And there was that standardized sales tax system that the states were going to adopt but only ~15 did if I recall correctly. I can't remember the name but I do remember that each state then added their own idiosyncrasies to the "standard" and they inserted incorrect data we had to catch.
Or the 100s of thousands of literal exceptions such as "windows 98 physically shipped to a customer once in California on CD so you need to calculate the tax on it as a physical good forever, even when it's sold and received over the internet"
The supreme court decision was basically a refinement of what constitutes a nexus with respect to common carrier shipments. 200 sales, or $100k in revenue per year is what is reasonable here. It will be interesting to see what LA, Chicago, and NYC do to handle this specifically.
Payment processing services could certainly build out their own solution to collect and remit sales tax, but a lot of merchants sell on a variety of platforms and channels. For instance, a merchant might sell on Amazon and their own eCommerce site powered by Shopify. They might also have an ERP system as a "single source of truth" to record all of their transactions. Each of these platforms collect sales tax differently, possibly providing automatic calculations or simply leaving it to you to provide your own rates. This can get complicated very quickly and a payment processing service only has insight into the data you're passing over to them.
That's why companies like TaxJar and Avalara are focused on sales tax -- to integrate with every shopping cart, payment processor, marketplace, accounting, order management / ERP platform out there to combine all of your transaction data and determine how much sales tax you need to remit in every state.
They can match up rate to location, but most jurisdictions have their own laws on what items are taxable. There are also jurisdiction-dependent tax holidays. For example, Texas has a weekend in August where certain kinds of items (that are "back-to-school" appropriate) are tax free. So you have to know not only the rate, but also the rules for categorization, and those vary by jurisdiction and time of year, sometimes differently from year to year.
There's a bunch of services that you can send your transactions to and they'll return sales tax data via API, your accounting software should have integration for them already. Worst case you can do them on a simple web form online (enter the address, types of goods, etc)
Those same services can also automate your tax filings with each state. It's not free, though.
Except for the part where mom-and-pop stores were competing with large retailers operating out of state, who could undercut them because they weren't charging sales tax.
I suppose we should continue that state of affairs, because heaven forbid we hurt the mom-and-pop online stores... Which make up a tiny fraction of overall commerce, compared to physical mom-and-pop stores.
If you have the resources to proactively keep your data up-to-date, then a lookup API is trivial. But it also doesn't begin to address remittance, which is by far a bigger burden.
I agree. The most challenging task for smaller in house built sites is going to be figuring out how to stay up to date with the hundreds of tax rates especially in CA as well as modifying their systems to handle blended tax rates when a customer orders both a digital and physical product.
How many mom and pop stores go through the hassle of maintaining their own software for this vs just paying someone else to handle it, who can do so trivially?
That is an interesting take on it. I was thinking it would be more of a level playing field for small physical retailers if the larger online stores had to charge the same retail tax.
My thoughts were that if you bought something from a store it would be x% more expensive with sales tax than purchasing off of amazon and having it delivered without needing to pay sales tax.
This way both have to charge the same sales tax and the difference in price will simply be down to the costs relating to owning a store.
Amazon already collects sales taxes based on the state the order is delivered to, despite not being legally required to until now. They've already baked the compliance costs into their prices. Smaller retailers who weren't doing this will suffer, as they now need to raise prices.
You seem to be conflating online vs. physical with large vs. small. There are small online merchants and large physical retailers — for example, Walmart is significantly bigger than, say, the online bakery Vegaron.
Something like ten years ago now, Washington State changed their sales tax requirements in a way that required the seller to look up the four-digit rate code of the buyer, both for determining the rate to charge and later for remitting to the state. The quarterly file they provide with this information is ~150000 rows. Prior to that date, you just reported for the jurisdiction in which the business was registered.
Between this and similarly far-reaching laws (e.g., GDPR), it's becoming increasingly burdensome for small players to the point where secondary services like Avalara are effectively required.
> Between this and similarly far-reaching laws (e.g., GDPR), it's becoming increasingly burdensome for small players to the point where secondary services like Avalara are effectively required.
Sounds like a good justification for a federal GST instead of the patchwork of (hyper) local sales taxes. I fully understand why that will never happen in the United States (states' rights), and think that it's the tax patchwork that's the problem not the requirement to collect taxes itself.
Local sales taxes are sometimes earmarked for a specific purpose that improves the local community. For example recently voters in the Los Angeles county approved a sales tax increase to fund new Metro lines [0]. It seems fair that since this Metro line primarily benefits residents in this region, this additional sales tax should only be charged when one buys products in this region (primarily residents). Concentrating all the money at the federal level and then redistributing doesn't seem very fair.
My impression from browsing these discussions is that the set of rules governing sales taxes even in a single state are sometimes more complicated than those for all of Canada. It's pretty incredible to see all the fancy tax rules.
As someone who grew up in a house who's mailing address and zip code were for a different town and county from the actual physical location of the house (it was just past the border) - I can't even begin to imagine how to actually do this completely correctly.
Apple has asked me several times in the past for online purchases. I enter a ZIP code, they do some lookup and ask me to choose the county I live in from a list of three. I choose, and based on that they calculate tax.
That’s great until one has customers living in Los Angeles City vs. Los Angeles County. The city charges its own sales and use tax, I believe it’s an additional 0.25%.
And then factor in “Enterprise Zones” where even different portions of cities have different tax rates.
Honestly, the state doesn't expect anyone to get this completely right except the largest companies. If you make a good faith effort to comply with laws, in the vast majority of cases, you're fine.
No! Selective enforcement is terrible, if there's a revenue threshold bake it into the law, otherwise you'll see large companies crying foul on some up-and-coming competitor that then gets bogged down in legislation, along with all the other terrible thing inherit in selectively enforced laws.
> if there's a revenue threshold bake it into the law
There's no real winning there either. If you bake the threshold into the law, some companies may game the system such that, if the cost of total compliance is x, and we're revenue range of x, give or take, to just take a little less money to stay under the threshold.
Not that I'm suggesting that is something that we should care about, or even consider a majority worry, but hard and fast cliffs lead to gamesmanship, or worse, misaligned incentives (such that it's non-beneficial for those on welfare to work if it puts them over a given benefits threshold.)
On the whole, I agree that selective enforcement is bad, if not wholly terrible, but its absence isn't a panacea either.
I spent the last couple years working at a company in a highly-regulated space. I agree with the comment you replied to, and "selective enforcement" is not how I'd describe it.
Think of, say, a teacher. Suppose a teacher gives a complex assignment, provides contact information and says students can and should ask questions, submit drafts for feedback, etc. And there are two students who take different approaches. Student A simply glances over the assignment sheet, goes off and does what they want, then hands it in on the last day. Student B asks questions early and often to clarify anything they're not sure about, runs a draft or two past the teacher, and makes changes in response to feedback.
Student B is much more likely to get a good grade on the assignment. Student A is much more likely to get a low grade out of the blue for making serious mistakes.
And this isn't selective grading, it's just a reflection of the effort each student put into getting the assignment right. Both students had equal opportunity to put in that effort, but only Student B actually did, and it shouldn't be seen as a problem if Student B's diligence pays off.
Rerun that scenario with a large (5000+), but unknown, number of teachers each giving one or more assignments which may or may not be assigned to a particular student. That's sales tax in the USA.
The 200 transactions is basically the lower bound here unless your ASP is >$500. Sell something for 99 cents to 200 people? Congrats, now you have to spend more than your revenue worth of time.
I don't find that to be a valid excuse. If a law is worded in such a way that companies or individuals will frequently get it wrong, it's probably a bad law. Call me paranoid, but that seems like it just sets a person up with an easy reason to audit.
It's not an excuse. It's just that laws are enforced by people. Think of what happens if you get caught speeding. Does everyone always get a ticket every time they speed? Of course not. Even when you get pulled over you can behave politely and maybe get off with a warning. This is how every law and regulation works.
Unless some enforcement agent somewhere happens to disagree with your politics, religion, or shoesize and decides to charge-stack your fines and penalties into the millions.
Bingo. This is precisely how big companies leverage big government to prevent challenges from threatening their business model. Amazon is investing its money into lobbying for "Main-street Fairness" ... https://www.reuters.com/article/usa-amazon-lobbying-idUSL1N1...
Unfortunately they don’t have transparent pricing. So it’s a bit of a mystery. We were in the middle of getting a quote but then found TaxJar thanks to this thread and are going to try that. I prefer the pricing being up front.
