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Thu June 21 2018 10:39:48

Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

By: Ina Steiner

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Online sellers may have to change their practices around collecting online sales tax after the Supreme Court ruled in a key online sales tax case. Unless Congress acts, that is - lawmakers have avoided enacting legislation to address the issue until this point.

The High Court ruled this morning: "Because the physical presence rule of Quill is unsound and incorrect, Quill Corp. v. North Dakota, 504 U. S. 298, and National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U. S. 753, are overruled."

Supreme Court Justice Kennedy delivered the opinion of the Court, in which Thomas, Ginsburg, Alito, and Gorsuch joined. Justices Thomas and Gorsuch filed concurring opinions. 

Justice Roberts filed a dissenting opinion in which Breyer, Sotomayor, and Kagan joined.

You can see the filings on the Supreme Court website.

The Supreme Court heard South Dakota v. Wayfair on April 17, and right out of the gate, the crux of the argument became apparent. Should states expect retailers with no presence to collect a tax that residents of those states are obligated to pay? As we wrote in April in reporting the arguments made before the Court: 

"When South Dakota Attorney General Marty J. Jackley said the state's small businesses on Main Street are being harmed because of the unlevel playing field created by Quill, where out-of-state remote sellers are given a price advantage, Justice Sotomayor challenged that premise.

""Isn't the problem not Quill but the fact that you don't have a mechanism to collect from consumers," she asked. "It's not the merchants who are playing - paying the sales tax; it's the consumer. They're collecting it for you. So find a way to collect from them.""

Other Justices were not as outspoken, and some indicated it was a matter for Congress, not the High Court.

In 1992, the High Court weighed in in a case called Quill vs. North Dakota, ruling that state tax agencies could not force merchants with no physical presence in their states to calculate, collect, and remit sales tax on transactions made to their residents.

In South Dakota v. Wayfair, the question the High Court considered was this: "Should this Court abrogate Quill's sales-tax-only, physical-presence requirement?"

One argument used by those in favor of overturning Quill is that the retail world is very different today from 1992 and that it's an antiquated ruling - some Justices bought that argument

States have become emboldened to defy Quill or devise other ways to try and get the use tax owned to them by their residents for their online purchases from out-of-state retailers.

For example: the "Marketplace Facilitators" laws that require marketplaces like Amazon and Etsy to collect and remit sales tax on third-party transactions. Many small sellers favor this approach since it takes them out of the equation, leaving the administrative tasks to the marketplaces on which they sell. However, for sellers who also sell on their own websites, it's not clear all ecommerce-hosting companies would help them fulfill their possible obligations.

Some proponents of overturning Quill include major retail trade organizations such as the National Retail Federation and Retail Industry Leaders Association. Some opponents of overturning Quill include the National Auctioneers Association and NetChoice, a trade organization backed by online retailers and marketplaces.

Even some of those in favor of overturning Quill seek Congressional action. In January, the National Retail Federation had said it welcomed the Supreme Court's decision to hear the South Dakota case "but also urged Congress to address the issue through federal legislation."

Watch for lots of news and analysis about today's decision, which may have major implications for online sellers - particularly smaller sellers.

Update 6/21/18: The Supreme Court referred to "substantial nexus" rather than Quill's "physical nexus"; eBay takes this to mean small sellers are protected. In a blog post, it urged Congress to act to add a small-business exemption, as we report in this article.

Update 6/23/18: See "Supreme Court Throws Out Longstanding Sales Tax Rule-Book" (link to article)

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Readers Comments

Perminate Link for Small Sellers Hit Hard by Supreme Court Sales Tax Ruling   Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

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

Mon Jun 25 01:35:49 2018

1. Every seller should collect his own State's sales tax, if any, for in-state sales.
2.  Every seller should collect a flat rate sales tax for all out-of-state sales.  (This would require legislation.)

Both would be remitted to the DOR of the State where the seller is located.  This way, EVERY State would benefit and sellers would have just one tax return to file.  
States would receive FAR more revenue with such a system than a State-by-State patchwork of taxes since no small business exemptions would be needed.

Perminate Link for Small Sellers Hit Hard by Supreme Court Sales Tax Ruling   Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

by: imbloated This user has validated their user name.

Mon Jun 25 01:36:50 2018

Oregon has no sales tax because sales taxes are unfair in that they are regressive. Regressive means that those with the least income pay a higher percentage of their income to taxes than do the wealthy. Sales tax, therefore, is inherently unfair. Since most of us are just horrible at both economics and math, most citizens don't know this. Those with wealth do know it, though. The answer is to repeal all sales taxes in all states and raise income and/or property taxes.

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This user has validated their user name. by: Shane

Mon Jun 25 01:39:47 2018

One other nightmare with this whole thing: registration. We may have to register with each state we have an economic nexus in in order to collect and remit sales tax. Lots of paperwork and potential registration fees due to each state. More money out of our pockets with no benefit to us whatsoever.

