Supreme Court Rules in Internet Sales Tax Case (3 Viewers)

[tdubel]

I should have put in a disclaimer, I work for a State and Local Tax Consulting Practice (global in nature). I do not work in S&U Tax, so the updates I get are second hand from my partners in that department.

That said - the goal of the States for the last year or so with Amazon is to tax ALL of their transactions, not just ones where Amazon holds the inventory. They want Amazon to be responsible for collecting all 3rd party sales too. That is how I draw the correlation to Ebay. Ebay provides the platform, controls the transaction and takes a cut. They are going to be deemed responsible for the Sale, so if that happens and it is my opinion that it could, then they will simply collect and remit the tax and going on another tangent - they will raise their rates due to the admin costs!

And Brad is correct - this will be litigated for a good time to come depending upon what the individual States do.

Other Brad - yes that is going to be EBay's defense, but if Amazon 3rd party transactions capitulate to the tax, then it would only be a matter of time for Ebay, whether right or wrong. It is easy to target the biggest company who can actually pay the tax.

TD

 

[jazzeum]

For years, ebay has tried to maintain this legal fiction that they are not responsible for a transaction between a seller and a buyer -- we're just offering a service -- but the structures they've set up to handle disputes between the two, feedback, etc., and otherwise govern a transaction, belie all that. The states are going to try to explode that legal fiction and insulation from liability and establish that ebay is the real party in interest. Ebay probably sees this as an existential threat and they may be right.

 

[jazzeum]

Here's another article I received from a legal service I subscribe to that is a bit easier to understand than the article I posted last week:

In South Dakota v. Wayfair, Inc. et al., No. 17-494 (June 21, 2018), the U.S. Supreme Court explicitly overruled Quill Corp. v. North Dakota, 504 U.S. 298 (1992), and National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753 (1967). These decisions required, as a matter of constitutional due process, that a vendor have a “physical presence” within a state before the state could require the vendor to collect and remit that state’s sales tax. With Quill and National Bellas Hess overruled, a state can now require both in-state and out-of-state vendors to collect and remit its sales tax for sales made within the state. In short, a vendor’s lack of “physical presence” within a state no longer determines its sales tax obligations.

Although the court affirmed the constitutionality of applying South Dakota’s statute to the taxpayers in Wayfair, it did not determine what level of sales activity amounted to a “substantial nexus” sufficient to subject an out-of-state seller to sales tax obligations under Complete Auto Transit, Inc. v. Brady, 430 U. S. 274 (1977). Citing “both the economic and virtual contacts” the taxpayers had with South Dakota, the court observed that South Dakota’s statute applied only to sellers that conducted 200 or more transactions, or delivered $100,000 or more in goods and/or services, annually. It noted that this volume of business “could not have occurred” by accident, and said the taxpayers were “large, national companies that undoubtedly maintain an extensive virtual presence.”

Even as it relegated long-established jurisprudence to the dustbin, the court’s sweeping decision was at pains to note that it left for another day legal challenges that may emerge relating to the effect, as well as the administration and enforcement of, out-of-state sales tax obligations. The Wayfair majority cited the possibility of further challenges to out-of-state tax regimes as engaging in unfair discrimination, or placing undue burdens, on out-of-state sellers. The court also noted that statutes that impose retroactive liability for sellers may violate the court’s apportionment jurisprudence, as both buyers and sellers would be liable for the same tax. And overly complex or cumbersome state tax systems could effectively discriminate against smaller businesses with few sales in many jurisdictions.

A number of narrow questions emerge from the Wayfair decision and can be expected to receive an array of answers from the nation’s taxing jurisdictions. Most obviously, how does the substantial nexus test work for taxpayers with less sales revenue, fewer transactions or a smaller virtual presence than those in Wayfair? How will states police these limits to determine whether an out-of-state seller must comply? What about state statutes that are retroactive in their terms or in their enforcement, as states seek to collect from out-of-state sellers, as sales tax, the use tax that has long been due from in-state buyers? Practically, how will sellers comply with the maze of collection and remitting obligations, and avoid expensive enforcement actions and ruinous penalties? Expect these issues to generate legislation and litigation for years to come.​

The last two paragraphs are the important ones.

 

[Toy Soldier Brigade]

I doubt eBay will collect the tax. They're very careful to avoid liability. It will be up to each seller. Moreover, they're not sellers. They provide a service for a fee.

I wouldn't trust eBay to collect the tax anyway. They would probably add into to final value and charge the seller their 10% fee.

I spoke to my accountant this morning. He doubts it will ever be enforced for a business of my size. He also said if it were his quote was "DUDE YOUR SCREWED"

 

[Toy Soldier Brigade]

For years, ebay has tried to maintain this legal fiction that they are not responsible for a transaction between a seller and a buyer -- we're just offering a service -- but the structures they've set up to handle disputes between the two, feedback, etc., and otherwise govern a transaction, belie all that. The states are going to try to explode that legal fiction and insulation from liability and establish that ebay is the real party in interest. Ebay probably sees this as an existential threat and they may be right.

eBay ceased to be a third party offering a service the moment they started deciding disputes between parties. Like 99% percent of the time siding with a buyer over a seller, and removing funds from their accounts.