FWIW, I can tell you that taxjar is pretty light on the "I've collected taxes, now what?" side. Avalara might be a BigCo but they have their stuff together, and it works at scale for transactions (especially when dealing with refunds or discounts that need to reflect Sales Tax differentially.... oy)
Can you expand on why TaxJar seems lighter after collecting sales tax? We have a fully automated reporting and filing solution that works at scale for over 10k merchants.
Disclaimer: I work at TaxJar, just curious to hear your feedback. Thanks!
Yeah, i had a client using it who found that being able to get the data into a reporting scenario so they could file was hard. Mostly it surrounded reconciliation and an ability to gain confidence that the numbers reflected actual transaction volume (it is a perishable good, so there was a reasonable quantity of discounts and refunds as delivery vendors missed targets...)
I'd also say I have a bias, as I've also used avalara a couple times before and found it to be quite a bit superior in making it seem quite a bit more effortless -- taxation is so byzantine I don't have any expectation that I could understand it, so I want to trust that the provider i use is very confident they do.
not sure if that helps a lot, but it was also a few months ago ;)
Most of the coverage I've seen downplays it, but it should be noted that the question is not whether tax is owed on these out-of-state internet purchases, but whether the retailer should be required to collect it and submit it to the state. Currently, the purchaser is (in 45 of 50 states) legally required to pay a "use tax", but most Americans (98%?) are blissfully unaware of this requirement, or have simply decided not to pay it. This is pure illegal tax evasion, based on the (correct) assumption that enforcement is lax and risk of punishment is low: https://www.npr.org/sections/money/2013/04/16/177384487/most...
Rather than attempting to enforce these existing laws against their residents (unpopular and difficult), states believe it will be easier to get compliance from retailers. Until this decision, it was unconstitutional under the Commerce Clause for a state to demand this collection unless the retailer had a "substantial nexus" in the state, generally defined as a physical presence. Post-decision (pending new national laws created by Congress) all retailers are fair game. The particular South Dakota law in question has requirements as to volume of purchase, but this is not a principle of the decision.
Beyond the implications for internet retailers, this is an interesting counter-example to the Supreme Court tradition of "stare decisis" (to stand by things already decided). Apparently, everyone on the court agrees that earlier decisions that produced the physical location test were poor precedent. Usually, the court is very reluctant to revisit these decisions, but in this case, the majority justices decided to abandon precedent and explicitly call the earlier decisions mistakes. The dissenting justices, despite conceding that "Bellas Hess was wrongly decided", felt that the court was better off sticking with the flawed precedent than changing things up now.
Personally, whether or not this is good constitutional precedent, I think I agree with the dissenters that allowing local jurisdictions to make laws affecting far-away businesses who have no other local presense is going to lead to problems. Beyond just the burden of collecting confusing locally defined taxes, I fear about where else it leads. If a locality can enforce its local tax laws, what other custom crafted local laws can it enforce in return for access to customers? Can it require a business license? Should it be allowed to enforce its local environmental and labor standards as well? Is this a good thing?
>If a locality can enforce its local tax laws, what other custom crafted local laws can it enforce in return for access to customers? Should it be allowed to enforce its local environmental and labor standards as well?
This is pretty much what happens with California and car manufacturers. Even today on certain aftermarket car parts (primarily exhaust systems), there are explicit notices that they are legal anywhere in the US except California.
Yet another tenuous stretching of nexus by lawyers who have little interest in how technology works, but do have every incentive to justify increasing their own scope. This is the equivalent of telling New Hampshire stores that they're responsible for collecting Massachusetts sales tax for people coming over the border to shop.
A business collecting taxes for the state they are in, even for orders shipped out of state, would make sense. But the individual states seem unwilling to do this, as it would decrease their own businesses' advantage. And that's the whole point - we should welcome competition in tax rates, wherever it can possibly even be found.
Referencing New England was not arbitrary, as the ability to drive two states over to simply have dinner is a condition that holds the state governments to a modicum of honesty.
>holds the state governments to a modicum of honesty.
Coffee almost came out my nose.
Governments in southern New England are only regarded as legitimate because people in MA and CT bury their heads in the sand and RI compares itself to NYC and Chicago (that's not to say that useful or good programs don't exist within these governments).
>This is the equivalent of telling New Hampshire stores that they're responsible for collecting Massachusetts sales tax for people coming over the border to shop.
I fully agree that state tax should follow the state of the merchant. If a state's cost of doing business (through taxes, cost of living or some other reasons) is so high that businesses that have to pay to ship their good can out compete them then it's that state's problem. If it wants a cut it's going to need to change things so that more business happens in its jurisdiction. Sales taxes are regressive anyway so they should be a race to the bottom.
Sure, but at least MA/CT sales tax is just above 6%, while CA is pushing 9%.
The bigger picture is that if one wants to live close to family and friends in New England, they're still able to move and pay 0% sales and state earned income taxes. Whereas if one wants to live close to family and friends in CA, they're completely over the barrel.
I find it hard to argue with from a fairness perspective. Clearly, retail is in a much different place from when Quill was decided. My concern is more in how a mom & pop online shop operating independently complies as a practical matter, which means not only collecting the right amount for different types of items but presumably remitting and filing with a huge number of different tax jurisdictions.
There are two against it on fairness grounds I can see but your mileage may vary on practically and definitions of fairness.
One is that they don't use the infrastructure in the state. Shippers are either already taxed for their use if private or self funding government in the case of UPS.
The second is a more slippery taxation without representation which also gets into all sorts of semantic issues with who is really being taxed the in state residents or the out of state residents.
Really the tax infrastructure is in drastic need of modernization and streamlining. It may step on a lot of toes but I could see forcing online sales tax into a federal fixed rate with redistributed fixed percentages as worth it. Say 5% rate nationally and of that 1/3rd each to the buyer's state and the seller's state and 1/6th to each municipality respectively with it defaulting to the state if it is unincorporated. It would even actually fit in interstate commerce domain nicely.
> One is that they don't use the infrastructure in the state.
This is one way of looking at things, but I think sales tax is much closer to a tax on consumers than on businesses. Or at least is intended as a tax on consumers to fund their state infrastructure, often because imposing an income tax is impossible (e.g. Washington State constitution) or just politically unpalatable.
Normalising taxes is basically impossible in an environment where sales taxes are a meaningful part of a government's budget.
Do the consumers pay the tax to the federal government? No? Then it's not a tax on them, but on the businesses that pay the tax. Business's can choose to charge consumers directly for this, but for online retailers that means additional complexity in the checkout and billing process.
On the other hand, local businesses are paying other types of taxes anyway (such as property taxes) and they're actually employing local people--so there's almost an argument that local businesses should be paying less sales tax rather than more. And then you're almost in why have a sales tax at all territory given that they're mostly regressive.
There's certainly a good argument for a flat national sales tax but that doesn't really fit with federalism and, anyway, good luck getting New Hampshire and New York to agree on a number.
In Colorado you're already asked when filing state taxes what the value of the goods you bought online that haven't been taxed yet, so the onus is on the filer to look up receipts from the year for tax purposes.
Amazon already collects tax in Colorado, but a few smaller retailers will send you a letter at the end of the year totaling up your untaxed purchases. Since different counties and localities collect different rates, it's hard to get the total tax right at the time of sale.
I assumed all of them do it, but maybe not. I’ve been complying with this in Indiana for years, but I agree that I’m almost certainly unusual in that regard.
I also live in Colorado and only got one such letter last year after a lot of online shopping. It was from B&H and was wrong, though the dollar amount wasn't very high. I placed an order where one item was back ordered, so separate shipments came. They said tax was owed on the back ordered item twice.
But, as you said, Amazon already collects tax at time of sale which was the bulk of my purchases.
It’s called an use tax. It’s equivalent to a sales tax, reporting is required but voluntary. Not paying use taxes on internet purchases is tax evasion. Here’s what CA’s state tax collectors have to say:
It is not hard to get the right rates. All you need to do is have a master file with all zip codes with the corresponding rate to charge. The difficult part is filing out the returns and dealing with potential audits.
> It is not hard to get the right rates. All you need to do is have a master file with all zip codes with the corresponding rate to charge.
If you are specifically talking about Colorado, you may be right. I'm not familiar with how Colorado does sales tax.