Congress really needs to step up and pass sensible legislation that protects small business.  

Perminate Link for Small Sellers Hit Hard by Supreme Court Sales Tax Ruling   Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

This user has validated their user name. by: Ming the Merciless

Mon Jun 25 01:41:53 2018

With ebafia throttling sales and hiding listings, most small and medium sellers will not have 200 sales/$100,000 to any one state.

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by: Eliot This user has validated their user name.

Mon Jun 25 02:08:27 2018

@Rexford Ruth Ginsberg voted for this, not against. Obama was all for this. He was pushing very hard for this back in 2013 and it looked like he was going to get it. Thinking that another Obama appointee would automatically vote against this is a huge assumption that has no basis in reality.

Perminate Link for Small Sellers Hit Hard by Supreme Court Sales Tax Ruling   Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

by: Chicago48 This user has validated their user name.

Mon Jun 25 05:52:57 2018

@Donald: "I believe this will hurt buyers just as much as small sellers.  One of the reason I shop online is to save money. I'll be thinking twice if I have to pay sales tax."
Also, shipping.  Not every site has a Prime with free shipping and most sites will ship free if you spend more than $25.
@Paul W. It's my understanding - and somebody correct me - in order to collect taxes for the State, we need a special TAX license.  That means about 48 states we will have to apply for and pay a tax license.  Does anybody know?

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by: Chicago48 This user has validated their user name.

Mon Jun 25 05:54:14 2018

@Shane:  "One other nightmare with this whole thing: registration. We may have to register with each state we have an economic nexus in in order to collect and remit sales tax."
That's my understanding.  

Perminate Link for Small Sellers Hit Hard by Supreme Court Sales Tax Ruling   Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

by: tniel This user has validated their user name.

Mon Jun 25 07:16:00 2018

From reading the articles it appears that unless you have 200 translations or $100,000 in sales within a specific state there will be no obligation to pay taxes to that state.

The tricky parts will be keeping track of number of sales. 200 for large states may be reality for some sellers.

Also, do you not collect in anticipation of not meeting the threshold and then if you discover you met it paying the tax out of pocket.

And lastly, ensuring that your listing tools can keep track of state sales so you don’t have to.

Thoughts from the group on my assessment?

Perminate Link for Small Sellers Hit Hard by Supreme Court Sales Tax Ruling   Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

This user has validated their user name. by: Shane

Mon Jun 25 08:29:59 2018

@tniel The Supreme Court did not set an economic threshold. This means that any state can set whatever limits they want. $100,000 or 200 transactions applies to South Dakota only. I believe Minnesota already has a remote sales tax threshold set at only $10,000. Who knows what other states will do?

Basically, this is a complete mess. Unless Congress takes action and sets an economic threshold that truly protects small businesses, many of us will find ourselves trying to navigate a myriad of complex rules and regulations and may very well find ourselves in violation of different states laws. Add the cost of registering with each state, paperwork, and potential audits, the Supreme Court did us no favors.


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This user has validated their user name. by: Shane

Mon Jun 25 08:54:43 2018

I know I just posted, but one other point I'd like to make. I think most people would agree that throughout the years Congress has generally not done a very good job. Having to rely on them to create sensible legislation? I don't know about you, but I have my doubts that they will do the right thing.

If anything gives me hope though, it was the Marketplace Fairness Act of 2013. Yes, the ACT never became law, but Congress put in a provision that protected small businesses. The small seller exemption stated that sellers with annual gross receipts in total u.s. remote sales not exceeding $1,000,000 did not have to collect sales tax. I'm hoping Congress will not try to reinvent the wheel and will simply use the Marketplace Fairness Act as a framework and truly protect small online sellers.

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by: tbyr This user has validated their user name.

Mon Jun 25 09:23:32 2018

I called ebay to ask what they will do with the tax:


THEY TOLD ME TO GO TO MY ATTORNEY FOR ADVICE:

Can you imaging that you will have to get a licence in every state, city suburb and subdivision inside the USA to collect the tax? You will hafe to know how much each place charges for the tax. And you will have to send quartly checks ever 4 months for the tax you collect? Even it it is under $1.00.  You will also need a special form that is presented by that state to send in in every quarter. If the website such as ebay does not step in and help us.  But how about if you have you website! You will still need these forms and licences to collect the sale tax I know my state charges $75.00 to keep my licence up how about all the cast for each state in the USA include PortoRico, and all of the islands that that the USA controls.  Tell me  what will that cost?

And how much will the accountant if you use one charge you to figures out this what to pay who? Or if you do it the hours it will take to do it.

Perminate Link for Small Sellers Hit Hard by Supreme Court Sales Tax Ruling   Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

This user has validated their user name. by: VV

Mon Jun 25 09:24:57 2018

The 'logical' solution is then for ebay/amazon/etsy to administratively collect & remit these taxes (Amazon already does this in some states). When this happens expect seller fees to go up.

