In June, the U.S. Supreme Court ruled (in Wayfair v. South Dakota) that states can require online retailers to collect sales tax on purchases made by residents of their state, even if the retailer doesn’t have a physical presence in the state. This upends decades of tax-free e-commerce and, at least according to brick-and-mortar retailers, levels the retail playing field.
Under a 1992 ruling, the Court had previously found that if a seller didn’t have a physical presence in the state they were not required to collect sales taxes. Online retailers like Amazon (and Wayfair, for that matter) have already been voluntarily managing state sales tax remittances in many regions for a while now. Third-party sellers on Amazon, however, have so far avoided sales tax requirements.
The Auto Care Association issued a statement supporting the 5-4 decision, and previously filed an amicus brief with other retailer groups asking the Supreme Court to hear the case.
“This is an important decision for many of Auto Care’s retail members and we are pleased that the Supreme Court saw the unfairness in the current system and determined to make everyone play by the same rules,” said Aaron Lowe, senior vice president, regulatory and government affairs, at the Auto Care Association. “We hope that implementation of the sales tax will be done uniformly across state lines to ensure a fair and efficient system of tax collection."
In the wake of the Wayfair decision, several large online retailers announced plans to expand their own sales tax collection efforts.
"Early data around Overstock's decision to collect sales tax voluntarily in all remaining tax jurisdictions has mildly surprised us – we have seen no measurable decrease to conversion in states in which we began collecting this past week,” said Overstock.com CEO Patrick Byrne. “Furthermore, we have already begun expansion of projects, both digital and physical, into key states in which we have previously been prevented from operating due to tax nexus concerns.”
According to the National Retail Federation (NRF), the lack of uniform sales tax collection has distorted markets in favor of “absentee e-commerce,” and at to the detriment of local retailers.
“Retailers have been waiting for this day for more than two decades. The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well,” said NRF president and CEO Matthew Shay. “This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both.”
“This levies the sales tax burden evenly across all competitors,” Lowe added. “I don’t see it as having a huge impact on demand for auto parts. If you are buying products, you will make the decision based on who you want to buy from, not on whether or not you have to pay sales tax. Everyone will be competing equally, which is the way it should be. There are a lot of other pressures on price that are going to overshadow the impact of sales taxes.”
Brick-and-mortar retailers have been complaining since the dawn of e-commerce about the unfair advantages of their online counterparts. What has changed significantly since the original 1992 ruling on sales tax, however, is that the majority of retailers now engage in e-commerce in addition to physical retail. For smaller companies that have a handful of physical stores in a single state, but that sell online across the country, it remains to be seen how costly and complicated the sales tax ruling will be.
Lowe, however, says that the technology already exists to help ease the transition to sales tax collection, and companies with very few sales in different states likely won’t be affected.
“This puts everybody on a level playing field,” Lowe says. “We have companies in our organization that are brick and mortar retailers and also have an Internet site, and we have Internet-only companies too, but we think this is the right thing for our membership.
“This is not rocket science,” Lowe continued. “Companies are already doing this, and it is not as big of a problem as a lot of people have stated.”
Is National Legislation on the Way?
One big stumbling block for online retailers will be variances between the tens of thousands of jurisdictions that govern sales tax. In the South Dakota case, the state put a limit of $100,000 or 200 in-state transactions before the sales tax requirement kicks in. Wisconsin has adopted similar language in tis own online sales tax collection requirements.
“If you are a brick-and-mortar retailer and are selling over the Internet, you are probably collecting sales tax from different states anyway, because you have a physical nexus in those states,” Lowe says. “This has been done, and there are computer programs for charging and collecting sales tax. We want to make sure that it is not done in multiple ways, and that it’s not too complicated when it is implemented. There is a lot of interest in resolving this issue.”
Congress is considering federal regulation to help standardize sales and use tax collection for online retailers that sell across state lines, but there is also opposition to the Wayfair ruling. In late June, four Senators – Jon Tester (D-Mont.), Jeanne Shaheen (D-N.H.), Jeff Merkley (D-Ore.) and Maggie Hassan (D-N.H) – introduced legislation that would overturn the court ruling, citing the burden it would put on small businesses, particularly in states that don’t currently levy sales taxes.
“The Supreme Court got this ruling horribly wrong. New Hampshire small businesses shouldn’t be forced to collect sales taxes for other states,” said Shaheen. “Congress and the Trump administration should work in concert to stop new red tape from hurting American businesses and our local and national economies.”
“New Hampshire’s small businesses, which are the backbone of our economy, have made clear that a mandatory internet sales tax collection requirement would negatively impact them by creating a complex web of red tape and hindering growth,” Senator Hassan added. “This bill is critical to ensuring that businesses and consumers in no-sales-tax states like New Hampshire are not burdened by the Supreme Court’s decision to allow states to mandate internet sales tax collection.
The Senate last passed online sales tax legislation in 2013, but that bill never made it through the House of Representatives.