In general, though, zip code is not sufficient. Even if use zip+4 it might not be sufficient. For example, in Washington, people who live in zip 98027-5444 on Renton Issaquah RD SE in the address range 9100-9199 pay 8.6% if their address is even, and 10% if their address is odd. A tax district boundary runs right down the middle of their road.
ZIP codes don't align with taxing authorities 100%. You also have different types of products that have different rates - no standard "master file with all the zip codes" is going to express all that other stuff.
Yes, it is hard to 'get the right rates' 100% of the time.
I live in an Illinois border community, and work in Iowa. I wonder what tax would be collected if I close an Ebay transaction in Iowa, but have the products shipped to my address in Illinois.
While I can't speak for US law, most of the time it's the delivery address that matters - if the location you're at when purchasing matters, you could do all of your expensive on-line shopping when on holiday in some place with low taxes (or using a VPN...).
This is one of those "it depends on the state" questions. In general, a seller is going to calculate and remit tax based on the delivery address, but the laws are actually a bit more complicated than that. chasil, who lives in Illinois but is close to Iowa, might start having packages delivered to a P.O. Box in Iowa, for example. However, legally speaking, s/he must still pay Illinois use tax on that item provided it is "for use or consumption in Illinois" and less than the current Illinois use tax rate of 6.25% was collected originally. See http://www.revenue.state.il.us/Individuals/FAQs-Use-Tax.htm
Practically speaking, of course, few people keep detailed enough records to even calculate the correct use tax owed at the end of the year, and any tax that might have been owed goes uncollected and unnoticed. Which is the problem that led to this Supreme Court case in the first place.
One particular question is my use of Page Plus, my phone carrier. It was the first Verizon MVNO to get 4g.
I was on an automatic payment with them, and they announced that they were adding 911 taxes.
I canceled the automatic payment and started getting refills at pincheap.com (a dealer with no presence in either Iowa or Illinois), avoiding both sales tax and the 911 tax.
There is no "delivery" of any physical product, so I wonder if the tax status of that arrangement changes.
It's for this reason Illinois residents don't buy a car in Wisconsin or another neighboring state with a more advantageous tax structure; you'll get nailed post-haste.
But if you're driving up to buy a few cases of New Glarus beer, chances are you're vastly unlikely (at or nearing 0%) that you'd be held to account for that purchase for Illinois tax purposes.
Technically you're supposed to pay your state's tax, even for a purchase where you were physically in another state. Even if that other state actually charges its own sales tax!
I thought with use taxes you owed the remaining difference in tax. Say I purchase a $100 widget in Kenosha, WI with a sales tax of 5.5%, and I live in MI with a sales and use tax of 6%. I would owe MI the 0.5% difference on the $100 which would be $0.50.
No my understanding is that the state wants their full X% -- the whole point of the use tax is "you paid that guy but you're supposed to pay me." If you paid a higher tax rate in another state do you think your home state would be happy with 0% or even reimburse you the difference?
IIRC you're expected to get the out of state retailer to reimburse you at a later time and then when you're paying your income taxes you include any purchases subject to use tax.
I think it depends on the state. At least in MI, you only have to pay the difference [1] [2]:
> Use Tax on the Difference
> If you paid at least 6 percent to another state on your purchase, you do not owe use tax to Michigan. If you paid less than 6 percent, you owe the difference.
> NOTE: The full 6 percent use tax is also owed on purchases made in a foreign country.
In Massachusetts, oddly, if you paid less than the Mass sales tax rate of 6.25%, you owe 6.25% use tax. It's not the delta you owe, it's the full amount. But you don't owe it at all if you paid more than the Mass rate.
It's never going to be fair, since online shops don't have physical plant costs (as an example). Are you going to penalize them for that too and make them pay a phantom imputed presence tax? That's why fairness is the wrong path to go down.
We’ve been looking at tech solutions for calculation / remittance. So far only found Avalara. I’d be surprised if PayPal, Stripe, and others won’t step into this now that it’ll be fairly profitable.
Besides Avalara, I'm aware of taxjar.com, taxify.co, taxamo.com.
Avalara and Taxamo don't list prices on their sites as far as I managed to find. Googling turns up comments saying that Avalara is expensive.
TaxJar and Taxify do list prices.
For a small business (up to 1k transactions/month) is $17/month if you pay for a year up front ($19/month on month-to-month). A transaction is either giving them an order and having them figure the tax, or looking up a rate with their API.
That will get you reports for each state, ready to file. If you want them to actually file for you, that costs more. If you have to file in all 45 states that have sales/use tax, with a monthly filing in each, it would come to $5000/year at TaxJar.
Taxify is $47/month for up to 1k transactions, and it would be $14580 to have them handle filing under the same 45 state/monthly filing assumption.
That looks like their tax filing product for ecommerce. The prices look pretty good, actually, at least compared to other others. A single filing seems to be about the same price as the others, but they have good discounts if you are filing in a lot of states which looks like Avalara might be a winner if you are dealing with many states.
I don't see any pricing for their services for their services for determining how much tax you need to collect for a given transaction.
Correct, that pricing is specific to TrustFile for reporting and filing. They have a separate product called AvaTax [1] for calculating sales tax. If you decide to speak with a sales rep for an all-inclusive package, be mindful of setup fees, cancellation fees, and annual contracts.
You can sign up for a free trial with TaxJar right away without calling a sales rep, no CC required. Sandbox API environment is included for all plans, but marketed toward Plus plans. Once you log in, generate prod / sandbox keys from the account page.
Nope. I've logged in. Registered. I'm a paying customer, using it in production, and there's no visible way to generate a sandbox key, except 'go to plus'.
TaxJar provides a sandbox environment for automated testing and development on all TaxJar Plus plans. After generating a sandbox API token, point your API client to the sandbox environment...
There is no sandbox API available without 'plus'. Perhaps you had an earlier version and are grandfathered in?
Yeah, it seems like something the payment processors have to handle automagically in some manner. Otherwise, small online merchants are going to have no practical choice other than 1.) Selling through e.g. Amazon or 2.) Just ignoring the law.
That seems to only address calculating the tax however. Presumably the business is still expected to remit the tax collected to each tax jurisdiction as required plus whatever necessary paperwork.
It doesn't really work very well together at all unless you're using Stripe Orders for physical products. You can't make the Stripe checkout.js show taxes, and it's just a big pain to integrate the API. There's a big opportunity for Stripe here to make it really simple, I would be happy to pay extra to have them completely deal with it.
Keep in mind that Stripe only provides automated tax calculations for their Orders API (previously Relay) at this time. You'll have to use a sales tax API to handle calculations for subscriptions and one-off charges.
What a boon for SaaS payment providers, and what a loss for both smaller and larger shops doing things in-house.
We are seeing in action the consolidation and corporatization of the internet, as regulators and laws catch up from the wild west days. This is how every industry goes, but start saying goodbye to startups as they've been for the last 15 years. Already its a better deal for most workers to just work at a bigco (and has been for a while).
Of course, this doesn't address whether internet sites should have to deal with state taxes (they probably should), but gosh everything is getting a heck of a lot more complicated.
The situation for retailers shipping to states where they have no physical presence reminds me of the situation of foreign retailers with significant online sales to customers in the EU.
In each case, the seller (who has no physical or other presence in X) is required to collect tax from the buyer (a resident of X) and remit it to the tax authorities in X.
The tax is owed by a resident of X, to the tax authorities in X. But the tax authorities in X want someone outside X to collect it on their behalf.
EDIT: According to Wikipedia, some states charge sellers sales tax, and others do it the way I assumed (tax is charged to buyers, but collected by sellers).
That is the price of doing business with customers of the EU, similar to how you must comply to EU regulations if you want to sell physical goods. In return, you get access to the EU market and can deal with a single ruleset for the whole EU instead of each country individually.
Also, this is only for consumers, to business customers you can reverse-charge the VAT so they have to handle it.
Anything can be construed as 'the price of doing business'. If the EU instead required every retailer with at least one customer in the EU to get a tattoo of the EU flag, in return for getting access to the market, would you also consider that just 'the price of doing business'?
My objections to this are:
- If an EU country is owed tax by people resident within its borders, then perhaps the country's tax authorities should arrange for it to be collected, rather than relying on some foreign entity (e.g. Chinese company) to collect it.
- There are ~200 countries in the world. Should any company who wants to sell over the internet need to know about the sales tax or VAT registration thresholds in each of those countries? If so, this gives a huge advantage to large retailers over small ones.
