Ina Steiner EcommerceBytes Blog
News and insight focusing on ecommerce.
by Ina Steiner, Editor of EcommerceBytes.com
Tue Apr 17 2018 21:57:48

Supreme Court Probes Sales Tax Impact on Small Sellers

By: Ina Steiner

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Supreme Court Justices showed they were sensitive to the plight of small businesses during oral argument in the South Dakota vs Wayfair sales tax case on Tuesday. The state asked the High Court to overturn its 1992 "Quill" decision so that states could require out-of-state sellers to collect sales tax on items sold to their residents. Quill vs North Dakota prohibits that practice unless the seller has nexus (a physical presence) in the state.

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."

In talking about how easy or difficult it would be for merchants when it came compliance issues, Justice Sotomayor asked, "What happens when the tax program breaks down, as it already has for the states who are using it, and merchants can't keep track of who they've sold to?"

(In an ironic bit of timing, the IRS website suffered an outage during the proceedings, making it impossible for taxpayers to remit payment via bank transfer today, the deadline for filing and paying 2017 taxes. To our mind, it highlights that there's no such thing as a simple software solution.)

Justice Sotomayor also pointed out the costs did not stop at fees for tax compliance software. "That doesn't include auditing. It doesn't include integrating the program with the existing sales program of the company. It doesn't account for the maintenance of the program. There's lots of costs that are inherent in a process of this type."

Many laws have provisions that exempt small businesses, but as Justice Kagan pointed out, it's not the High Court's prerogative to craft such protections, referring to the court's "binary" decision - "you either have the Quill rule or you don't," she said.

She pointed out that Congress is capable of crafting compromises and trying to figure out how to balance the wide range of interests involved in the case.

South Dakota was clearly frustrated that Congress failed to pass legislation around the remote sales tax issue. Attorney General Jackley said Congress had had 26 years to address this issue. "And it's not Congress, but it's Quill, it's this Court's decision, that is striking down our state statutes."

But Justice Kagan said such an argument gives the Court reason to pause, because Congress could have addressed the issue and Congress chose not to.

Justice Sotomayor asked what constitutes a small business. She noted that the South Dakota law at the heart of the case had a 200 sales/year minimum (to South Dakota residents) before an out of state seller would be required to collect its sales tax. (Or $100,000 in sales).

And while that's the law in South Dakota, its Attorney General admitted that there was no minimum if Quill was overturned (so that other states could have lower minimums that would impact even lower-volume sellers), but pointed out that retailers are likewise subject to regulatory burdens imposed by states - for example, states could hold a retailer responsible for selling a single defective good to a resident.

NOTE: We have more to say about today's oral argument, stay tuned.




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by: imbloated This user has validated their user name.

Wed Apr 18 00:15:52 2018

Sales taxes are regressive, meaning the poorer one is, the higher is the percentage of their income that is taxed. Sales tax, in other words, hits the lowest income level hardest. It is unfair by design. Since most Americans are so unskilled at math, sales tax has not been widely protested. Oregon has no sales tax. It's lovely.

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by: Chicago48 This user has validated their user name.

Wed Apr 18 02:35:53 2018

if Quill is overturned, it would be catastrophic for the small mainstreet seller who has both a B&M store and an online store.  Can you imagine the bookkeeping nightmare?  It's not just the online seller.  Also, there are 12,000 taxing jurisdictions in the US - cities, states, counties, and who knows where else.  Is the seller who sells a minimum of 200 items going to be required to collect for all those jurisdictions.  Right....let Congress figure it out, because it will go nowhere.

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by: Steve M This user has validated their user name.

Wed Apr 18 02:59:19 2018

What really makes me MAD like crazy is this:
"...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..."

The sellers physically here in the United States ARE NOT the ones having a price Advantage as this AG Marty says...the ones with TRULY a price advantage are the CHINESE / ASIAN sellers sending their low price goods with a 1 cent Shipping from China to whatever part in the United States (thanks to China ePacket fiasco that our own congress signed into law back in 2011 ) !!!!!

