NAMM monitors tax reform issues and provides periodic updates on advocacy efforts and pending legislation. On June 21, 2018, the U.S. Supreme Court upheld a 2016 South Dakota law that requires online merchants with more than $100,000 in annual sales to state residents or 200 transactions with state residents to collect sales tax. The ruling - South Dakota v. Wayfair - allows states to require online sellers to collect sales tax the same as local stores. For up-to-date information on this issue, please visit this page regularly.
- 4/1/19: CA Remote Sales Tax Update
Update: April 2019
By NAMM Policy Counsel, Jim Goldberg
The California remote-sales tax collection law, similar to laws in many other states, illustrates the problem that many brick-and-mortar retailers are facing in the wake of the Supreme Court's 2018 decision in the Wayfair case. Unless a retailer has a robust internet sales presence, navigating the changing landscape is going to be challenging.
Not all states have adopted "economic nexus" rules (see the chart on the NAMM web page for this issue) and, for the ones that have expanded their remote sales tax collection requirements, not all of the rules are the same. Most, if not all of these states, and the ones which will surely follow in the next few years, have small business exemptions, which exclude those whose contact with the state falls below certain thresholds, usually expressed as either a specific number of transactions or a specific volume of transactions within the current or previous calendar year, e.g.., 200 transactions or $250,000 worth of sales.
Just as Congress failed to act to authorize remote sales tax collection, most believe there is a zero chance that Congress will step in and standardize the rules among the states now that the Supreme Court has acted.
Ultimately, it's up to retailers with internet or other remote sales business as part of their brick-and-mortar operation to generally familiarize themselves with the minimum contacts requirement for each of the states. for more information, visit the Federation of Tax Administrators website: Remote Seller Info State-by-State Note: this information will continue to change as more states adopt or modify their laws.
Of course, the rules requiting tax collection when one has a physical presence (e.g., stores or road reps visiting a state) remain in place.
- 3/14/19: States Enforcing Remote Sales Tax Collection
3/14/19: States Enforcing Remote Sales Tax Collection
Source: Politico Pro Datapoint, National Conference of State Legislatures, CA Dept. of Tax and Fee Administration
March 14, 2019: A June 2018 Supreme Court decision in South Dakota v. Wayfair eliminated a requirement that businesses must have a physical, brick-and-mortar presence or “nexus,” such as a warehouse, distribution center or storefront, located in a state in order to be subject to sales tax collection. As a result, more than half of the U.S. now has legislation in place that allows for the collection of sales tax from out-of-state internet retailers, also called remote sellers. On April 1, California will join 28 states and the District of Columbia enforcing collection of remote sales tax. View an infographic here.
- 6/21/18: US Supreme Court Sales Tax Ruling - NRF
NRF SAYS SUPREME COURT SALES TAX RULING CREATES ‘FAIR AND LEVEL PLAYING FIELD’ BETWEEN ONLINE AND LOCAL RETAILERS
Bethany Aronhalt, National Retail Federation
WASHINGTON, June 21, 2018 – The National Retail Federation issued the following statement from President and CEO Matthew Shay in response to a U.S. Supreme Court ruling in South Dakota v. Wayfair allowing states to require online sellers to collect sales tax the same as local stores.
“Retailers have been waiting for this day for more than two decades. The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well. This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both.”
The court this morning upheld a 2016 South Dakota law that requires online merchants with more than $100,000 in annual sales to state residents or 200 transactions with state residents to collect sales tax.
NRF argued in a friend-of-the-court brief last year that the court’s 1992 Quill Corp. v. North Dakota decision was outdated, and that sales tax collection is no longer the burden it might once have been due to changes in technology. In the brief, NRF cited a wide variety of software available to automatically collect the sales tax owed, much of its available free or at low cost.
NRF and other retail groups said in a second brief filed this year that lack of uniform collection is “inflicting extreme harm and unfairness” on local retailers by “distorting the retail market in favor of absentee ecommerce.”
The court agreed, noting “It is unfair and unjust to those competitors, both local and out of State, who must remit the tax; to the consumers who pay the tax; and to the States that seek fair enforcement of the sales tax, a tax many States for many years have considered an indispensable source for raising revenue.”
