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The U.S. Supreme Court ruled Thursday that states can require retailers to collect and remit sales taxes on out-of-state purchases. The 5-to-4 decision reversed decades-old decisions that protected out-of-state vendors from sales tax obligations unless the vendor had a physical presence in the state.
Those earlier decisions, one half a century ago, the other a quarter-century ago, date back to a time when mail-order sales were relatively small and online sales were all but nonexistent. As the justices acknowledged Thursday, however, the court back then "could not have envisioned" a world in which e-commerce sales have revolutionized the dynamics of the national economy.
Writing for the five-justice majority, Justice Anthony Kennedy said that the previous decisions "were flawed," and in the modern economy, they "create, rather than resolve market distortions." In today's context, he said, the physical presence rule is "an extraordinary imposition by the judiciary on the states' authority to collect taxes and perform critical public functions."
Furthermore, Kennedy said, the previous decisions effectively functioned as a "judicially-created tax shelter" for out-of-state retailers, and put local businesses at a "competitive disadvantage."
The problems with these earlier decisions, Kennedy said, were made "all the more egregious" by technological innovation. "The Internet's prevalence and power have changed the dynamics of the national economy," he wrote in the majority opinion.
[...] The decision was a victory for South Dakota, which, like some other states, has no income tax and relies on sales taxes to fund most of the state's services. Because of dramatic fall-offs in state sales taxes, the state in 2016 enacted a law to test the physical presence rule. Three large online vendors, Wayfair, Newegg, and Overstock, challenged the law in court, and lost on Thursday.
[...] "The chessboard just looks a lot different now," said Stephanie Martz, general counsel for the National Retail Federation, which includes 18,000 businesses large and small. "Now our members are going to be able to figure out how to construct their businesses without worrying about whether putting a distribution center on this side of a state line or that side of the state line will result in a different tax implication."
While the court made clear that the states do not have unlimited power to require sales tax collection, "The court blessed South Dakota's law," said Carl Davis, research director for the Institute of Taxation and Economic policy.
The law specifically protects small businesses from collecting sales taxes if they have less than $100,000 in sales or fewer than 200 transactions in the state. The state also provides sales tax collection software for free for any business that wants it, and using that software immunizes the business from audit liability. Perhaps most importantly, the state law does not permit sales tax collection for past purchases, meaning that businesses don't have to worry about a huge tax bill that they never anticipated.
(Score: 5, Interesting) by jmorris on Friday June 22 2018, @08:26PM (16 children)
So much stupidity here. Having to agree with a minority opinion by Roberts and three of the morons on the court. ARGH!
The big e-retailers all supported this. It is another example of big business happy to get in bed with big government to squash competition. Of course this is going to be a frickin' disaster. Anyone with half a brain can see multiple ways this is going to fail.
1. How the heck does a smaller retailer even know what tax each product sold should have applied? The rules vary wildly by jurisdiction. We will end up with a similar situation to accounting where all accounting software pretty much has to run on Windows because the one "in bed with the government" vendor selling access to updated payroll tables and forms is on that platform. A couple of firms with deep government connections will spring up to "solve" this problem for e-commerce... for a "small fee."
2. It won't stop online, the exact same logic will be quickly applied to brick stores as well, especially once systems are in place to semi-efficiently remit sales taxes back to the taxpayer's home taxing authority. How many NJ residents shop in NYC? How long until New Jersey gets the idea it can claw back sales tax? Then New York will, rightly, complain that those taxes maintain the infrastructure those shoppers are using. They will, again rightly, argue that they deserve to keep that money to maintain the city those shoppers prefer to do business in. But unless the court is willing to do another unprincipled exception the clear logic of this decision is not disputable. Sales taxes are a tax levied on the shopper and must be collected by the merchant and paid to the shopper's home territory.
(Score: 0) by Anonymous Coward on Friday June 22 2018, @08:31PM (10 children)
It'll be a web app, ad supported. Maybe you go to eBay or PayPal to figure the tax to any particular address. Google could add it to their maps.
No need to get all excited.
(Score: 2) by Alfred on Friday June 22 2018, @08:39PM (5 children)
(Score: 3, Informative) by Anonymous Coward on Friday June 22 2018, @09:14PM (4 children)
It might be a little bit more complex.
Different items are taxed differently, so you'll also need to provide the tax rates for each type of product. Some products are exempt from taxation, but that varies by location, so you'll have to track all the products that aren't taxed, too. Perhaps 10,000 different categories might do it. Eh, maybe more.
Also, some taxes aren't the same all the time. You'll have to include, for each product and each location, an array of dates where the rates may vary, and how much the rate is during that time. Again, some states do things like give a few days of tax-free buying for back-to-school items a bit before school starts, so you'll have to track all that too.