> - If an EU country is owed tax by people resident within its borders, then perhaps the country's tax authorities should arrange for it to be collected, rather than relying on some foreign entity (e.g. Chinese company) to collect it.
As far as my experience goes, that is the case when seller is outside of EU. Buyer needs to pay customs the taxes on the item. In Finland it's common that when package outside of EU arrives in Finland, customs will hold and send buyer a message to declare item and pay taxes on it, especially if the value was declared on it (though they won't tell you what value was declared on it which can get tricky with things such as mixed electronic & physical goods on Kickstarter). It has it's own share of problems, like that buyer needs to figure out the TARIC code of the item (which are extremely specific, like "Waterproof footwear with outer soles and uppers of rubber or of plastics, the uppers of which are neither fixed to the sole nor assembled by stitching, riveting, nailing, screwing, plugging or similar processes - Other footwear - Covering the ankle but not covering the knee - With uppers of plastics").
Within EU it used to be that seller collected local VAT if their sales didn't exceed certain threshold to the buyer's country (100k IIRC). There has been some talks about modifying it so that seller would always need to collect buyer country's VAT, but I don't remember what is the current state of it is.
> If an EU country is owed tax by people resident within its borders, then perhaps the country's tax authorities should arrange for it to be collected, rather than relying on some foreign entity (e.g. Chinese company) to collect it.
That's the case, no? When I order stuff from AliExpress, the seller's only responsibility is to declare the item value honestly, it's then up to the carrier and local customs to charge VAT, import duties and fees.
Business whine a lot, but if the tax authorities actually stopped every package, analyzed it, calculated the tax and then charged the tax plus the cost of this whole process, the final cost to the consumer would skyrocket, they would stop buying online, and those businesses would go bankrupt.
Online business already have a bunch of advantages over brick-and-mortar, having to keep a database of VAT rates, and then generating a report and sending a few bank transfers is not that onerous in comparison.
Isn't this at some level taxation without representation? If I don't like how some other state is taxing, I can't alter that behaviour by voting. At least in my current state I might have a chance to do so.
Am I missing how this operates? I see others on the article making the same claim as you, but isn't the ruling that if company X sells to person A then the state where A resides gets to tax the sale? So in any transaction there will be one or more party that can vote on the tax. You can hardly complain about that unless you think it is valid to tax transactions that occur between two people if and only if they live near each other. Edit: and the sales tax was already legal to impose, the only change is whether the purchaser or the seller collects it. So this doesn't change whether anything is taxed, hence not changing whether it's taxation without representation.
The taxation is on the person living in that state. Most states require that a person buys something and doesn't pay sales tax, they are supposed to self-report and pay the tax. (Most people don't).
>The taxation is on the person living in that state.
Right, and before this decision, it was that person's responsibility to remit. Now it is the business's. So the burden of remittance has shifted to the disenfranchised party.
Not really disenfranchised. You don't have to sell to someone in another state if you don't want to.
The laws of various states place many restrictions and requirements on businesses who want to sell to their citizens. This is just another one of those.
>The party paying the tax votes on representation.
Technically the business is "the party paying the tax", in the sense that they are the party sending money to the government. If I drop ten dollars on the counter and sprint out of a store carrying an item that costs ten dollars plus tax, the store is still responsible for paying tax on that item to the government.
By that measure, if I am driving through a state, and I don't like their gas tax policies, me paying tax on gas that I had to buy while driving through is also taxation without representation.
This is about whether using a common carrier to ship goods somewhere is considered a business nexus. And the supreme court ruled that it is, if you are making 200+ shipments a year or $100k in revenue.
>Isn't this at some level taxation without representation?
I'm not a fan of the ruling but I would expect the answer to your question would be: "No because you aren't forced to buy the product from a retailer in that state"
From the perspective of "the retailer is being taxed," then this _is_ taxation (of the retailer) without representation. But of course, almost every retailer passes sales taxes right along to the consumer, so "the retailer is beng taxed" is only true in a theoretical sense.
And if the retailer really doesn't like it, they can just not sell to customers in the state. But we know that's not going to happen. Like you said, the customer is the one paying the taxes, and the customer is the one who votes to elect those who make the tax laws that affect him.
This is good news for the country, even if it's bad for my wallet. The prior state of affairs was absurd. Online retailers already have major advantages in terms of convenience and inventory. Getting a N% discount vs. brick and mortar by not charging taxes was completely unnecessary.
Exposing consumers to more regressive sales taxes is in no way good for the country. What would be good for the country is to abolish sales taxes entirely.
Exactly; sales taxes generally just hurt the poor and middle class. A good case could be made for consumption taxes on luxury items, but taxing things like food and inexpensive consumer items (like non-luxury clothing) simply hurts poorer people while not significantly affecting wealthier ones.
The problem with consumption taxes is it just starts a debate over what is considered necessary/unnecessary. I think you would be better off exempting people rather than classes of items.
Cleaning up a loophole that evens the playing ground for different types of businesses is a good thing. If you have a problem with sales tax or taxation in general that's a different issue.
States not having jurisdiction outside of their borders isn't exactly a loophole. If California wants to punish people for buying from Oregon, a state free from sales taxes, it should use its existing use tax and take it up with its own citizens. This ruling is saying that California can tell Oregon businesses what to do.
Sure, but there's no point in getting bogged down in strict adherence to jurisdiction when we're all one country. Would you feel better if the ruling was that an online retailer in Oregon has to get a business license in every state which would come with the same requirement to collect sales tax? Same effect, but now businesses have to do more paperwork.
If we're all one country, how did the President get elected when the majority of the country voted for someone else?
..and yes, I'd prefer that the ruling was that the online retailer had to get a business license in every state. That ruling would create such a torches and pitchforks situation from citizens suddenly having their lives disrupted that we'd quickly return to status quo.
I mean even if we lived under a monarchy we would still be one country, the two things aren't really related.
That is the worst possible reason to enact a law. It should be obvious why making people's lives worse purposefully for political posturing is a bad idea, and you run the risk of your plan backfiring and having to live forever in the now-worse world.
This isn't enacting a law, though. This is changing the interpretation of the constitution. Prior to this, the interpretation was that the framers' intent was for citizens to be governed by the laws of their own state, now it's not. Let the chips fall where they may.
I don't think the distinction between legislative and common law is really meaningful in this case. A judge making a decision in a case like this is bringing a new law into existence.
Suppose I the owner of a small retailer based out of Oregon but have a location in Ohio. Should I be exempt from collecting sales tax simply because my company is registered and HQ'd in Oregon? The previous ruling was no, Ohio has the right to require my company to collect sales tax for sales in Ohio, but the ruling required that my company have a physical presence in the state. All that happened today was that the requirement to be physically present was dropped.
I mean the law is fairly narrowly scoped and certainly doesn't give states a blank check to write laws for citizens of other states.
Interesting. One thing I've noticed is that certain on-line sellers exempt purchases to certain states. I wonder how long before they start exempting residents of states that force online sales tax collection.
"What would be good for the country is to abolish sales taxes entirely."
In favor of what, exactly? Don't pretend that sales taxes could just be abolished, and states would just go without that revenue. Kansas tried gutting their tax revenue; it failed miserably.
I'm strongly supportive of the LVT, but I'm not sure it can be the only tax strategy for every locality in a large and extremely heterogeneous country. Not every locality is seeing rapid appreciation in real estate values.
In most cases, I much prefer to buy the Prime product at a small markup. I'm confident that it'll get there faster and that Amazon will stand behind it if there's something wrong.
I hate dealing with individual sellers on Amazon, and I really don't think I'm alone in that.
The unintended consequence may be to drive business offshore. The de minimis import duty was quadrupled to $800 a few years ago (meaning no duty while US retailers pay duty buying in bulk and incorporate into the US price) and this could be yet another advantage handed to sellers outside the country.
Unless I'm totally misunderstanding this, doesn't this mean the following:
If you sell a few thousand digital goods (let's say video courses or ebooks) to people spread across 30 states in the US over the year, you will be responsible to collect sales tax and do the paperwork to pay each of those 30 states sales tax every quarter (or per year)?
When dealing with a low priced item, it's not difficult to accumulate a high number of transactions.