NRF has been a leading voice for equal sales tax rules for years, saying that Quill gave online sellers an unfair price advantage over local merchants.
The National Retail Federation is the world’s largest retail trade association. Based in Washington, D.C., NRF represents discount and department stores, home goods and specialty stores, Main Street merchants, grocers, wholesalers, chain restaurants and internet retailers from the United States and more than 45 countries. Retail is the nation’s largest private-sector employer, supporting one in four U.S. jobs — 42 million working Americans. Contributing $2.6 trillion to annual GDP, retail is a daily barometer for the nation’s economy.
- 3/13/18: Congress Urged To Pass E-Fairness Legislation - MFC
March 13, 2018
The Marketplace Fairness Coalition (MFC) released the following statement today urging Congress to act immediately and pass federal E-Fairness legislation:
"Congress should be the one to pass the E-Fairness legislation that merchants have supported for more than a decade to level the playing field for brick-and-mortar businesses. Due to the online sales tax loophole, states across the nation will lose more than $33.9 billion in sales tax revenue this year alone. Federal legislation can provide the simplifications and protections that would benefit sellers of all sizes. That's why President Trump and a majority of members of Congress on both sides of the aisle support federal E-Fairness legislation. Congress has an opportunity to act now to address this issue, and we encourage you to do so."
Businesses across the country are calling for an E-Fairness solution. The International Council of Shopping Centers (ICSC) underscored the damage the online sales tax loophole causes brick-and-mortar stores, "First, the loss of physical stores, many of which are integral to the social fabric of their communities, increases unemployment and creates a sense of dislocation among community residents. Second, the decline in the retail sector reduces the value of retail real estate, discourages further development of retail properties, and impedes innovation in the retail sector. Third, the lost revenue from sales, property, and income taxes threatens the ability of state and local governments to provide much-needed public services, including those that benefit online retailers."
In addition, the National Association of Wholesaler-Distributors (NAW) emphasized wholesaler-distributors with "some form of physical presence in a state are forced to operate at a clear and substantial economic disadvantage vis-à-vis remote internet sellers competing in the same markets. The disadvantage results in lost sales revenue and hampers the ability of locally-present wholesaler-distributors to grow their businesses, invest in the community, and produce in-state employment opportunities."
Furthermore, as reported by Pew Charitable Trusts today, the National Governors Association (NGA) stated, "The devastating effect on State and local economies is two-fold... First, the physical nexus requirement results in a loss of crucial revenue from owed taxes that State and local governments depend on to fund basic government functions... Second, it disadvantages in-state brick-and-mortar retailers, who do not have the same luxury of avoiding their sales and use tax collection and remittance responsibilities."
To learn about the E-Fairness issue, visit the Marketplace Fairness Coalition's website: www.efairness.org.
- 8/1/18: Online Sales Tax Victory - Alan Friedman, Music Inc
ONLINE SALES TAX VICTORY
by Alan Friedman, Music Inc.
In case you didn’t hear the big news, in June 2018 the U.S. Supreme Court ruled 5 to 4 in favor of allowing states to collect sales tax from online retailers that have an “economic interest” in their states. The decision overturns the longstanding 1992 Quill Corp. vs. North Dakota ruling, which found a state could not require out-of-state retailers to collect sales tax if they had no physical presence in that particular state. This new law now paves the way for all states to start collecting huge revenue lost under the old law, or more accurately, lost due to a state’s inability to police the sales tax that should have been collected from out-of-state customers. In short, high sales tax states and cities can now force all online retailers to collect state and city sales tax on purchases made by residents that previously escaped sales tax.
TAX LAWS MISUNDERSTOOD
What many out-of-state customers have misunderstood for years is that purchases from a retailer with no physical presence in that customer’s state were truly free of any sales tax. Yes, a retailer without a physical presence in a particular state did not have to collect sales tax from an out-of-state customer. But the out-of-state customer, whether online or mail order, was technically supposed to pay the sales tax (also called a “use tax”) directly to their home state if a retailer did not collect it. Most taxpayers never paid it either because of their ignorance of the law or because they knew their state lacked the mechanism to track and collect sales tax on their out-of-state purchase. Whether inadvertent or purposeful, this tax cheating cost states billions of dollars in revenue each year.
