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Wed Mar 4 2015 23:31:04

Supreme Court Justice Itches to Help States Collect Online Sales

By: Ina Steiner

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In 1992, the Supreme Court ruled in Quill vs. North Dakota that states can only require retailers to collect sales taxes where they have physical nexus (i.e. offices or stores). If you're reading this blog, you're most likely familiar with the battle states have been waging to try and get out-of-state retailers to collect their state sales tax.

The Supreme Court ruled this week on a case involving online sales tax collection by out-of-state retailers. We summarized the case in Newsflash, but aside from the ruling, what's fascinating is Justice Kennedy's statements in his concurring opinion.

Kennedy said doing extensive business within a state through mail or Internet could give businesses sufficiently "substantial nexus" to justify imposing some minor tax-collection duty (though it is far from clear that Colorado's law is "minor" in its impact on merchants).

He even sought to redefine the term physical nexus: "Today buyers have almost instant access to most retailers via cell phones, tablets, and laptops. As a result, a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the term."

Kennedy was openly sympathetic to the states and wrote, "A case questionable even when decided, Quill now harms States to a degree far greater than could have been anticipated earlier." 

And perhaps most surprising, he said "the legal system should find an appropriate case for this Court to reexamine Quill and Bellas Hess."

Missing from the argument is the fact that large retailers are collecting sales tax in most states already. Retailers like Macy's, Walmart, and Amazon have a physical presence in many states, therefore collect sales tax on online transactions in those states.

It may not be the courts that decide the issue - Congress has been considering legislation for a few years now, though it has failed to pass a law thusfar.



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Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

by: Paul W This user has validated their user name.

Thu Mar 5 02:46:24 2015

Justice Kennedy said, ''Today buyers have almost instant access to most retailers via cell phones, tablets, and laptops. As a result, a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the term.''

I think he has it backwards.  Those buyers are coming electronically to MY store, MY location, in the State of Washington, and if any sales tax is due, it should be Washington sales tax.

I am not going to Brooklyn, for example, to make the sale, the buyer is coming HERE (electronically) and the sale takes place HERE. The items are HERE; I package them HERE; the the proceeds of the sale end up in my account HERE.

All the business activity takes place here, and the tax revenue generated should benefit my State.  So if we want a really FAIR marketplace fairness act, it should require each business to collect sales tax where the business activity occurs, not where the buyer is located.

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

This user has validated their user name. by: Ed Gadfly

Thu Mar 5 04:27:02 2015

Sellers do your job and collect the taxes. If you do not like following the law, find another line of work.

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

This user has validated their user name. by: Rexford

Thu Mar 5 07:28:42 2015

Thank you Ed. Are you now on the Supreme Court, or are you King now?

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

by: topdog This user has validated their user name.

Thu Mar 5 08:50:12 2015

One of the major reasons why there needs to be a PHYSICAL location in a taxing jurisdiction is that without this, a company does not have a say, or the ability to vote in that jurisdiction. (I seem to recall something about "taxation without representation" causing a small furor a few hundred years ago?) And make no mistake, it would not take long for these tax entities to attempt to increase the taxes charge - taxes to non-voters have always been extremely popular and expedient, as we can witness every time we pay the ridiculous hotel tax in a city. (We built a stadium here in our town, financed almost exclusively from this tax!)
I have no heartburn over the idea of sales tax on internet sales, so long as it's done correctly. And by correctly, I mean that there be ONE rate nationwide, ONE payment to make, and ONE potential audit. If the states are so gung-ho on collecting these phantom billions, then let them do the work, let the govt sort out who gets what. But let us do what we do well, and stop imposing even more compliance costs on us.  

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This user has validated their user name. by: Ina

Thu Mar 5 09:03:18 2015

With regard to Colorado's reporting requirements - it seems doable for ecommerce platforms to display a message to buyers from a certain state advising them to pay their use tax.

But do inventory management software systems have the capability for merchants to send a report to EACH buyer that has spent over $500 in the previous year; AND to send a report to Colorado's Dept. of Revenue detailing the transactions of its residents?

I'm also curious if the latter raises privacy issues.

That's just one state!

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

by: Valaset This user has validated their user name.
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Thu Mar 5 09:32:58 2015

It is important to keep in mind that there are estimated to be 9600 different sales tax jurisdictions in the United States.  There is no question large retailers can calculate and collect the tax.  The issue becomes remittance.  And do we as small internet sellers want to be exposed to audits from all of these jurisdictions?  The paperwork alone would force small businesses to close.

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

by: Filadelfos This user has validated their user name.
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Thu Mar 5 09:44:27 2015

I agree with Paul's comment.  To paraphase some of what he said:

Buyers are coming to MY store, at MY location, in MY state.  If any sales tax is due, it should for my own state's sales tax. The buyers are coming HERE (electronically) and the sale takes place HERE. The items are HERE; I package them HERE; the the proceeds of the sale end up in my account HERE. I am not travelling out of state to deliver products & collect funds.  

''All the business activity takes place here, and the tax revenue generated should benefit my State.  So if we want a really FAIR marketplace fairness act, it should require each business to collect sales tax where the business activity occurs, not where the buyer is located.''

To Ed Gadfly:
If you are collecting sales tax for buyers residing outside of your state or any state in which you personally have a physical presence... then you are breaking the law by doing so.  Since you would be committing tax fraud, and across inter-state boundaries, that would make it a felony offense....

-Bill

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

This user has validated their user name. by: Al G

Thu Mar 5 10:10:42 2015

The argument "Buyers are coming to MY store, at MY location, in MY state" has little merit.

For there are many states that have a use tax (either a minimum dollar value or not - I don't know) which compels the buyer who buys items subject to that use tax to declare it in the state they reside. It's been around for as long as I can remember.