Not only are those fees a huge financial burden but I imagine the act of filing all of that is going to kill any motivation to do anything. For me, I'll end up either stop doing what I love (creating educational content to help other developers while making enough $ to live on) or move to a different country with a better tax system.
> The vote was 5 to 4. Justice Anthony M. Kennedy wrote the majority opinion and was joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel A. Alito Jr. and Neil M. Gorsuch.
I can't imagine we're gonna see RBG agreeing with the Alito/Gorsuch/Thomas clan too often.
I can't imagine we're gonna see RBG agreeing with the Alito/Gorsuch/Thomas clan too often.
To some extent, sure, but that's also exaggerated. The one or two "ideological" decisions with stereotypical lineups get all the attention, because general readers can pick a team and root for it, just like sports and election politics, so it makes for lots of clicks and ad eyeballs. In reality, differing lineups happen frequently, because the justices have their own unique perspectives on most cases and areas of law, and over the past several years unanimous and 8-1 decisions are up compared to the past.
All nine Justices agreed on the merit, including Justice Thomas who was in majority on Quill which he now voted to overturn. The decedent argued that the precedent, while wrongly decided, should be upheld on stare decisis grounds, and it should be left to Congress to correct the mistake.
That's relevant to specific sections not the entire thing. I really don't see any applicable fuzzy language involved.
As far as I can see it's purely a political question and they simply chose ahead of time to change their minds independent of any arguments given. That's a huge perversion of the entire idea of the supreme court.
I love these crossover rulings. They give me just the faintest confidence that the judiciary actually works, and isn't simply filled with a bunch of partisan hacks.
The media focuses on the most controversial cases. There's less headlines for court orders signed by all nine. Between even two of the most ideologically/philosophically different justices, they concur 67% of the time.
> Grover Norquist, president of the anti-tax group Americans for Tax Reform, said in a statement, "Today the Supreme Court said yes -- you can be taxed by politicians you do not elect and who act knowing you are powerless to object."
That doesn't follow. The people being taxed are the people living in that state, and their representatives are enacting that tax. As usually Norquist is making up BS to scare people.
Maybe a more precise wording is "you can be forced to collect tax from others and must pay registration fees to collect said tax by politicians you do not elect and who act knowing you are powerless to object."
While that may be true, it's meaningless. As a tourist, you are also subject to tax that was enacted by representatives you didn't elect. You can choose not to go there, just like a business can choose not to sell to someone who lives there. In California, every city has it's own sales tax, so every city I go to is taxing me without representation.
There are many many cases in the US where you are taxed without a choice of the representatives. You have a choice not to be taxed though, by not going there or doing business there.
I despise Norquist, but I believe the words above are not true in a consequential sense. The law may say 'the state taxes the consumer', but who is meaningfully affected?
The business handles the mechanics of collecting and paying the tax. And whose pocket the tax really comes out of depends on the elasticity of demand, IIRC my economics. That is, it depends on how much the business can raise the price without hurting profits:
If the product is highly price sensitive, something like a can of peas, then the business can't raise the price very much without hurting demand and the tax will effectively come out of the business' profits. If the product is highly price insensitive, such as life-saving drugs, then the cost of the tax will be passed on to the consumer.
The sales tax is collected after the transaction, so price elasticity has nothing to do with it.
What you wrote applies to other things like an increase in rent or property tax, which has to be built into the cost of the product. But it doesn’t apply to sales tax.
I'm not sure what you mean - would you explain? To the degree demand is inelastic, the seller will pass on the cost of the tax to the buyer. The buyer knows what the final bill will be, regardless of when the government collects the tax.
(Also, when I buy things in U.S. states with sales tax, the tax is on the bill and even if it's not part of the advertised price, I expect it and it's part of my purchase decision. People regularly cross state lines to avoid sales tax.)
The business isn't paying the tax though? If the people paying the tax don't want it, they should replace their reps or move to a state that doesn't have that tax.
So we could think of it from the point of the business but that wouldn't be based in fact.
They tried that for 10 years and it didn't work. Very few people pay use tax like they should. But it wasn't cost effective to enforce every individual offender. So now they're trying something different.
Thus forcing the businesses to pay or be punished. The business likely has the option of not passing the cost along to the consumer, but in the end they are the one being forced to pay the state.
No, they are forced into being tax collection agents. But they aren’t being forced. They could just not sell to people in that state if they don’t like it.
For example, at my company, I won’t hire anyone from Kentucky because their employment costs are too high. It’s a choice I get to make. I limit my employee pool but I also avoid costs I don’t like.
Being based in California I can’t choose to follow California tax law or not, but I also get to vote here.
Both you and Cerium are correct. Depending on buyers to collect sales tax from themselves hasn't been working. And forcing someone in a different jurisdiction to do it might not be defensible.
Wrong. If you live in a state without income tax, buy a product from a company in the same state, and then ship the product to your friend in Texas, you have to pay Texas sales even though you have never been to Texas.
That's because you asked the company to ship it there. That's the company collecting tax on your friend's behalf. If you buy it and ship it to yourself, and then ship it to your friend, there would be no tax, because then you bought it and they have no way of knowing it is going to your friend.
Technically, your friend had to pay use tax when they got it from you. But they probably didn't. Which is why they want the retailer to collect the tax for them.
If a state the business doesn’t operate in imposes the requirement to collect sales tax on your business out of state, you do have a multitude of costs and issues as a small business. If the federal government wished to circumvent this with a VAT split amongst the states, that is one thing, both sane and constitutional in the face of this, but this invites a mess.
First, if you are required to possess a sales tax license with that state, and potentially municipalities or jurisdictions within the state that require the fees and paperwork yearly, there is one huge cost, both in time and fees. No software will absolve your liability of this if you mess it up or dont pay the fees, you as the business own it.
If you are required to file monthly or quarterly statements with the state along with any remittances, there is time and costs there. File late, file incorrectly, fees and interest on top of the tax obligation. Refuse or forget to pay the tax to a jurisdiction in backwater Alaska, time and money to wrestle with tax auditors from another state if they pursue action. How will the states negotiate auditors and tax authorities stepping all over eachother within their jurisdictions.
Need to purchase extra services to juggle the spiderweb of compliance, reporting, and remittance issues, there is also more cost, whether in your additional time ($), accountants ($), or third party services ($). Keep in mind, none of these things absolve you of liability if you mess this up.
You aren't being forced though. You can just choose not to sell to anyone in that state if you don't like the terms. The only place you can't do that is the place where your business actually is, and in theory you get to vote there.
So he's totally wrong -- you're not being forced to do anything. You're choosing to pay the tax.
I too would prefer to see a federal VAT, but that would not receive Norquist's blessing any more than this has. Anyway, this decision leaves the door very much open for Congress to step in and fix things; it just throws out the nexus rule created by the Court in the Quill decision. One would think that Republicans would celebrate the reversal of an example of "legislating from the bench".
So, if a state has a flat sales tax for all purchases then that's pretty easy to implement. But often you tax different categories of product at different rates. And there are fuzzy edges. The advertisements for Fig Netwons famously were "a cookie is just a cookie, but Newtons are fruit and cake." But is that true, legally speaking? And if it's true in one state jurisdiction does that that necessarily translate to another? How you you avoid having to figure out the tax rate for each product you carry in each of the 50 states?
That's true but stores have an advantage in that if they mess up it's harder for regulators to notice. But I'd bet the way this actually works is that companies mess up on this all the time and regulators will yell at companies to fix it before they start resorting to fines.
This is great news for Amazon. They already collect sales tax on everything they sell in most states (47 I think?). Now that smaller sellers (marketplace sellers, eBay, etc.) also have to collect tax, that hurts the ~8% discount built in, so why even shop around?
The problem with Amazon is that shipping can take months for non-prime users. In most cases you are better off buying from walmart if they carry the item.
How does f'ing the third-party sellers help Amazon? You know they make money from them, too right? If anything Amazon and eBay have offloaded inventory and sometimes logistics risk onto third parties and they're happy to just extract rent. They're not interested in going back to be a first-party warehouse of everything.
There should be no sales tax to begin with, Or income tax or property tax.... Most taxes can be simplified and reduced to a 1 simple wealth tax.
If you look at this matters with some attention you realize system works against poor...
Only income taxes are progressive. And Rich don't get richer because of their income.
Whether you're a trillion dollar company or about to make your first sale to pay rent you owe same amout of sales tax.
Wether you live in NYC and pay 3k in rent or live in Alaska you pay same federal income tax.
