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Thread: Changes to sales tax law.

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    Default Changes to sales tax law.

    Sales Tax: Supreme Court Ruling Affects Retailers and Consumers
    A new U.S. Supreme Court ruling paves the way for states to require Internet sellers to collect sales tax from consumers — even if they don't have a physical presence in the state. (South Dakota v. Wayfair, No. 17-494, June 21, 2018) In doing so, the Court has reversed the long-standing, but controversial, precedent in Quill v. North Dakota. (504 U.S. 298, May 26, 1992)
    This landmark decision, reached by a narrow 5-4 vote, puts online retailers on the same virtual sales tax footing as brick-and-mortar stores.

    Sales and Use Tax Basics
    At last check, 45 states plus the District of Columbia impose a sales tax on businesses located within the state. (Only Alaska, Delaware, Montana, New Hampshire and Oregon don't.) Each business is required to collect this sales tax from consumers when transactions happen. In addition, states with sales taxes have a "use tax" that effectively mirrors the sales tax. The use tax applies when businesses don't collect sales tax, but have merchandise delivered into the states.
    Thus, the sales tax and use tax of a state are mutually exclusive. In other words, either the sales or use tax applies to a transaction, but not both.

    For many years, businesses — from big-box retailers to boutiques on Main Street — have collected and remitted sales and use taxes to state authorities. But then the landscape changed dramatically with the proliferation of online sellers.
    Initially, there was no clear-cut consensus about sales tax responsibilities for Internet-based sellers. However, states quickly recognized an opportunity to generate tax revenue. Because their efforts were aimed mainly at merchandising giants like Amazon, the laws designed to impose sales tax on these sellers were often dubbed "Amazon laws." Currently, Amazon voluntarily collects sales tax for products it sells directly (but not on third-party purchases).
    In the 1992 Quill case, the U.S. Supreme Court ruled that states can force online sellers to collect and remit sales and use taxes only if the business has a presence or "nexus" in the state. Generally, this required the entity to maintain a physical presence in the state, such as a warehouse or delivery center. Otherwise, the online sellers weren't legally responsible for this obligation.

    To further complicate matters, several states — including California and New York — ramped up their efforts to collect sales tax from Internet sellers by expanding on the basic concept of nexus. This has led to a bewildering quilt of state laws on this issue. At the same time, Congress wrestled with proposed legislation that would impose sales tax collections on a national basis, while traditional brick-and-mortar store owners protested their competitive disadvantage. However, no legislation has been enacted by Congress. So, the decision was left up to the Supreme Court.

    New Tax Environment

    Similar to other states, South Dakota enacted legislation in 2016 that requires all merchants to collect a 4.5% tax if they received more than $100,000 in annual sales or more than 200 individual transactions from residents within the state. When three large online retailers — Wayfair, Overstock.com and Newegg — failed to comply with these standards, the state sued them. Justice Anthony M. Kennedy, who wrote the majority opinion, noted that online retailer Wayfair, in particular, has played up the omission of state sales taxes in its advertising materials.

    The lower courts ruled in favor of the online sellers. Now the Supreme Court's reversal turns the tide.
    Justice Kennedy emphasized the way that the retail marketplace has changed since Quill was decided back in 1992. At that time, mail-order sales totaled $180 billion. In 2017, e-commerce retail sales alone were estimated at $453.5 billion. Combined with traditional remote sellers, the total exceeded $500 billion last year.

    "When it decided Quill, the Court could not have envisioned a world in which the world's largest retailer would be a remote seller," the opinion states. "…The Internet's prevalence and power have changed the dynamics of the national economy."
    According to the Court opinion, the costs of complying with different tax regimes in this electronic age are largely unrelated to whether a company happens to have a physical presence in a state.
    However, the majority opinion leaves the door open for some transactions to be exempt from sales tax collections if they're tiny or random. In addition, the Court offered no guidance as to whether the individual states can seek to collect sales tax retroactively.

    How Should Online Retailers Respond?