What this AG Marty (and other AGs from all 48 states) has to go after is to tell our US Congress to overturn the CHINA ePacket Deal...that way we will have a level playing field...  NONE and I repeat NONE of those Chinese / Asian sellers at Amazon / eBay / Etsy / Bonanza / eCrater and at their own websites are paying a single penny to our SALES Tax / States Taxes / Federal Taxes or County Taxes... IT is completely ridiculous how this Chinese / Asian sellers have been taking HUGE HUGE advantage of the China ePacket Deal that congress and USPS made so happen (with thanks to eBay and in part by Amazon as well !!!).



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by: GoGlobal This user has validated their user name.

Wed Apr 18 03:51:47 2018

If quill is overturned, what stops a state or city from choosing to create a separate online tax? If Michigan's sales tax is 6%, they could easily pass a seperate tax law that charges 9% for online sales.  Conversely, Brick and mortar stores are reasonable to expect that the playing field be level.  Plus, states are losing important funding on commerce that has gone online during the last decade.  The reality is that we need a federal GST law that charges a flat 5% on all commerce with a caveat that states are not allowed to levy additional sales or consumption taxes.  

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by: GoGlobal This user has validated their user name.

Wed Apr 18 03:54:04 2018

Bump to Steve M.... Why are we subsidizing Chinese Epacket shippers?  They are bypassing what should be American sellers importing those products and paying higher domestic postage.  And, generating that income for American sellers...  

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by: FeelingFroggy This user has validated their user name.

Wed Apr 18 06:05:20 2018

This is just another example of Congress that is to lazy or doesn't care to do their job. Because Congress is incapable of doing their job the supreme court will do it for them. Hang on folks. These people have no clue and you are going to be the test subject, all the while the chinese will be making millions TAX FREE,

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This user has validated their user name. by: Rexford

Wed Apr 18 07:19:00 2018

"Bump to Steve M.... Why are we subsidizing Chinese Epacket shippers?"

Steve Mnuchin.....part of a a Cabinet of conspicuous corruption. Drain the sewer.  Does wife Louise Linton (aka Modern Marie Antoinette" get her Vuitton bags via epacket?

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by: epuise This user has validated their user name.

Wed Apr 18 09:43:18 2018

ALL the hurt is ALWAYS on those who are NOT in the top 20%
Welcome to The United States Of Autocracy / Oligarchy

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by: b86fiero This user has validated their user name.

Wed Apr 18 09:47:54 2018

As Ina stated: stay tuned.

The public oral arguments are just one component in what looks to be an ongoing war being waged over state's taxing authority, interstate commerce, international online commerce, federal taxing authority, the Supreme Court, small business and consumers.

I personally do not see an easy, fast fix to the myriad issues arising from either point of view.  There is no happy medium, is there?

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by: Barbbie This user has validated their user name.

Wed Apr 18 10:00:15 2018

@Steve M Good post about epacket.

Other than the Chinese, hands down the biggest advantage,
The next advantage goes to B&M, they do not have to pay shipping, I always look at it as the tax saving slightly compensates for the postage you will otherwise have to pay for the buyer.

I blame these dumb venues for part of this plight, with all the "free" shipping expectation, it makes the really dumb lawmakers believe that there is some kind of advantage to people who have to pay 3.00 to mail something instead of collecting 50 cents in taxes.
Many small businesses still have employees, warehouse, utility bills, etc... even if they sell online. Every small business is not home based, but still is not in the position to afford the potential time and bills of this magnitude!

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by: topdog This user has validated their user name.

Wed Apr 18 10:00:45 2018

In my industry, the main players are Euro sellers located in the Irish free trade zone.
They are exempt from any taxes, including VAT and duties - plus they have heavily subsidized shipping, so they offer free 3 day shipping to the US.
They have almost completely eliminated retail sales of entire categories, as they frequently sell at or below the US dealer cost. (We've actually bought from them when the US distributor was out of stock.) Many of these items they sell used to generate a lot of revenue for us and other stores - today we sell very few of any of them. The Chinese sellers, while less of an issue for us, are still growing, and much of what they sell are cheap knockoffs and outright fakes.
NONE of these sellers will be required to pay sales taxes, Yet they make up a very large - and still growing - percentage of sales in our industry. So how is that going to help states, instead of hurting more US businesses?

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by: topdog This user has validated their user name.

