SCOTUS rules states can collect sales tax on Internet purchases

[JoeWras]

In Illinois, I already pay a sales tax on my out of state purchases for "use" in Illinois. They call it a "Use Tax". I either pay a fixed amount on my state tax form based on my taxable income or I can itemize if I have kept records. I just pay the fixed amount. Currently, I can also deduct any sales tax paid out of state.

Right. Same term used in NC.

A few years ago, the "fixed amount" was outrageous. I can't remember the exact number. It was somewhere around %0.15.

This year, that amount is %0.0675. For my income and LBYM, it is still over. I only make about $300 of out of state purchases per year that are not taxed. (Amazon is taxed.) So, I manually enter it and don't take their fixed amount.

I'll give credit where due, they apparently lowered the fixed amount rate once Amazon started paying. With the new SCOTUS ruling, it will be interesting to see what the legislature does this next year.

 

[Cessna152]

I don’t understand how enforcement would work.

 

[meierlde]

I don’t understand how enforcement would work.

For those affiliates on Amazon and Walmart it will be simple to check, (about 1/3 of Amazons sales are thru affiliates for example) For outfits like Wayfair and EBay etc who advertise, a revenue agent would just try to buy something and see what happens. Partly the lower limit to when tax is due is to minimize the enforcement problem.

 

[bclover]

The one thing that was great about working in Delaware. I had everything shipped to my office. no sales tax in De.

 

[bUU]

I'm not sure if this is "fair" or not, but I do know it will cost virtually all of us "more".

One aspect of fairness stems from the fact that it puts local and remote sellers on the same playing field with each other with regard to soliciting business from any specific consumer.

There is also a fairness aspect between citizens, putting those who purchase things online on the same playing field as those who support local businesses, so that those who make a lot of remote purchases can no longer illegally evade their fair share of the costs of society.

There is no legal/fairness aspect with respect to the consumer: consumers who will be charged tax are generally only those who would have only not eventually paid that tax by way of commiting an illegal act.

I predict some Internet business that proudly brag they do not collect sales tax for shipments out of state, will see a huge increase in sales over the next few weeks and months, especially on the higher prices items.

Hopefully soon followed by their website showing, "Error 404."

 

[ERD50]

I heard some interesting commentary on the radio this morning. I didn't really agree with the first part of what this guy was saying, but do agree with the second part. For easy typing, lets use Delaware (DE) as the zero-state-sales-tax example, and Illinois (IL) as the state-tax example.

First, he was saying this is taxation w/o representation - but I don't see that, as it isn't the business in DE being taxed, it is the customer in IL being taxed. The business is collecting the tax.

But second, it is a case of IL dictating what the DE business needs to do. Hey, why should a business in DE have to do what some politician in IL tells him to do? He doesn't have an opportunity to vote in IL, so it seems to me he shouldn't be held to IL laws. Maybe he moved and set up his business in DE because he hates the idea of sales tax, and votes accordingly. But he can't vote in IL.

I suppose you can say IL is 'taxing' the DE business with the cost of compliance?

Sure, we can say that once the Feds say he has to do it, it is the Feds dictating it, not IL, and he has to vote on the Fed level. But I think that is breaking down State's rights too far.

-ERD50

 

[meierlde]

I heard some interesting commentary on the radio this morning. I didn't really agree with the first part of what this guy was saying, but do agree with the second part. For easy typing, lets use Delaware (DE) as the zero-state-sales-tax example, and Illinois (IL) as the state-tax example.

First, he was saying this is taxation w/o representation - but I don't see that, as it isn't the business in DE being taxed, it is the customer in IL being taxed. The business is collecting the tax.

But second, it is a case of IL dictating what the DE business needs to do. Hey, why should a business in DE have to do what some politician in IL tells him to do? He doesn't have an opportunity to vote in IL, so it seems to me he shouldn't be held to IL laws. Maybe he moved and set up his business in DE because he hates the idea of sales tax, and votes accordingly. But he can't vote in IL.

I suppose you can say IL is 'taxing' the DE business with the cost of compliance?

Sure, we can say that once the Feds say he has to do it, it is the Feds dictating it, not IL, and he has to vote on the Fed level. But I think that is breaking down State's rights too far.

-ERD50

Nothing forces the business to do business in IL, in general if you do physical business in a state you need a license from the state (at least). What the ruling says if you want the privilege to ship to a state you need to collect the taxes and the court just ruled that this is not an unreasonable interference with interstate commerce.

 

[ERD50]

Nothing forces the business to do business in IL, in general if you do physical business in a state you need a license from the state (at least). What the ruling says if you want the privilege to ship to a state you need to collect the taxes and the court just ruled that this is not an unreasonable interference with interstate commerce.

True, the DE business can just refuse orders from any non-zero sales tax state. Pragmatically, it just strikes me as unreasonable burden, even for the big companies (and the consumer pays). Hey, maybe that is where "taxation w/o representation" fits! The DE consumer is paying the cost of compliance for collecting taxes in states where he has no vote?

