Complying with the Wayfair Decision
Hello again,
This post is for companies that may be affected by the Supreme Court’s Wayfair Decision.
The following was written by Passport Software’s President, John Miller, to help businesses understand the effects of the new ruling. We hope you find it useful:
Local Sales Tax
Local sales tax provides a large part of the revenue of many cities, counties, and special districts. It funds things like public transportation and maintenance of the community infrastructure and other services.
So most residents of a community are conscious of the value their support of local business provides, that it is important to “Shop local.”
They also feel good about giving their business to their community, their neighbors, people they see at community events and the local grocery store.
Origin-based sales tax (based on the location of the store vs. the destination address of the customer) has been the most commonly used standard to simplify the burden of sales tax collection for retailers.
Intricate Sales Tax Laws
Some states, however, created intricate sales tax laws for domestic retailers who perform services at a customer’s location, requiring their retailers to collect sales tax based on the tax code of every customer location at which they perform service.
Then, there is California, in a league of complexity all its own, where a mix of origin and destination taxing splits revenue between the localities and requires even more complicated tax calculations.
Many states have acknowledged the burdensome nature of their existing sales and use tax accounting and several have tried to simplify the tax collection duties they have compelled their small businesses to perform.
About half have joined the Streamlined Sales Tax (SST) organization to standardize and simplify sales and use taxes to adhere to certain agreed-upon limits.
I have never boasted about the government in my home state of Illinois. In fact, it is an embarrassment.
However, in this instance, Illinois has taken the most logical stance of all. Illinois asks remote sellers and remote businesses with minimal nexus to pay the state use tax of 6.25% without any local taxes. Very well done, Illinois.
The Wayfair Decision
So, given the already complicated tax environment, how can small business remote sellers comply with the Wayfair decision? It will be a full time job just to manage:
– Navigating 10,000 plus sales jurisdictions across the country, many of which are amorphous and do not conform to city or county boundaries
– Using different tax bases (taxable product categories, i.e., clothing, food items, etc.) in each state and, (except for the SST member states, within the state’s localities, SST members agree to standard taxability within their state)
– Figuring out all the arcane rules related to taxability of handling, shipping and certain product usage rules that also vary from state to state
– Learning to use each state’s portal to report and pay sales and use taxes, even as these are being changed to keep up with reporting changes
– Monitoring sales tax changes across the same 10,000 plus jurisdictions
– Managing their own sales dollars and transaction counts by state
– Tracking the different thresholds of each state on how soon they must begin collecting sales and use tax after hitting that state’s threshold amount (Believe it or not at least one state expects tax on the first transaction after the threshold is reached)
Oh, and keep your customers and employees happy, your business running profitably, and maintain your sanity. After all, you did major in compliance in college, didn’t you?
Remote Sellers
With Wayfair, remote sellers must bear the expense and work of compliance and have no representation in the local governments that enact sales taxes. Nor do the remote sellers benefit from those taxes as compared to the local retail businesses in the community.
In fact, a remote seller might end up contributing to the remodel of a competitor’s retail district to make it more attractive to local residents. “No taxation without representation” was the theme leading to the American Revolution.
Being forced to collect tax kind of seems like a tax itself. I guarantee it is quite “taxing,” pardon the pun.
Well, I, John A. Miller, Jr. do hereby officially declare that no remote seller in these United States shall be required to collect any local sales and use taxes by any of the other states’ localities, without old-fashioned physical nexus in that state on the grounds that it is obvious to even the casual observer that such a requirement would be beyond burdensome.
Realistically, it could be satisfied only by assistance from an outside paid service.
Economic Nexus
The Wayfair decision language mentions only that remote sellers may be required by the state to pay sales and use tax to the state. It does not mention localities within a state.
So if a business meets the threshold of the state for “economic nexus,” then the base sales tax rate of the state must be paid to that state. By the way, there is no mention in the Constitution about local sales and use taxation being allowed.
I believe the Wayfair decision made excellent points, especially in the dissenting opinion, which rightfully and properly assigned responsibility for regulating interstate commerce to Congress.
Congress has the resources to research modern commerce in the states and devise a rational and Constitutional solution to the new world of Internet markets.
Until Congress sorts this out we will be plagued with uncertainty about what the Supreme Court did not clarify.
And legal challenges to states that try to bully small business into compliance with their wishes. The only ones who win that game are the lawyers.
So small businesses, unite and protest any attempts to bully you into believing that you must collect tax for 10,000 different tax authorities.
And beware, for these attempts may come from strange places such as service providers who make more money the more complex the sales tax becomes, or your own accountants, or even the media.
In the meantime, a copy of the Constitution anyone?
Post-Wayfair Software Solution
In response to all the changes happening in the sales and use tax area, we have begun to enhance the capabilities of our software to support your new sales and use tax collection obligations.
Our current sales and use tax capabilities are good, but, with the expanded requirements post-Wayfair, we know that many of you will need improved tools and we will create them.
Passport Software is in the business of helping you run your business as efficiently as possible, so we welcome your comments about how we can help. Please call 800-969-7900 to share your input.
John Miller
President
Passport Software, Inc.
1 Comment
One of our customers asked if Zip code is a valid basis for determining sales and use tax requirements. The answer I was given is that Zip code does the job about 80% of the time. Zip plus 4 improves that number to about 99% of the time, which seems pretty darn good. And there are services that use Zip plus 4. There are also services that go for that last 1% by using latitude and longitude and some complex programming to resolve it to the actual address.