However it ends up happening it will be sellers who are impacted the most/worst.

Perminate Link for Small Sellers Hit Hard by Supreme Court Sales Tax Ruling   Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

by: tbyr This user has validated their user name.

Mon Jun 25 09:35:25 2018

I want to know that when the stores the retailers have a customer come into the store that is on vacation from another state do they collect the right amount of sales tax, have a license to sell to that person from that state and will send that state the sales tax to that person's sate?? Congress should put a provision into law that requires them to do this as well as the small seller.  See how this is not a level playing field issue for online sellers where the retailer must do the same thing with an out of state buyer:  they should be required to get every buyer coming into to their store having to show there licensee where they re from and how much tax they have to collect from that persons state so the retailer has to send them and be licensed in that state to collect the tax for the sale pay their licensee fees too so the retailer can send them a check for their sales tax.

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by: tbyr This user has validated their user name.

Mon Jun 25 09:48:56 2018

Also what about face booksellers they need to pay tax in every state too....  

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This user has validated their user name. by: toolguy

Mon Jun 25 09:57:33 2018

"The answer is to repeal all sales taxes in all states and raise income and/or property taxes."

You've lost your mind!

People on a fixed income that own homes would be in big trouble. . .

Sales taxes are a fair way to collect.

The richer you are the more you buy and the more you pay. . .

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This user has validated their user name. by: RavenNightMyst

Mon Jun 25 10:08:05 2018

@Eliot

Some people want to blame 45 for everything, and give him credit for nothing. They are sheep. They refuse to accept much of the negative has nothing to do with him, or his administration. It was in place or started long before, (the previous 8 years and before), he was even a political factor. The fact that he's changed so much for the better already, escapes them. They gave/give a pass to the horrors, (including immigration), from 44, 42 and that Party. They don't read history that reflects negatively on their Party. They blindly believe the MSM, and never read anything or search for facts outside their small mindset. They ignore the voice of rest of the world, because CNN, the NY Times and their ilk don't report it. They fear truth, because that would mean they've been mislead, lied to.

It's my understanding that shopping cart services will do the computing and collecting, not the seller. Amazon, (and others), already pay in states they have warehouses. What might be a real issue is states that charge taxes in strange ways like blankets, but not baby blankets, deodorant but not deodorant with an antiperspirant, etc. I'm guessing they will have a global, flat "per-state" tax, not by city, etc. Honestly, I understand the issue. B&M stores in states with sales tax can't compete at all with online sellers. They've been trying to change this since 1992 when it was set, (with the loophole in place to change it), and 44 really pushed for it. It just wasn't done before the end of his tenure. I remember eBay getting signatures to fight it when I still sold there, and I left in 2014. It's not 45's or any Administration or Party's "fault". It's been a battle for decades.

Perminate Link for Small Sellers Hit Hard by Supreme Court Sales Tax Ruling   Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

This user has validated their user name. by: iheartjacksparrow

Mon Jun 25 11:15:57 2018

@tybr - You won't have to send checks. Everything will be done electronically. And unless you are selling hundreds of thousands of dollars worth of merchandise each quarter, you will most likely only need to remit the tax once a year.

I am a small seller registered in California, and I send my sales tax collected each year before January 15th, and send it by an electronic transfer out of my checking account.  

Perminate Link for Small Sellers Hit Hard by Supreme Court Sales Tax Ruling   Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

by: mcposty This user has validated their user name.

Mon Jun 25 12:25:56 2018

When will brick and mortar stores be liable to send tax to the state the buyer is from?


Anyways..judt de d all tax bills to your state treasury and let them know another state is trying to steal tgeir revenue. Because if someone in nj buys from me im charging califor is tax..as thats where my business is snd that's who deserves the taxes.

The supreme court are idiots to not see this simple fact. They have no u derstamdi g of the issue.

We shpuld all be picketing this decision. Over turn it.

The states already hsd the power to colle t tax from businesses in tbeir own state..its just tgese states ate idiots to..they et their pnline sellers not charge tax and then go after a torally opposite decision..now 49 other states will be hpunding their business ow ers for taxes lol

North dakota are imbeciles

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by: mcposty This user has validated their user name.

Mon Jun 25 12:30:38 2018

Matter of fact..every time i buy something online from another state and they are not chsrgimg MY state taxes mow..ill be turning that budiness into my states treasury for collections.

I urge you sll do the same sp this nonsense is followed to.its most badic logic fsult.

Perminate Link for Small Sellers Hit Hard by Supreme Court Sales Tax Ruling   Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

by: TomH This user has validated their user name.

Mon Jun 25 14:38:48 2018

@mcposty
I'd be careful reporting that type of incident to your State. By most states tax code rules you are the one responsible for paying your state taxes for out of state purchases.

The failure of the states to make their citizens abide by the above out of state purchase tax rules, and their (the states) looking to someone else or system to enforce their tax laws because of their failure or inability to effectively do so; IS the root of all of this mess.

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