New developments in the online sales tax debate

The government free-for-all regarding online sales tax collection continues. On April 17, 2018, the Supreme Court of the United States (SCOTUS) heard arguments in the case of South Dakota vs. Wayfair [https://bit.ly/2JYi1e6]. The Court’s decision is due by June 2018, at the end of the current term. I suppose it was inevitable that SCOTUS would get involved, because Congress just can’t seem to get the job done.

Looking at Online Sale Tax, Again

In my May 2, 2013 Behind the Gavel column, I wrote about the Marketplace Fairness Act (MFA) then before the U.S. Senate, which would have required online sellers to collect sales tax on out-of-state sales (with some exceptions). The MFA passed in the Senate but failed in the House. Since then, Congress has failed to pass an internet sales tax bill on two other occasions, in 2015 and 2017. To fill the Federal gap, some states have passed laws requiring tax to be collected on internet sales. Compliance has been sketchy. Many online retailers have complied with the new state laws. But others, like Wayfair (http://wayfair.com), refuse to comply (hence the lawsuit).

A pivotal issue is the 1992 Supreme Court ruling in the case of Quill Corporation vs. North Dakota. Most of us are familiar with this decision, even if we don’t know the particulars. In it, SCOTUS determined that out-of-state entities must collect sales tax only if they have a “substantial nexus” in a state; e.g. stores, warehouses, or some other physical presence.

To Kill Quill … or not

Examining Quill and Kill Quill

Supporters of the “Kill Quill” movement (in favor of collecting internet sales tax) assert that the 1992 decision that favored catalog and mail-order companies doesn’t work in the 21st century world of ecommerce. Opponents of “Kill Quill” (against collecting internet sales tax) assert that the collection and reporting burden for online retailers would be too great (one count determined that there were 9,600 taxing jurisdictions in the United States), and that a caveat by SCOTUS would require online sellers to collect sales tax immediately, going forward.

If Quill is killed (and sellers need no in-state nexus for sales tax compliance), how will antique and collectible dealers be affected? South Dakota’s petition to SCOTUS makes some cogent arguments for killing Quill. Here are a few, taken from South Dakota’s “Petition for Writ of Certiorari” [https://bit.ly/2qEcxfU].

States need the money. About half of U.S. states currently face serious revenue shortfalls. Online sales taxes may help pay for education, infrastructure, healthcare, and other services. As a taxpayer, would you prefer out-of-state consumers pay this legitimate expense, or would you rather face property tax or other increases to cover the shortfalls? The money change hands, either way.

As a dealer, are you willing to collect and remit sales taxes if there is no significant impact on your business? (More on this below.) The losses for States are considerable, and the money must come from somewhere. A 2012 report by William Fox of the University of Tennessee titled “State and Local Government Sales Tax Revenue Losses from Electronic Commerce” pegged

Revenue Losses

Quill-related revenue losses at $23 billion for the year. An updated study projects losses of $33.9 billion in 2018 and $211 billion from 2018-2022.

Quill unfairly harms brick-and-mortar businesses. This point is probably truer for
consumer-goods sellers than for antique dealers. We pride ourselves on well-curated, unique inventory that’s tough to compare online. Nevertheless, we’ve all lost sales (or cut prices) because someone claimed they “could get it cheaper online, with no tax and/or no shipping.” Killing Quill will level the playing field for Mom-and-Pop stores.

Keeping Quill favors out-of-state sellers over local ones.

Measuring Impact

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Lost sales aside, consumers buying online to avoid sales tax does nothing to support our local economies or provide jobs.

To the above, let me add a few thoughts:

* Most states have “small seller” thresholds for out-of-state sellers; if you sell in amounts below the thresholds (currently ranging from about $100,000/year to $1 million/year), you don’t have to report the taxes collected. Most Mom-and-Pop antique stores won’t meet the minimums. Auction houses that deal in high-dollar collectibles almost certainly will meet the minimums and will need to collect the tax (if they aren’t already collecting).

* Remember, the tax liability belongs to your customer, not you. Your responsibility is to collect and remit the taxes as an agent of the state. Though you may have no obligation to collect tax on a particular sale, the customer still has an obligation to pay the sales tax. (In most states, the tax is called “Sales and Use” tax and must be reported on one’s State income tax form.) For example, if you bought something out-of-state (a grand piano, for instance) and paid no sales tax prior to taking delivery in your state, you still owe the tax. On the other hand, if you as a seller collect sales tax from a customer, you must remit it to the state or face criminal charges.

Compliance Package Examination

Allow me to return to my earlier point It is that collecting and remitting sales tax in multiple jurisdictions may have no significant impact on your business. Had Congress passed the Marketplace Fairness Act in 2013, there would have been panic and confusion for about a year. There were few accounting systems in place for retailers to turn to, and Congress never allows enough time for compliance.

In 2018, though, there are easy and affordable compliance packages available (search “ecommerce sales tax compliance”). I’ve looked over a few, and (although I’ve never used it) I’m impressed with TaxJar.com. TaxJar seems to have all the features that small online sellers need: it’s

— Cheap (Basic plan starts at $17/month.)
— Easy (connect directly to your online platforms and/or shopping cart and taxes are totaled by jurisdiction)
— Range of services (they provide you with totals that you file, or you can set up automatic filing and you’re done).

TaxJar offers a guide that should be required reading for all online sellers who are concerned about the sales tax issue,. It is titled “The Seller’s Guide to eCommerce Sales Tax” [https://bit.ly/2J6CnRh].

That we will collect tax on ecommerce sales is a certainty; it’s not a matter of “if,” but “when.” Until a decision is made (or a law passed) at the federal level, online antique and collectible dealers face a plethora of state and local sales tax collection and reporting requirements. Most dealers continue to operate in their usual fashion and hope that they don’t incur fines (or worse) somewhere along the line.

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