Wed Apr 18 10:08:43 2018

Here's a suggestion - why doesn't someone get Fox to do a segment on ePacket, how the Chinese pay far less than it costs USPS, and how they can ship from China to NYC for a fraction of what it would cost US sellers? That would catch Trump's eye, and maybe he'd go postal on it instead of just Amazon.  

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by: topdog This user has validated their user name.

Wed Apr 18 10:14:41 2018

GoGlobal - that is precisely the problem, and what we are almost certainly going to see happen. These taxes are the Holy Grail to politicians - they're collected on those who cannot vote them out of office. They can tell their constituents that they're bringing in money without raising their taxes one dime.
Because of this, there's an incredible temptation to keep raising that tax rate when the amount it brings in doesn't meet projections (which it never does), or when they get greedy (which is their regular state of mind). Case in point - the hotelmotel tax which people pay when they stay in most cities. Originally that was in the 3-5% range, whereas now it's often around 20%!
What you're pointing out is one of the key reasons why the Founders did not allow these taxes, as they knew that they would be raised, and the other states would in turn raise theirs, creating serious barriers to interstate commerce.

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by: b86fiero This user has validated their user name.

Wed Apr 18 11:02:22 2018

Perhaps South Dakota's taxpayer dollars could be better spent on an intense campaign to bring new businesses and residents to the state.  The millions of dollars spent on legal action at the federal level may be better invested in attracting a new Amazon shipping hub, or other high level employer, which would bring jobs, new residents, attract other supporting businesses and provide new tax dollars to a state with few residents and no high tech industry to speak of.

Perhaps they could build huge warehouses to store and ship all that Chinese merchandise flooding the country.  Even if they provided the warehouse space for free to our off-shore friends,  the state sales tax they would collect could be quite a boon.  I suspect a lot more than us pint-sized businesses would ever send their way.

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by: papergoy This user has validated their user name.

Wed Apr 18 11:10:16 2018

Here's a simple question- IF it were allowed as it stands...how do you KNOW when to collect sales tax?  In other words, historically I do not sell to South Dakota 200 times in a year.  So i would not collect- but what if I sold one in January, five in February, etc- and have 40 sales come December 1, and then for some reason I pick up a killer lot of South Dakota postcards that I list and I make 200 sales to South Dakota- I can't back charge my prior customers...so I eat it?  

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This user has validated their user name. by: thehosst

Wed Apr 18 11:16:52 2018

Ina please, can you please help us small sellers send a message to the South Dakota High Street angry retail owners:

You have the opportunity to ALSO sell online, and compete with us, your location experiences sever weather issues every year, but even if it snows, rains or pours, you can still have the opportunity to balance your sales if you were to sell online. Just because you are stuck on the 80's, does not mean you have to affect so many millions of sellers who only want to make an honest living. And many millions of consumer pockets who will have to unload more cash to pay for the taxes........... only the rich will be able to avoid.  

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This user has validated their user name. by: thehosst

Wed Apr 18 11:20:41 2018

topdog, great idea. But I will also suggest Faux and Friends to display a banner saying that China sellers do not pay what we pay for postage, pay lower listing fees on eBay and Amazon and of course they do not pay taxes.. even to South Dakota.  

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by: sellerchick This user has validated their user name.

Wed Apr 18 11:30:53 2018

Looked up a little bit on Atty Gen HACKley. Lame duck in his third term.

Apparently he has decided to go out with a BANG with this landmark achievement in his final term:

This crapstorm  is obviously the foundation of future political aspirations. Another Friggin RINO.

Have no idea what his motivation REALLY is.. Maybe we should ask him on twitter: @SDAttorneyGen

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by: sellerchick This user has validated their user name.

Wed Apr 18 11:45:10 2018

Maybe I should just refuse to sell to SD so I'm no longer a threat to their merchants. I made 40 sales to SD last year... I won't miss this pint-sized customer base.

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This user has validated their user name. by: Rexford

Wed Apr 18 12:03:14 2018

topdog, Fox is a propaganda channel. Unless it is anti-liberal I am sure that they will want no part of it.  Murdoch owned media are for one purpose only--spreading Murdoch's agenda.

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