Hello Katz - Here Are Your Articles for Thursday, July 12, 2018
Is this email not displaying correctly?
View it in your browser .
Website Industries Resources Services About Us Contact Us
Share Save

Supreme Court Ruling on Online Sales Tax Sows More Confusion


It has long been the rule that a state cannot collect sales tax from a vendor that is selling products in that state, unless that vendor has a physical presence, called a nexus. However, on June 21, in a 5-4 decision, the Supreme Court swept away the nexus rule in South Dakota v. Wayfair, Inc., saying states could collect sales tax even if there is no physical presence.

The brick-and-mortar stores are happy with the ruling, because it levels the sales tax playing field. The states are ecstatic because they can collect more sales tax. But there are complexities, and no one is entirely sure how it will play out in the long run.

Who is affected?

First of all, the Supreme Court did not say that states must collect sales tax or how, only that they could. It is up to the 45 states that impose a sales tax to decide how they'll take it from here. For example, South Dakota, which was the plaintiff in this case, requires collection for retailers with more than $100,000 in annual sales or 200 separate transactions, so at least in that state, it doesn't heavily affect "mom and pop" operations that may only do a few hundred dollars in sales in a given state.

But the real problem for online retailers is not that their prices will effectively rise, but that the cost of compliance could be enormous. For example, one expert noted that in New Jersey, marshmallows are candy, and thus taxable, while marshmallow fluff is a food, and not taxable. Multiply these subtle distinctions by 45 states and the compliance complexities become overwhelming. The real winners may be outsourcing companies that can lift the compliance burden from small online retailers.

Bigger online retailers may fare better, as they have greater resources. Amazon, which was not a party to the lawsuit, has already been collecting sales tax, so it was not deeply affected by the decision. But Amazon competitors such as Wayfair and Overstock may now struggle to update their systems to collect sales tax as effectively as Amazon has been doing.

However, Amazon also hosts third-party retailers, which may now have to figure out how to collect sales tax. Some states may require Amazon, as the platform host, to bear some responsibility here.

The problem is that there is no national standard, and there is the possibility that Congress will step in eventually and impose a uniform system for managing sales tax. But there is no concrete plan yet, and it may be difficult to create one. Sales tax is complicated. In fact, the New York State Department of Taxation and Finance once noted it received more requests for rulings on sales tax issues than on all other taxes combined.

For those who like to predict what might happen, the situation is further complicated by the unusual politics surrounding this issue. Although many tax and finance issues come down to conservative versus liberal, that was not true here. Ruth Bader Ginsburg, one of the court's most liberal justices, sided with the majority along with the very conservative Clarence Thomas. But Chief Justice John Roberts, also conservative, sided with the rest of the liberal justices in his dissent. This means it could be hard to predict how individual state governments, or Congress, will act, based on party affiliations.

We will be watching state and federal developments in the wake of this decision, over the coming months.


Share Save

Your Comments

Katz Nannis + Solomon PC
Katz Nannis + Solomon PC
800 South Street Suite 250
Waltham, MA 02453
Connect with me on LinkedIn
Saved Articles
Comments and Feedback
Refer A Friend
Your Privacy
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
Powered by
Copyright © IndustryNewsletters All rights reserved.

This email was sent to: bwright@knscpa.com

Mailing address: 800 South Street, Suite 250, Waltham, MA 02453