With the rise of 3rd party sellers on sites like Amazon, eBay, Etsy, and others, it is common for my business clients to consider whether these platforms are also good places for them to sell their products. Years ago, the local retailer’s market was likely the town where they were situated. Unless they had a strong brand with a reach beyond their town, the need to send their goods to other states (or countries) was relatively low. And the laws about collecting tax on those sales seemed to have been long established. Under a 1967 U.S. Supreme Court case, the issue was whether you had a physical presence in the state. Last year, the rules got a bit murkier when South Dakota v. Wayfair was decided.
S.D. v. Wayfair
With the new court ruling, sales tax can be collected on “an activity with a substantial nexus with the taxing state” if it “is fairly related to the services the State provides.” Sounds pretty clear? It’s not. There’s no clarification of what is “substantial” or “fair” and leaves a lot of people to figure out what their obligations are.
The South Dakota law at issue had exemptions. If you had less than $100,000 in sales or less than 200 transactions in the state, you were fine. The Supreme Court thought that the exemptions would prevent undue burdens on small businesses. But, unfortunately, some states are getting creative. And $100,000 in sales in South Dakota is not the same as $100,000 in sales in California. The differences in the population can make a large impact on small businesses.
I recently read a Wall Street Journal opinion column on some of the other state measures:
- The “Kansas Department of Revenue will now require all out-of-state retailers to collect sales tax no matter how much business they do in the state. This includes college students selling used textbooks on eBay and retirees hawking a few hand-made greeting cards on Etsy.”
- “Some states like Arkansas, Colorado and Illinois exclude ‘marketplace’ sales on sites like Amazon and eBay from their thresholds for individual sales, but many do not. And some states require marketplaces to collect sales tax for third-party retailers.”
- “In many states, retailers must register immediately after they exceed the sales threshold. But Tennessee says sellers must register the first day of the third month following the month in which the dealer met the threshold, but no earlier than July 1, 2017.”
- “California, which in June required Amazon third-party merchants to pay up to three years of back taxes. Democrats claimed they were being gracious by not requiring more.”
- “Connecticut expects to raise $30 million this year by taxing digital downloads and subscriptions.”
Did you catch all that? Confused? Worried? All of these state tax laws have created a cottage industry of accountants and tax consultants who are happy to help you sort these requirements out.
The complexities are a good reminder that having a strong team of trusted advisors for your business is absolutely necessary. It’s nearly impossible for one person to understand all of these different requirements. And if you are a tax genius, chances are there are other areas of your business that could use a trusted advisor.
If you are thinking of starting a business or already started your business and want to make sure your legal documents are in order, give me a call and we can sit down to discuss the process and what documents would be best tailored for your company – (877) AMAYERS.