REVENUE LOST AND NOW WON
States were losing an estimated $8–33 billion in annual revenue under the old law, according to the ruling opinion written by former Justice Anthony Kennedy. While mail-order sales totaled around $180 billion in 1992, online sales account for approximately $450 billion with mail-order revenues pushing that figure past a half-trillion dollars, according to the ruling. “Quill puts both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers,” Kennedy wrote. “Remote sellers can avoid the regulatory burdens of tax collection and can offer de facto lower prices caused by the widespread failure of consumers to pay the tax on their own.”
There are some online retailers who were already collecting at least some state sales tax. Amazon collects tax on items it sells directly, but an estimated 52 percent of its sales come from third-party vendors who were not required to collect and remit the tax. But many large online companies never collected the sales tax, relying on their lack of a physical presence. In 2016, South Dakota passed a law compelling out-of-state online retailers to collect sales taxes and followed up by suing several large merchants (like Overstock, Wayfair and Newegg) to show they were serious. The U.S. Supreme Court ruling now gives states the right to collect the sales tax revenue they’ve been missing. States like South Dakota and Tennessee, which have no state income tax and rely heavily on sales tax, stand to gain the most from the new ruling.
But these new sales tax laws won’t come without a fair amount of tax reporting pain, especially for the smaller retailer. In a dissenting opinion from Chief Justice John Roberts, he wrote, “Correctly calculating and remitting sales taxes on all e-commerce sales will likely prove baffling for many retailers.” Perhaps point-of-sale software companies and sales tax-tracking app developers will benefit from new sales tax collection and reporting compliance.
THE LAW’S IMPACT ON ALL RETAILERS
We’ve all seen online retailers win the pocketbooks of consumers, which now leads to: What impact will this new ruling have on online and brick-and-mortar retailers alike? In his opinion, Justice Kennedy said times have changed to such a degree that online retailers no longer qualify for “an arbitrary advantage over their competitors who collect state sales taxes” by claiming they don’t have a physical presence in a state.
“The internet’s prevalence and power have changed the dynamics of the national economy,” Justice Kennedy wrote. There’s no arguing retailing has been transformed by the internet. In 1992, less than 2 percent of Americans had internet access, compared to about 89 percent today. Many brick-and-mortar retailers have seen their businesses crippled or even destroyed by the rise of e-commerce. So, it’s no surprise brick-and-mortar retailers feel vindicated by the Supreme Court’s decision and view it as a leveling of the retail playing field.
“Retailers have been waiting for this day for more than two decades,” said Matthew Shay, National Retail Federation President and CEO. “The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well. This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both.”
Frankly, many online sellers have grown so big they no longer care about the break they’ve gotten on collecting sales tax. Even with Amazon, which has been speedily building its own fast delivery network and expanding into physical retail by acquiring Whole Foods and opening Amazon Go and Amazon Books, the ruling will likely have little impact because they already collect sales tax on first-party sales in the 45 states that impose a sales tax.
But there is an unresolved “wait and see” issue. More than half of the units sold on Amazon worldwide last year came from third-party sellers, many of which are small and medium-sized merchants. Amazon’s statement on this is: “We’re not opposed to collecting sales tax within a system that’s both simple and applied evenhandedly.” Companies like eBay have asked Congress to intervene and set up some sort of tax rules to protect the merchants selling on their platform.
NO ONE LEFT TO BLAME
Online retailers, especially the bigger ones, can no longer rely on having a tax edge that has undoubtedly given them a price differential advantage over brick-and-mortar retailers. As for brick-and-mortar retailers, with a level playing field comes the harsh reality of owning up to any failure for not giving customers a good enough reason to come visit and buy.
Alan Friedman, CPA, provides accounting and financial services to music industry clients. He is a frequent speaker at NAMM U seminars and can be reached at 860-677-9191 or email@example.com. Visit his website, fkco.com.