Some states have inter-state agreements about taxation between neighboring states. So you not only have to track where it's going, but where it's coming from.
Oh, and any of it can change at any time a legislature or town council decides to change it. So you get to track all that, too.
As a now retired data analyst, good fucking luck.
(Score: 2) by Nerdfest on Friday June 22 2018, @11:01PM
I've worked on code to do something very much like this nationally, and it's a fucking nightmare. Doesn't help when it's badly done, and in the wrong language for the job, but even so it's nutty. Last I checked, the rules (in this system) for alcohol and tobacco were especially complex, based around amount, percentage alcohol, litres of pure alcohol, etc, with lots of special cases for extra spaghetti goodness. Expecting small companies to deal with this stuff will end badly. Is this the corporate equivalent of the cycle where poor people get a lot of fines, etc? Seems a bit like it.
(Score: 2) by Immerman on Saturday June 23 2018, @03:17AM (2 children)
It could be simplified immensely if a definitive federal database was established, with each state responsible for keeping their section up to date. You put in an address, it gives you a tax breakdown for out-of-state sellers. Ideally something easily downloadable and open source, so that instead of notifying the federal government of every transaction, you can download the program, keep the database synced every [legally mandated time interval], and it'll tell you what combined tax to charge any address, and spit out a list of tax totals and recipients for you to pay every sales-tax day.
Maybe local taxes are included, maybe you have by-product-class taxes, maybe those are details that get compromised away in the name of expediency. This is all firmly in the domain of politicians after all - they all know how the sausage gets made.
And quite likely, every major sales portal, shopping cart provider, etc. offers to do all the work for you for a modest fee.
(Score: 0) by Anonymous Coward on Saturday June 23 2018, @01:11PM (1 child)
Likely organized by zip code?
Each zip code has a certain tax rate associated with it, along with payees?
This is one of the problems we run into when our government has grown so large as to micromanage everything like this. From what I see, the cost of complying is greater than the tax itself. The net result being just a bunch of busywork. Same problem we have in healthcare/insurance. Its like having highly inefficient power couplings in a system... so much overhead and the thing barely runs - and from what I can tell, it looks like the system is almost ready to stop.
(Score: 2) by Immerman on Saturday June 23 2018, @02:49PM
Hey, if there's reliably(enough) only one tax jurisdiction per zip code, that sounds like a wonderful idea. As for the cost of compliance - if you sell things you already have to collect and remit taxes, unless you refuse to do business with in-state customers? It costs you what, 2ms to have your online store front look up and apply the appropriate tax rate during the order, and add a bookkeeping entry to remit X taxes to Y? Yes, the storefront software needs some added features, but how many people actually write their own storefront software rather than using a commercial product?
It's only keeping the database updated that's any sort of issue - and even that's trivial if you avoid local taxes. Or have a centralized database where the information is stored. No micromanaging - just a single location you can go to to get all the data at once, in a standard-format data file that any storefront software can reliably read.
Personally, I think the ideal solution for "full taxation" would be to set a flat "interstate sales tax" rate, at least for local taxes within a state, and a streamlined way to remit all the taxes at a per-state level (e.g. here's a check for total state and local taxes, and a breakdown of purchase amounts by zip code so that the state can distribute local taxes appropriately) As a seller you already collect all that information anyway.
If you want to simplify it even further, just leave out local taxes altogether - you just collect and remit taxes for each state at a flat per-state rate - no variation based on product categories,etc. and you only have to keep track of 50 tax rates (plus all the category and local stuff within your own state) Let each state decide for itself if they want to charge a higher interstate rate and distribute some of it to localities according to whatever policy they want.
The thing to keep in mind is that this isn't establishing new interstate tax policy - it's just opening the door for such a policy to be created. Everyone involved on all sides will be politicians well-versed in compromising to ensure their pockets get lined.
(Score: 3, Informative) by jmorris on Friday June 22 2018, @08:44PM (1 child)
You have to know WHAT you are shipping WHERE on behalf of WHO and WHEN it is ordered and WHEN and WHERE it is probably delivered. Sales taxes vary wildly based on what is sold, how it is sold, etc. Buy a 2L bottle of cola and pay one rate, buy a fountain drink and pay another, get it with a meal and pay a third rate. Many places exempt items like food from some/all sales tax, but sometimes not if it packaged or sold for "immediate consumption. So having a box delivered would be one tax rate, 1HR delivery can trigger a different rate. Some jurisdictions have tax holidays on school supplies during "back to school" season, there are calls to make "feminine hygiene" products tax exempt, other products have special surtaxes, like the "soda taxes" becoming popular in Blue Hells. The list of special taxes and exemptions is as limitless as the ever growing list of genders because it all springs from the diseased mind of the same Progs.