.... Wealth tax is way simpler... It let's govt tax wealth/income on its last form. Like a fraction in reduced form, or equation that's been simplified.
Easier to conduct business, easier to start business, easier to pay taxes, easier to be poor. Much much fair to all.
Capital tax is not same as wealth tax. In fact if you have wealth tax there is no need for capital tax.
I suggest 4% wealth tax and remove pretty much all other taxes.
If your wealth is 200 billion, first year you pay 8 billion.
If your wealth is $5000 then you pay only.. $200, doesn't matter if you earned 400k. If you didn't accquire assets you spent it and some else have that now so they will pay it...if you bought stuff then your wealth isn't really 5k
This disincentives savings and is in many ways the opposite of VAT taxes, which many tax scholars hold out as one of the most efficient ways to raise revenue without distorting desirable economic behavior.
The incentive to be wealthy is far more greater than 4% tax on wealth could be a disincentive. Beauty of this is you only pay if you are rich, not if you are poor or even if you earn a lot and still have lot of expenses (medical, live in nyc, or have children etc)
A perpetual 4% tax on wealth is a great disincentive to saving. It's like compounding interest, but in reverse.
I would be curious to know if any politician or scholar has ever proposed relying on a single tax like this? I studied tax in law school and practiced as a tax lawyer for the better part of a decade, and I have never heard it mentioned. I'm not up on all the latest developments since I left law to build a startup, and I'd be curious to know if things are leaning in this direction now.
you say that but then what about inflation .. that is worse than 4% tax now as it hurts poor more whose most savings are in cash form, and inflation doesn't really affect say land value, it automatically adjusts. While person with $3k saving becomes poorer.
I forgot to add... to me ideal is this.
- no artificial inflation.
- fixed currency rate.
- taxes on wealth only.
- interest free limited loan by government. (ie. you can borrow x amount of money in lifetime, x increases if your wealth increases)
That's perfect to me.
The only system that can't be endlessly manipulated by conglomerate/old money/corporations/lobbyists.
>Although the court left open the possibility that other arguments could be pressed against the South Dakota law, Kennedy’s majority opinion strongly suggested the measure was constitutional, in part because it has the $100,000 threshold and...
Anyone know where the Constitution talks about this $100,000 threshold?
>doesn’t try to impose retroactive taxation.
Similar to how it presumably not limiting what arms can be sold makes it 'constitutional'.
I haven't been able to read the opinion yet, as I'm on a phone, but often these types of thresholds or tests come from related cases that have been previously decided.
Natural places to start looking in this case would be the Quill Corp. v. North Dakota or National Bellas Hess Inc. v. Illinois Department of Revenue.
(If not there, following the footnotes in Kennedy's opinion will likely get you there eventually.)
Someone needs to develop a service to make calculating and paying the sales tax easier. Something like plugin an address and it spits out the tax percentage and where to remit the payment to. Ideally the states would get together and create a centralized service so companies don't have to be mailing checks to every single county government that has a sales tax.
The problem with this is: how do you know what the tax rate is for the product you're selling? For instance, if you're in New Jersey and you're selling a clothing item like a pair of socks, then there's no tax. But if you're selling a fur coat, then there's full sales tax. There's different tax rates for different products, and it varies wildly across almost 10,000 different jurisdictions in the US.
I wonder if this extends to county/city taxes? That would open up even more ridiculous complexity.
Locally, there's a poorly structured (ie not machine-readable) spreadsheet of municipal taxes that tell you, based on _what side of the street_ you're on, whether you fall under the "mosquito district tax" that requires a small percentage more sales tax to pay for the annual spraying of mosquitoes.
Without simplifying the tax codes, I'm not sure full compliance over the web is even possible...
I work as a sales tax auditor. The answer is, you as the merchant need to know those rules. For smaller retailers they usually just tax everything unless the buyer has given some sort of exemption certificate. For the merchant you can tax exempt items as long as you remit the tax but if you dont tax a taxable item then you become fully liable for the uncollected tax. Thats why these smaller retailers tax everything.
On top of this there are also conditional taxations and tiers. For instance you pay $x in tax if you've moved $y in product $z in jurisdiction q unless condition c applies. This seems pretty nasty for any business that doesn't have full time legal and accounting teams.
When using a sales tax API, the merchant configures their product catalog by assigning products to specific tax categories or tax codes based on the sales tax provider. Some tax categories are extremely granular to accommodate the scenario you mentioned. The logic on whether or not the product is taxable in a specific state based on a certain threshold is done completely within the API when passing over tax codes for each line item.
In general you would identify the product type from a list of a lot of product types and then let your sales tax calculator as a service provider sort out what needs taxed and at what rate.
What if each state has a different set of product types?
IMO, the federal government's responsibility to regulate interstate commerce should include creating a standard of product categories. States can then tax those categories at whatever level they see fit.
That shouldn't matter too much, identify with the most granular option there is one time for each product and then let the tax provider figure out what falls into each bucket for each state. Also, UPC codes should help automate it for large swaths of products. If I buy a Sony lens cap from B&H or Amazon or Random Joe's Camera Shop it would have the same UPC and can be automatically classified by any number of tax vendors.
And that "someone" should be whoever is requiring the tax to be collected. If such a process is too complicated or expensive for a state to offer, that should be the first clue that it's too complicated or expensive to require every single business across the country to implement.
We have used TaxCloud which handles computing and paying the sales tax. You have to set what type of product each item you sell is so they know how to calculate tax for that type of item where you're selling it
The ruling gives states the power to collect state taxes, but will states require out of state retailers to also collect and remit sales tax for each county, special tax districts, and cities?
It does not level the playing field if a non-local business must collect and remit sales taxes for thousands of jurisdictions while a local business must only collect and remit sales tax for their jurisdiction. It actually flips it completely around, burdening online business more than local business.
As a small business owner, the sales tax remittance is super annoying, it's so byzantine. They often refuse to let small businesses use automated submittal unless you have enough volume, and if you don't, you have to hand write out the forms and send in a check. Per jurisdiction. Separate forms for state+county, and city. I'd rather see the states take back the taxing authority of cities and counties, and dole out funding from the state sales tax revenue based on population.
So how is this going to work? Imagine you're a small online retailer and people from every state buy your stuff. Does that mean each state can send you a tax bill? Without knowing what you owe? And what if you ignore it? What recourse does the state (that you don't live in or don't own a business in) have? Seems like none or very little. Plus, the administrative burden could be quite large for any given state. And it's a crapshoot from the state's perspective, since the state has no idea which retailers are heavily used in their states. I wonder if the states will work together on collections and figuring that part out... Seems like in the short term small sellers will be ignored by the states and the large sellers will loose. Mid to long term -- who knows... Obviously, I'm guessing.
And another thing... The idea that the states are "losing out" on revenue seems like a very simplistic way to look at things to me. First, the states have undoubtably already adjusted their tax structure to get the revenue they want/need. Lots of things affect that and the states adjust all the time. The weather (literally) for instance. It's not like there's an unaccounted for shortfall.
Second, the retailers in question are always local to a given state and their online businesses contribute to their home state's revenue. If those businesses have the administrative burden of managing sales tax across fifty states they may contribute less to the given state's revenue. Or -- they raise prices.
I think it probably hurts people starting up the most as it effectively creates a lot more regulatory risk.
In any case, an economic drag as all bad regulation and regulatory uncertainty is. There's huge uncertainty here as who knows what/if congress will do. "Nothing" is a certitude for a few more months at least. Probably a few more years. Just long enough for it not to be worth creating a business around solving the problem.
This decision has effectively killed the "internet lemonade stand", where a person with a bit of web knowledge could go online and a day or two later have a store that sold something.
Oh sure, you can still do that. But now it's going to all be channeled through gatekeepers that will ensure regulatory compliance. And run their own little walled gardens. Better not tick them off. (This is a nice little website you have here. Are you sure you're happy with that tweet you sent one night after heavy partying seven years ago? Be a shame if somebody made a fuss about that and started harassing your gateway provider)
There should also be some interesting macro changes. At some certain price and weight points, it's probably going to be easier to buy overseas and avoid taxes, at least for some residents. I would expect international shipping to tick up a bit.
Yes on international, just bought a one plus phone, came from Hong Kong, not one penny in sales tax. Quite the advantage over the iPhone x where I would have paid close to 100$ in sales tax.