Thought experiment: Imagine Amazon only had physical presence in zero-sales states, yet were still as big as they are today, and the "go to" on-line shopping place for a large number of people. Then imagine Amazon threw their weight around and said "Enough of this. Starting next month, we will not ship to any States that are requiring us to collect sales tax for them, and no one gets a rebate on their Prime membership payment". Hah, I bet there would be a LOT of angry customers, and they would be instructed to turn their wrath towards their state law-makers.

-ERD50

 

[bUU]

This is a case of *conflicting* States rights. The SCOTUS has decided which side wins.

 

[Aerides]

Thought experiment: Imagine Amazon only had physical presence in zero-sales states, yet were still as big as they are today, and the "go to" on-line shopping place for a large number of people. Then imagine Amazon threw their weight around and said "Enough of this. Starting next month, we will not ship to any States that are requiring us to collect sales tax for them, and no one gets a rebate on their Prime membership payment". Hah, I bet there would be a LOT of angry customers, and they would be instructed to turn their wrath towards their state law-makers.

-ERD50

That would be a major gamble, since only 5 states have zero-sales tax, and they are not high population states: Alaska, Delaware, Montana, New Hampshire, and Oregon.

Amazon would need to cut revenues and profits from the other 45 states, arguably more than 98% of their sales (since most other states are higher populations - just closing off CA, TX, NY is probably 25% alone)... so I think their angry shareholders would be up in arms much quicker than their customers. (and employees, etc...)

Anyway, point being, unless you are a business catering in large part ONLY to these non-taxing states, you cannot survive by limited sales to most states.

I'd probably do the opposite, examine sales/state data, and register/collect ONLY in the 10 states where I make probably 75% of my sales, and focus there.

 

[meierlde]

True, the DE business can just refuse orders from any non-zero sales tax state. Pragmatically, it just strikes me as unreasonable burden, even for the big companies (and the consumer pays). Hey, maybe that is where "taxation w/o representation" fits! The DE consumer is paying the cost of compliance for collecting taxes in states where he has no vote?

Thought experiment: Imagine Amazon only had physical presence in zero-sales states, yet were still as big as they are today, and the "go to" on-line shopping place for a large number of people. Then imagine Amazon threw their weight around and said "Enough of this. Starting next month, we will not ship to any States that are requiring us to collect sales tax for them, and no one gets a rebate on their Prime membership payment". Hah, I bet there would be a LOT of angry customers, and they would be instructed to turn their wrath towards their state law-makers.

-ERD50

It is essentially a payment for the privilege of shipping to a state just like truckers need to pay every state they go thru their home state plates are not good outside that state. There is the apportioned license plan https://en.wikipedia.org/wiki/International_Registration_Plan which provides for plates that the fees are apportioned based on the mileage the truck puts in in each state. Otherwise a trucker has to buy a license for each state they go thru.



Anyway the point is the merchant is collecting the tax on behalf of the purchaser.

 

[Bestwifeever]

I imagine a merchant could choose not to collect the sales tax at all, but intead pay it from profits? Is the law that it must be collected directly from the customer or that it must be paid to the state by the retailer? An etailer could go that way as a marketing effort.

 

[joeea]

As always there will be loopholes in whatever law is written. For example, if a person orders via phone, is that an online purchase?

QVC already collects sales taxes for each state that requires it when ordering by phone.

 

[joeea]

Interesting I heard on the radio that Amazon already charges taxes in all 50 states and has done so for awhile regardless of each individual state law.

No, that's not correct. It would be illegal to charge sales tax in all 50 states. You are not allowed to collect sales tax from customers in states that don't have sales taxes.

 

[USGrant1962]

I imagine a merchant could choose not to collect the sales tax at all, but intead pay it from profits? Is the law that it must be collected directly from the customer or that it must be paid to the state by the retailer? An etailer could go that way as a marketing effort.

Hmm, pay 5-6% sales tax out of a 3% profit margin? That will work. Retail is very low margin. https://ycharts.com/companies/AMZN/profit_margin

 

[joeea]

I have a little on-line business that grosses about $40k per year. A hobby really. If Florida implements this I will shut it down as I cannot (Do not want to) deal with sales tax for 50 states, it will not be worth the effort.

Why Florida? Do you only sell to Florida residents? Or do you sell to any of the 45 states that have a sales tax?

You will be impacted by the state where the customer lives, not where your business resides.

 

[braumeister]

I don't know if it has already been mentioned, but one of the biggest hassles is that many (most?) of the states with sales taxes have huge variance, not only in what types of items get what sales tax treatment, but also in location (county sales taxes, city sales taxes).

At our last house, we were in a ZIP code that straddled two counties with different sales tax rates. Some of the more sophisticated online retailers (such as Apple) had it built into their system to ask me which county I lived in after I entered my ZIP.

 

[joeea]

Sure, we can say that once the Feds say he has to do it, it is the Feds dictating it, not IL, and he has to vote on the Fed level.

Right.