(Score: 2) by Immerman on Saturday June 23 2018, @03:35AM
Of course the law remains to be settled, but it's a good bet that the geographical tax will be based on where it was bot (the shipping address), and not much else. I mean, when you're visiting Sonoma, California and buy a bottle of wine for your friend in Wisconsin, nobody cares where you're from, or where your friend is - the purchase was made in Sonoma, California you pay the taxes for Sonoma, California.
And conveniently, as the seller you already know the mailing address.
As for categories especially the fact that category boundaries can vary from place to place - I would expect that presents a sufficiently complicated problem as to be recognized as intractable, with the result being the establishment of a single "interstate mail order" tax rate. Heck, charge the highest rate across the board, good for encouraging people to keep their money local.
(Score: 2) by choose another one on Saturday June 23 2018, @12:31PM (1 child)
> It'll be a web app, ad supported.
Yeah, but it'll only work with one particular version of Internet Explorer because that was what was written into the ten year govt. outsourcing contract.
(Score: 0) by Anonymous Coward on Saturday June 23 2018, @01:52PM
And will run on Cold Fusion.
(Score: 3, Interesting) by VLM on Friday June 22 2018, @09:02PM (2 children)
Varies by state. Not where I live, not for IT/software type stuff. As a gross generalization where the trade happens is where the tax is paid. My state is even kinda forward thinking and has a cloud "good faith" exception written into the text of the law where if a client later moves software that I have a maintenance contract for from locale A at tax rate X to locale B at tax rate Y and doesn't tell me, as long as I keep paying tax rate X I am legally not in bad faith WRT dodging taxes until formally notified they moved (registered postal mail every time some vmware admin does a vmotion? Damn if know).
On the other hand the same jerks are not so forward thinking about prewritten bundling laws. Any prewritten contamination means the whole product is contaminated into taxable prewritten status. If I write you custom software and provide it alone, thats tax-free. If I include a copy of prewritten FOSS "for your convenience" then that is explicitly under the law turning the whole project into providing prewritten software and I have to tax the whole product at full rate unless I do some hair raising invoicing. So its not like I live in a paradise.
I'm pretty sure the universal legal phrase you're looking for is "Sourcing Rules"
(Score: 2) by Immerman on Saturday June 23 2018, @02:54PM (1 child)
I would think it would be easy enough to give the FOSS as a free gift - explicitly NOT bundled, because you are explicitly NOT selling it. Since it's FOSS you could even make it conveniently available even to non-customers, as further evidence that you are definitely not selling it.
(Score: 0) by Anonymous Coward on Saturday June 23 2018, @05:44PM
I'm not sure that would fly if the FOSS stuff was an integral or important part of the system he's building for them.
(Score: 2) by AthanasiusKircher on Friday June 22 2018, @11:56PM (1 child)
To point #2: this is generally already the case, except the responsibility falls on the consumer in form of "use tax" that should be reported on your income tax each year.
If you buy goods in anothet retailer in another state and then import them to your home state, you generally owe taxes unless you already were charged them at the point of sale. (Most states have reciprocal agreements covering such cases, though if you didn't pay as much tax when you bought it as you would have in your home state, you may have to report it for use tax and pay that tax. Depends on state, I think.)
(Score: 2) by jmorris on Saturday June 23 2018, @03:06AM
You were supposed to report online sales as well. Nobody did, which is why they got so hellbent on making out of state merchants collect and report. Expect the same thing to be pushed to physical retail as soon as the infrastructure is in place to permit it. Which means shopping destination cities / states are going to lose a metric assload of money and start agitating for "something" to be done.
Of course this ain't done in the courts yet. Just wait until somebody actually tries to enforce this bullcrap SCOTUS just dumped in everyone's lap. So CA gets to send auditors over to TX to go over some e-retailer's books? And if they find irregularities they do what? Extradite em to CA? Charge them in TX? Work out a reciprocal agreement with TX? Good luck in states without a sales / use tax. All those questions and more will quickly start working back up the courts. There is a reason courts have left mail order exempt from sales tax, it is a legal and regulatory nightmare.
But in the end everyone will have the rules of the worst (i.e. CA) state rammed down their throat unless they explicitly and publicly refuse business from the worst offenders. Which will trigger escrow shipping companies to suddenly take on a new importance. People in the shunned States will pay in crypto, ship to a blind address with an account code, etc. Wonder which state will become the haven state the escrow companies end up setting up shop in? Or will it be Canada?