This is potentially much broader though -- say you buy a domain on some registrar, do you pay taxes on that now? Every such place then needs your address, too.
And going down this road, p2p barter on the internet of any kind might be subject to a tax regime soon.
You need the address to charge them the _correct_ sales tax. In Washington State, the rate is based on the address where the product is delivered, so in the case of your example sandwich, that's the address of the deli.
Because you’re in the physical location, so you have to abide by that tax law. You’d need at least the zip code of someone to charge appropriate taxes for where that person physically is.
If you're going to take the onus away from the _purchaser_ to file correctly for his state and put it on the retailer, then there should be a uniform, very simplified way to correctly do that in place first.
If I were a lawyer, I'd be able to tell you with great certainty and precision what all the reasons are why you shouldn't look for an answer to that question here.
SaaS is taxable in some states [1], so if you have nexus in one of those states you'll want to register for a sales tax permit and collect sales tax for that state. When these states introduce thresholds similar to South Dakota, you may be obligated to collect sales tax in additional states.
You can use a sales tax API with Stripe [2] to calculate sales tax before processing the payment. From there, you'll have to remit the sales tax to the state manually or use sales tax compliance software like TaxJar or Avalara.
IF this is as burdensome as it sounds, I think Amazon will create an even-larger competitive advantage for their marketplace and start collecting and remitting taxes for all sellers in all states.
Since January 2018, Amazon has started collecting and remitting taxes for all orders / all merchants in the state of Washington and Pennsyvania, and Oklahoma will join in July.
They already do it. Why wouldn't they expand that program?
I don't understand how this can be enforced for selling digital goods online.
Right now you can process a credit card transaction with only needing the number, exp date and CVC. You do not need the card holder's billing address. You don't even need the card holder's name.
So what's stopping someone from buying your digital item (let's say an ebook or course where you use Stripe / PayPal to handle the transaction) but put in a fake address, or an address they don't live in. I don't think Stripe / PayPal will halt the transaction. Instead they might flag it as questionable but the transaction will still go through.
In this case the business owner has no idea where the customer actually lives to tax them properly and the customer has no incentive to put a real address in because they are not getting something delivered to an address.
If you run a SaaS company, you're affected too. You probably live in California (which doesn't consider SaaS sales-taxable), but other states do[1] so you'll have to start collecting taxes.
I tend to view the avoidance of paying local taxes as one of the internet's original legislation workarounds (1). The entire wholesale (you buy for resale, pay taxes when that happens) vs retail (you sell to the end user) division was abused to allow the historical "nobody pays taxes on the internet, so buy there and avoid them" logic many people used.
It would have been interesting to see how differently retail sales would have grown, especially Amazon, if they were required to wrangle with local sales tax in all the places they sold into.
Additionally, most locations have a Use Tax that's identical to local sales tax, so it's transferring the legal burden onto the buyer. Almost nobody does this.
1: It's not a new or internet-specific tactic either - many car dealerships advertise "No City Sales Tax!" and are barely on the other side of the city limits.
This wasn't invented by the internet. Interstate mail order sales delivered by railroad in the 19th century were always tax free. E-commerce inherited that system.
Ideally, there would be an API provided by the federal government that would give you a list of tax rates for any address. Where there's always a standard rate for general goods, and then any additional rates for things like school supplies or other stuff.
It's a shame that this wont apply to us here in the 51st state. US companies will continue to drive on UK roads, use UK security and UK law and UK infrastructure to access UK consumers, and will continue to pay less tax than me.
1) Consumers pay VAT not companies. Companies only collect VAT, unless you mean they are buying goods in the UK.
2) Google use EU cross border services rules to avoid charging VAT in the UK. But since it is b2b it is generally reclaimable so no gain to exchequer either way
3) Uber avoid VAT by classing their drivers as self-employed so they each run a business below the threshold for registration. This is despite being found at fault for this.[0]
So there are some very large cases of US companies not charging VAT.
So while the states and small businesses are busy patting themselves on their backs, Amazon will quietly build distribution points in every zip code and prepare for 1 hour shipping everywhere.
Sales tax has one of the most complicated structures. Recently ADP built logic to tax according to counties and sub-zones (not just states and cities) to save millions on taxes for its customers. I doubt small start-ups can afford their software. It will be great if Stripe can come up with an API to simplify this. Or else, its clearly a win for large retailers and not as much for small ecommerce stores.
Will foreign companies who sell internet services to US customers have to collect state sales taxes?
This would be a serious nightmare. We already limit our sales to Canada because if we go over a relatively low threshold, we'd have to collect and remit state sales tax for about 12 territories. Having to do the same for 11,000 US jurisdictions would instantly stop foreign entrants into the US market.
Does this mean companies need to file 50 different state returns? How can any company other than a mega-corporation be expected to handle that level of bureaucracy? Even if their are firms that pop up to handle compliance it's probably going to cost a fortune. This will put a huge strain on small companies forcing many of them out of business.
1) A US based warehouse/shipping company.
2) An offshore entity that owns the products and sells them - but the products never leave the US.
Company 2 sells the products to consumer, company 1 ships them. Company 2 is, presumably, beyond the enforceable jurisdiction of the states and therefore can't be forced to pay the taxes?
The federal government was granted the power to regulate interstate commerce. They seem more than happy to regulate matters of in-state commerce, yet when it comes to actually doing a job they have legal authority to do, standards are conspicuously absent to the points where it's quickly becoming a problem for everyone.
Anyone ever feel like a vendor is collecting sales tax, but never remitting it to the taxing authority. I remember Vonage was collecting a city\state telecommunication services tax for where I lived but only the city (not the state) actually levied the tax.
I see a opening for a SaaS business, that can automate and outsource this, and figure out how much tax is due per transaction, and then make the payments for small businesses - its something online payment processors like stripe, for example could do too.
This is a huge opportunity for payment services to value-add. Providing automatic sales tax calculation, collection and remittance (including another couple of percent for their trouble) is a no-brainer.
It seems kind of silly that the stock prices dropped for online sellers that already collect state sales tax. Is this a knee-jerk reaction or is there more to this ruling that would be cause for this?
I've lived in many a city in "flyover country" and I think it's long overdue.
The result of plunging sales tax revenue due to online shopping, for a lot of places, is bridges falling apart, underfunded police agencies, teachers leaving the profession because they don't want to live in poverty, schools without supplies, without music programs, without art programs, let alone STEM programs, colleges shrinking, faculty not being hired, roads going unrepaired, homeless population growing, libraries being gutted, social programs and social service agencies facing layoffs and shortages, and on and on.
>... is bridges falling apart, underfunded police agencies, teachers leaving the profession because they don't want to live in poverty, schools without supplies, without music programs, without art programs, let alone STEM programs, colleges shrinking, faculty not being hired, roads going unrepaired, homeless population growing, libraries being gutted, social programs and social service agencies facing layoffs and shortages, and on and on.
Non one can seriously claim the lack of sales tax revenue from out of state shippers has that big of an impact on state and local revenue.
According to the article:
>...Broader taxing power will let state and local governments collect an extra $8 billion to $23 billion a year, according to various estimates.
As a comparison in 2012:
>...Tax revenues increased in all but five states in fiscal year 2012, with some recording noticeable gains. In all, states collected $794.6 billion, a record-high that represents a 13 percent increase from 2010 totals
So even using the high estimates of 23 billion, that would be a small fraction of total state/local tax revenue. The extra few percent of revenue from taxing out of state businesses isn't going to solve the huge list of problems you listed (nor is it obvious that the money will be spend on any of those issues).
The real question with this ruling is how much it will cost all the Internet retailers to comply with the law.
All because of online shopping? It is difficult to believe some of these aren't the result of changing demographics and/or economic forces beyond online shopping
It’s about time for internet sales tax. Just how do local firms stay in business when internet based businesses can undercut them by 5-10% automatically.
> Shouldn’t this require an amendment to the constitution, to eliminate the constitution’s clause forbidding the taxing interstate commerce?
No such clause exists; there is a clause in Art. I, Sec. 9 prohibiting state import and export duties, but a tax on sales applied equally to sales into the state regardless of whether the origin is in or out of state is not an import duty, and therefore not prohibited.
I think Amazon will figure out a way to make things good for the end customer.
- They already collect taxes properly for all cities and counties for everything THEY SELL.