To wit, buy an automobile, boat, airplane, locomotive out-of-state, you will pay the sales tax when it is registered in your state!

And, the Supreme Court does not make law, it rules on existing laws passed.

PS. I'm not a lawyer, nor did I sleep in a motel which promotes such fantasies.

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

by: Filadelfos This user has validated their user name.

Thu Mar 5 10:26:43 2015

Al,

The onus of paying USE TAX is on the BUYER, not the merchant...  big difference!

-Bill

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by: Filadelfos This user has validated their user name.

Thu Mar 5 11:28:29 2015

One more thing to note... every time I have to collect sales tax, I get shorted 3% due to PayPal taking commission on the entire transaction (including sales tax)... were this compounded by having to collect for 49 additional states, I'd have to raise prices across the board to compensate for this.

-Bill

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

This user has validated their user name. by: Rexford

Thu Mar 5 11:45:43 2015

What I want to know, is how would the tax payments be distributed/collected at the county level should this go national.  Our esteemed leaders haven't even considered this.

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

by: Steevo This user has validated their user name.

Thu Mar 5 11:56:37 2015

The reason you only have to pay taxes if your firm has a physical presence in the state is because they *can't* force you to have a tax-paying relationship with a state you are not in.  That is what is illegal.

And for good reason. New York City has a city sales tax.

Can you imaging having to determine whether someone from New York who bought something from you in Washington lives in New York City, or not?

Or maybe they live in the county, or in another town that may or may not have a sales tax. These are things as a distant seller that you can't know. Nor should you have to know.

The state of New York also has sales tax.

So it's not reasonable at all for a distant seller to have to fill out a tax return to three entities in a distant state for one transaction.  It's not reasonable for you to have to send the money, it's not reasonable for you to have to do the accounting at all.

That is why you only have to pay tax to a jurisdiction that you have a tax paying presence in!

You have the right to mail things between states, but that does not make you have to pay taxes there. It's all rooted in the interstate commerce rights we have.

Just forget about that idea that you should pay once to the feds. That is the start of a federal sales tax, and no one wants that.  

VAT tax, GST and PST in Canada and VAT in Europe. We don't want that here! Not at all.  Paul is right, the customers electrons came to him if anything.  

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

by: Filadelfos This user has validated their user name.

Thu Mar 5 12:34:31 2015

Excellent comment Steevo!  

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This user has validated their user name. by: Tula

Thu Mar 5 13:34:38 2015

Great comments! I really wish those who keep pushing for sales tax collection would sit down with small businesses -- or run one themselves for a while -- before claiming the efforts involved with sales tax collection are "minor." Most small businesses won't have the resources to handle the paperwork, never mind dealing with the risks of being audited due to ever-changing tax laws in the huge number of separate jurisdictions.

Of course states want this to happen. Why not? They get more money and a few million unpaid workers to collect it for them. The expense for a business is not negligible, since it takes time and resources to deal with compliance. Large businesses have entire departments dedicated to compliance and even they don't manage to avoid audits or other problems.

Yes, there are services out there that can help, but it's yet another expense as well as another risk, since every entity who sticks a finger in your business is a potential risk of disruption or theft of information. We can control our own security policies, but have no control over what another company does.

We derive no benefit from taxes paid to a jurisdiction where we have no physical presence -- taxation without representation. We don't drive on the roads or require fire services there, so why should we be forced to spend money to help them fund these things?  

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

This user has validated their user name. by: Philip Cohen
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Thu Mar 5 14:17:13 2015

The fact is, some states have a “use” tax payable by their residents on purchases made outside the state and “imported” into the state …

I see nothing at all surprising in Justice Kennedy's views; indeed his views seem perfectly logical to me; somewhere along the way states have to be able to collect taxes to fund the services they are required to supply, and, apparently, the U.S. Congress is incapable of doing anything to logically resolve the matter ...

What the U.S. actually needs is a uniform federally applied value-added tax on goods and services; but that solution would be too simple for the still warring U.S. states and the virtually useless U.S. Congress to contemplate ...

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

by: ignatz This user has validated their user name.

Thu Mar 5 14:54:15 2015

@ Ed Gadfly
Go back and learn what the law is before criticizing those who you wrongly believe are "not following" it!

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by: Red Ink Diary This user has validated their user name.

Thu Mar 5 15:53:49 2015

@Topdog

Nice argument except - companies (corporations) don't have a vote. Yet.

They can lobby or buy politicians but they can't vote.

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This user has validated their user name. by: Philip Cohen

Thu Mar 5 17:03:59 2015

No need for big companies to vote when they can buy the product of very many people's votes ...

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

This user has validated their user name. by: Ed Gadfly

Fri Mar 6 05:42:41 2015

If they change the law, you can follow it or suffer the consequences.

LMAO at the people mad at me. I do not write legislation. I DO NOT put a gun to your head every month and force you to let PayPal take your money for not showing your listings on eBay.

In fact, there is no gun. YOU allow eBay to rip you off. You are not a slave. You are not drafted.

You choose this "work." So follow the rules.

You are not above the law. You are adults and business people. Start acting that way.

Perminate Link for Supreme Court Justice Itches to Help States Collect Online Sales   Supreme Court Justice Itches to Help States Collect Online Sales

This user has validated their user name. by: Rexford

Fri Mar 6 07:30:03 2015

Gadfly says "LMAO at the people mad at me."

Mad at you?  That's rich. I don't know any here who would expend the energy, and I don't think I've heard that phrase since grade school.

It has been my view that most here find your posts to be filled with anger and having characteristics of someone going off half cocked, that is when you are not attacking someone unfairly.  It seems to push you over the top when someone does not agree with you or do as you think that they should do.

And as for that comment about being an adult, why don't you try it?

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