    The new ruling will exert pressure on online sellers, including those that also maintain physical locations in stores and businesses that operate out of basements and garages. There's no one-size-fits-all approach. Accordingly, retailers should consider taking these seven steps in the wake of the Wayfair decision:

    1. Consult with your tax and legal advisors for guidance.
    2. Review business activities to assess collection obligations.
    3. Develop a plan for maintaining sales tax compliance.
    4. Assess the possible effects on your business, including additional costs for technology updates and compliance measures.
    5. Analyze the means for collecting taxes in the appropriate states, including bundling of taxable and nontaxable products.
    6. Determine if the operation's technology and personnel resources are sufficient to handle tax analysis and compliance, document retention and audits. If not, you may need to outsource some of these tasks.
    7. Establish procedures for monitoring sales tax changes — such as tax rates, law changes and fulfillment practices — in various jurisdictions

    Need Help?

    It will take time to unravel all the implications, and federal legislation may still be coming in this area. Fortunately, your tax advisor can help you determine how to proceed.
    Ray Badger, Turbo Technologies, Inc.
    www.TurboTurf.com www.IceControlSprayers.com

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    Quote Originally Posted by turboguy View Post

    Need Help?

    It will take time to unravel all the implications, and federal legislation may still be coming in this area. Fortunately, your tax advisor can help you determine how to proceed.
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    No, just making everyone aware. That for me is going to be a real PITA but I have hopes the accounting software people will come up with something to deal with it. That was actually something my tax adviser sent me but I thought it might be good to share it with everyone. I am sure for those who don't have to worry about sales tax it is a non issue but just think if someone like somethingspecial has to collect sales tax for every order and remit each to the proper taxing authority what a pain it would be. It basically would not be worth being in business. Hopefully they may exempt small vendors but who knows.
    Ray Badger, Turbo Technologies, Inc.
    www.TurboTurf.com www.IceControlSprayers.com

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    A little off track but has anyone been affected, negatively or positively, by any of the other recent policy changes in taxes, regulations or trade tariffs. I haven't seen too much direct dramatic changes in the Companies I work with other than a bit more enthusiasm and risk tolerance among investors. The reduced corporate rates does make for a better pro-forma P&L for investor presentations.

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    The only thing I have run into is all kinds of price increases from our suppliers. More than I have seen in the past few years put together.

    One was funny and I think I posted this before. A few months ago we got an email from our trailer manufacturer. It said do to higher prices they would be having a 5% price increase across the board.

    6 weeks later or so we got another that I thought had a funny ending. It said. Due to the recent tariffs and the price increases we have received on steel and axles we are forced to take another 5% across the board price increase. If you have any questions about this necessary price increase please feel free to call President Trump.
    Ray Badger, Turbo Technologies, Inc.
    www.TurboTurf.com www.IceControlSprayers.com

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    I haven't yet, but I have local customers that have. When the softwood tariffs were applied, my customers got a 25% price increase, effectively overnight as tariffs went live over a weekend, and even though they buy from Canadian producers the pricing went up as if they were importing into the US. The same thing happened when the steel/aluminum tariffs were applied at the beginning of June though not to the same extreme. I'll find out if I get to pay the retaliatory tariffs of about 25%, implemented by my own government, within the next week or two.

    As for the sales tax issue, anyone know how this may fall out for items being shipped internationally that are ordered over the phone?
    Brad Miedema
    Fulcrum Saw & Tool

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    While eventually this change in sales tax collections will impact many businesses, for most small businesses, I expect that the near term impact will be minimal. Over time, the impact will likely filter down to even relatively small businesses.

    The South Dakota law that was upheld only imposes the tax on businesses that have annual sales of more than $100,000 or more than 200 individual transactions with residents within the state. Many states, based on Quill, have not imposed taxes on sellers with no physical nexus to the state. That will obviously change. If states follow the South Dakota model, many small businesses will still see the bulk of their internet sales fall under the limits.

    The biggest issue will be ensuring compliance. How do you know when you make your first sale to a buyer in South Dakota that you will not have 200 more sales within the year? Or how do you know that your sale of $50,000 in equipment won't be followed by a sale of $60,000 in the same year?

    In addition, some items that are taxed in one state are exempt in another state. Even if software has all the various state and local tax rates built in, you will need to make sure that your products are somehow coded to be treated correctly.

    Perhaps Congress will finally act to create some degree of uniformity that will alleviate the headaches of complying with thousands of states and local taxing bodies. With the current climate in Washington, however, I would not hold my breath.

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