But the Fed isn't saying that the states must collect sales tax on out-of-state internet sales. More precisely it's the Feds saying that the states can decide to charge the tax or not.

So it's not really the Fed dictating anything. The Fed is allowing the state to dictate.

 

[REWahoo]

I don't know if it has already been mentioned, but one of the biggest hassles is that many (most?) of the states with sales taxes have huge variance, not only in what types of items get what sales tax treatment, but also in location (county sales taxes, city sales taxes).

Add to that the fact many states have sales tax holidays, where a small subset of normally taxable items are excepted - and the tax holiday may not apply to all taxing entities, just the state.

 

[joeea]

I don't know if it has already been mentioned, but one of the biggest hassles is that many (most?) of the states with sales taxes have huge variance, not only in what types of items get what sales tax treatment, but also in location (county sales taxes, city sales taxes).

This is already a solved problem. Systems exist to calculate the correct sales taxes down to the street address. Amazon already does this where necessary. Their system is updated constantly - every time a locale changes that laws/rates.

For smaller online retailers it will be a hassle unless they connect to such a sophisticated service.

 

[wompo]

It seems like on the surface this will level the playing field. If I live in a state with say a 5% sales tax, and I want to buy and item that costs say 20.00 everywhere I look online, then it would cost me 21.00 with sales tax added. But, if i do not want to pay my state sales tax to save money (and I believe most people choose not to) I can find a site that does not collect it and only pay 20.00 which would now give that seller an advantage. Now if all sites online were required to collect the tax I would always have to pay 21.00. Sounds nice, but now the sellers that were not collecting the tax will have to buy subscription software or buy into a service that collects this tax. So, these sellers will have to eat that cost or pass it on to the customer with higher price now making them less competitive/profitable.

 

[braumeister]

My state has a 6% sales tax (no local sales taxes), but the "use tax" I pay when filing my state income tax return has a formula that simplifies the process and seems quite favorable to me. If I have all the receipts (which I seldom do), I can calculate the tax myself, but they make it easy on me.

On my state tax return, they let me use a table based on Adjusted Gross Income.

AGI	Tax
0 - 10K	$4
10K - 20K	$12
20K - 30K	$20
30K - 40K	$28
40K - 50K	$36
50K - 75K	$50
75K - 100K	$70
Over 100K	AGI * 0.0008

 

[ERD50]

This is already a solved problem. Systems exist to calculate the correct sales taxes down to the street address. Amazon already does this where necessary. Their system is updated constantly - every time a locale changes that laws/rates.

For smaller online retailers it will be a hassle unless they connect to such a sophisticated service.

But I don't buy anything at my street address. In fact, my town has almost zero retail. I go to nearby towns for 99% of my purchases, and each has a different tax rate. What should I be charged?

Right.

But the Fed isn't saying that the states must collect sales tax on out-of-state internet sales. More precisely it's the Feds saying that the states can decide to charge the tax or not.

So it's not really the Fed dictating anything. The Fed is allowing the state to dictate.

Then I'm misinterpreting this whole thing (am I?). Seems to me states have always had the right to charge a sales tax within their state borders. It is the issue of dictating to a business outside their state that the business must collect state tax for them. Isn't that what this is about?

And though it is debate-able (people saying a business has the option to just not sell to those states), I feel that a state should not be able to dictate what a business in another state does or does not do, since that business has no representation in that state.

-ERD50

 

[youbet]

I feel that a state should not be able to dictate what a business in another state does or does not do, since that business has no representation in that state.

-ERD50

The alternative is that states make "use tax" collection effective and comprehensive. Currently, paying "use tax" is something illegally ignored by many citizens. (No one here on the FIRE forum, of course!) I suspect that would cost more than having businesses that want to sell in your state remotely (via Internet, phone, postal mail, courier services, etc.) collect the tax for the state.

The states are not trying to "dictate what a business in another state does or does not do." They are simply trying to enroll them as agents to add a percentage to the price of an order and remit that.

Perhaps there should be a "commission" paid to the businesses to at least partially cover the costs of doing this? I'd be fine with doing that.

For transparency, I'm all for this change. Either eliminate sales taxes and replace them with something else or have citizens pay them no matter where (in the USA) they make the purchase and whether the delivery involves a face-to-face pick-up or a delivery made via interstate commerce.

It's not a tax levied on the seller. It's a tax paid by the purchaser and collected by the seller.

 

[youbet]

So it's not really the Fed dictating anything. The Fed is allowing the state to dictate.

Yep. That nuance is being missed a lot. This was the SCOTUS giving the states the Okey Dokey to act, not Congress passing legislation requiring them to act.

This whole thing is bound to become a zoo before it eventually settles into place and will likely be controversial and a hassle forever. But, we're organized into 50 distinct states and interstate commerce is becoming more and more prevalent. If the vast majority of states want to charge their citizens a percentage when they make a purchase, somethings gotta give in terms of being able to collect when the goods are sourced out of state. Or eliminate sales taxes and think of something else.........