- They already calculate/collect/remit sales taxes for all orders(including merchant orders) shipped to Washington && Pennsylvania && Ohlahoma.
For other states, they can fairly easily take on this burden if it benefits the customer.
More friction for everyone, benefiting the entrenched leaders in all online retail spaces, looks like another step towards Balajis Network State, his Startup Society speech is amazing
https://www.youtube.com/watch?v=KiLUPvUsdXg
Unlikely. This is similar to an occupancy tax... why not soak out-of-state guests who don't have much choice in the matter, and won't be voting to do away with the tax. A SaaS business is going to refuse to do business w/, say, Proctor & Gamble and pay Ohio sales taxes? No way.
More compliance and regulation for us to deal with. How about you just tax property? It doesn't move. And also, how about the state stops spending money?
Sales tax is considered to be regressive because it takes a proportionally larger percent of income from low income tax payers. They don't own property but still need to purchase consumer goods, afterall.
Thankfully, we have computers! Any online sales program worth paying for includes automatic sales tax collection by jurisdiction.
Note, this ruling doesn’t mean that all businesses will immediately be taxed. The law over which this suit was filed requires collection if your annual business in the state is $100,000 or >200 sales, which means you’re already doing a sizeable business.
Compliance is far more complex than a simple look up table. Rates vary by state, county, city, school district, mass transit zone, water district. And each of these political subdivisions and the sales tax they assess changes with every ballot issue!
There's a lot of faxing, forms to fill, etc.
So most of the value is the vendor doing the legwork in keeping up with details and fixing corner cases. And leveraging their pre-existing trust network and economy of scale.
A computer program can't tell what category your product falls under.
Does a smock qualify as an Apron and thus it's free from sales tax? What if I print 'kiss the cook' on a smock?
Sales tax has a single set of rules that if you are in a specific physical location, but it becomes 50,000+ wildly inconsistent rule sets when you look nationwide.
Jurisdictional boundaries are very complex. The city field in an address really identifies the post office that serves the address, not the city that the address is in. Many people live outside of city boundaries, and "simple" processing may charge them city sales tax surcharges.
From experience, the city of San Jose barely knows what its border is, so I wouldn't expect others to either.
What's to stop the powers that be from lowering those threshold requirements, though, now that this has happened?
Also, "jurisdiction" is terribly complicated when it comes to sales taxes. A jurisdiction can be defined by the type of goods sold, date of sale, location, and sometimes (often?) there are overlapping jurisdictions. Full compliance is incredibly hard to achieve without a relatively pricey sales tax software solution that is actively maintained and updated every time a city, township, county, state, etc. decides to adjust something. If applied strictly this would essentially work to lock-in established, wealthy concerns and stifle entrepreneurship.
One of the nice benefits of the US system of government is that the ability to relatively easily pick and choose where to live, where to work, where to do business, etc forces the states to compete with each other to some degree. This ruling runs counter to that because using online retailers to avoid local taxes is a very low effort way to avoid local taxes or avoid funding a local government you disagree with and this ruling paves the way for states to prevent that.
I have no problem with sales tax. I have a problem with states getting a cut of transactions that did not result in transfer of money to an entity within their borders.
Sales taxes generally follow the location where the money was received, not where the goods were used. If I buy something at a brick and mortar store then I'm subject to the sales tax where that store is located. Why should the state of buyer be getting a cut of the transaction when the state of the merchant is the one that is responsible for the environment in which that commerce happened?
If I live in MA and drive to NH and buy fireworks then MA has no claim to tax the transaction because it's obviously the environment of NH that made that commerce possible at all (you can't buy fireworks in MA). What if I live in CA and want to buy some special paint or cleaning product not for sale in CA so I drive to NV to buy it? What if I want to buy a widget and my home state taxes it and some other state subsidizes it (not necessarily at the retail level, the tax/subsidy could be anywhere in the supply chain) so much that I drive to the other state. In that case my home state still has no claim to tax the transaction since it happened out of state. What if the price is so much better elsewhere I'll be willing to pay shipping from half was across the country? How does the fact that the a 3rd party (shipping company) is responsible for getting the goods to their address change the situation? Does the fact that the transaction originates online affect anything?
I have no problem paying state sales tax as long as it goes toward the state of the merchant. The state of the merchant is responsible for creating the environment that facilitated the commerce. They should be the ones getting a cut.
Edit: I genuinely would like to know what the reasoning of those who disagree with me is. I see no good that can come from allowing states to exert authority on businesses outside their jurisdiction.
The US system allows you to easily pick and choose where to live, from which where you work and where you do business generally follows.
Except in the case of living close to a border (which is a bit of a hack), you generally live, work, and pay sales taxes in the same jurisdiction in which you vote and receive services.
You're right that it forces states to compete with each other, which is great.
Your example runs completely counter to your stated narrative. Your example is one in which you live and collect services in one place, but refuse to pay taxes to support your chosen lifestyle by instead "supporting" with your dollars a system you don't want to live under.
In what way? I choose to live in Oregon. Oregon doesn't have a sales tax. So the Supreme court ruling has no bearing on me. There is nothing stopping anyone from moving to one of the states that don't have a sales tax.
Software engineers and entrepreneurs are extremely clever, numerous solutions will arise to integrate with all of the major ecommerce platforms to automate this. This won't be much of a burden on business. As long as regulations are clearly defined (unlike GDPR) the industry will deal. Uncertainty is always the biggest risk.
That depends on whether this decision gets extended to the municipal-level taxes. That's where things get really complex. The geo-boundaries on the areas where taxes are enforced aren't limited to simple city boundaries. Street number or side of the street (odd/even addresses) can matter. And taxes can vary depending not just on location, but also the items purchased. It's a nightmare scenario for internet businesses. Brick-and-mortar stores deal with this by just supporting taxation for a one specific location. If internet stores are required to support all locations, it will be a huge disadvantage.
> If internet stores are required to support all locations, it will be a huge disadvantage.
Who said anything about internet stores being required to support all locations? Nothing is stopping an e-commerce outfit from restricting sales to a particular state, or county, or city, and simplifying their tax situation considerably. And brick-and-mortar chains with multiple locations already have to deal with these rules.
I don't see the "huge disadvantage" you're talking about.
There's a huge difference between being required to support each of your locations and being required to support each of your customer's locations. Each Walmart is able to sell to nearby customers. Asking internet retailers to collect local taxes would be like requiring Walmart to get home addresses for each of their customers and collect taxes according to that address instead of the store's address.
You have no idea what you are talking about. Won’t be much burden on business? If you have physical shipping addresses, it is a bit easier, but what if you sell virtual goods/services? Billing address? But that doesn’t actually have anything to do where the person is actually buying the product. If I go to a masseuse in California but my credit card has a Texas billing address, I am still charged California taxes. So the precedent of using billing address for tax calculation is a bit ridiculous and innaccurate. What if I have a foreign billing address? So do we use IP address? My IP address routinely has me in the wrong city and sometimes wrong region. When I lived near Avignon, France, my IP would always show me as being in Corsica. Then there is VPN that could make us all in Oregon and avoid taxes completely. Oregon-as-a-Service.
Engineers are clever. Sure that might be true, but now that cleverness is going to be wasted building tax compliance solutions which aren’t even close to being “not much of a burden.”
> Engineers are clever. Sure that might be true, but now that cleverness is going to be wasted building tax compliance solutions which aren’t even close to being “not much of a burden.
Orrrrr a couple of companies will step into this problem space, solve it, and everyone will offload their tax compliance to those companies, in exactly the same way that we don't all waste 1,000,000 engineering hours on the arcana of banking and credit card networks and just offload that concern to payment gateways with nice APIs.
This is already the way it works in most of the world. HN is showing its provincialism by convincing themselves this is some kind of impossible-to-solve problem.
If the purchaser has an address in an area with taxes, you then pay it. If they do some weird VPN workaround and billing address in the Cayman Islands, then you don't pay the taxes. It's self compliance. We sent men on the moon in 1969, this isn't rocket science to calculate a tax bill.
It's really interesting to think about this. Very different types of complexity.
The smallest possible correct program implementing a tax calculator is going to be a LOT bigger than the smallest possible correct program for controlling a 60's era manned flight to the moon. The latter is more complex in other ways, of course.
Complexity can be "deep" or "wide". software for rockets is "deep and thin complexity", but calculating hyper-local minimal tax bills is extreme "wide and shallow complexity".