 

[Toy Soldier Brigade]

If Ebay does not collect the tax, then it should revert to whatever ceiling is set as far as liability, ie, as it currently stands in the present situation, you as the seller are not required to charge sales tax on the first 100,000.00 in sales.


So sellers will have to track their sales to every state and when the number goes about the ceiling, then they have to start charging sales tax.


Or maybe it will be set up on Ebay where you do not have to charge sales tax until your yearly sales go over a certain number; as it stands now, you do not get a 1099 from Ebay until your sales go over 20,000.00 per year; any number under that, you do not get a 1099.

As a seller, you should report any income you make on Ebay, I certainly do, I declare every dime and get taxed on those sales.


You're taking a chance not reporting the income in the event of an audit.


This gets messier by the minute.


GEGJ Supreme Court, the US taxpayers say thanks.

When you list an item there is an entry for your state to add the sales tax to your listing, but someone selling crap out of their basement like Aunt Fanny whos selling her old sewing machine is not going to add the sales tax item because in theory she already paid the tax on it when it was purchased. I never heard of a 100.000 ceiling, and can't find anything about it on eBays site. Or what about the collector who buys say a toy soldier for 25.00 and then sells it for 50.00 five years later, technically he's responsible for taxes on a 25.00 profit. That 20.000 sales number is a joke. All you have to do is claim an equal number of used item sales to offset it. It's like if you win 20,000 at the track. At the end of the year, you claim an equal amount of losses. This just shows what a total cluster this really is.

 

[Warrior]

I never heard of a 100.000 ceiling, and can't find anything about it on eBays site.

Paul,
The 100,000.00 ceiling I am referring to is in reference to the South Dakota case; they are basically telling companies that if they sell north of 100,000.00 worth of product to individuals in the state, they will be liable for tax collection starting with the next dollar beyond 100,000.00.

My point is the hope is most of the other states set a similar ceiling, that will take 90% of the businesses who conduct ECommerce sales off the hook.


As far as how Ebay will work, again my point is if tax collection is left up to the individual sellers, then fine, but I hope tax collection will revert back to the ceiling for each state, so that myself as a seller only has to start charging sales tax on items sold to individuals in a particular state once the ceiling has been met.

Again, if this is how it's handled, 90% of Ebay sellers will be off the hook.


My accountant thinks it will be awhile before any of this kicks off, so we'll just have to sit tight and see how it plays out, he told me as part of his service, he will keep my updated.


For now, I'll focus on making money.

 

[theBaron]

Regarding enforcing and collecting sales tax, have we forgotten what happened at the New Jersey Historical Miniatures Associates' show about 10 or 12 years ago?

 

[jazzeum]

Refresh my recollection.

 

[Toy Soldier Brigade]

Paul,
The 100,000.00 ceiling I am referring to is in reference to the South Dakota case; they are basically telling companies that if they sell north of 100,000.00 worth of product to individuals in the state, they will be liable for tax collection starting with the next dollar beyond 100,000.00.

My point is the hope is most of the other states set a similar ceiling, that will take 90% of the businesses who conduct ECommerce sales off the hook.


As far as how Ebay will work, again my point is if tax collection is left up to the individual sellers, then fine, but I hope tax collection will revert back to the ceiling for each state, so that myself as a seller only has to start charging sales tax on items sold to individuals in a particular state once the ceiling has been met.

Again, if this is how it's handled, 90% of Ebay sellers will be off the hook.


My accountant thinks it will be awhile before any of this kicks off, so we'll just have to sit tight and see how it plays out, he told me as part of his service, he will keep my updated.


For now, I'll focus on making money.

I was confused, that one I new about. I thought you were referring to an eBay policy

 

[tdubel]

Regarding enforcing and collecting sales tax, have we forgotten what happened at the New Jersey Historical Miniatures Associates' show about 10 or 12 years ago?

One off enforcement from a Tax Crazy State and I say that with sincerity. They went after every "show" they could find that year. I doubt we see a lot more of that because it costs money and most of the time, they go after deep pockets. Also, not sure a huge amount of resources are available to pursue these types of enforcement.

Tom

 

[jazzeum]

Here is an article that I think is pretty good, The Wayfair Decision.

For those wondering why Congress hasn’t acted, the article notes

[Proposals] have not reached a vote in the House, largely because of the efforts of Rep. Bob Goodlatte, R-Va., the outgoing Judiciary Committee chairman and a fervent Quill supporter.​

The article concludes with the following

Moreover, [the decision] leaves as many questions as it answers:

If physical presence is no longer required for Commerce Clause nexus, what practical limit does the Commerce Clause present to imposition of the collection obligation?

South Dakota’s rule of $100,000 of business or 200 transactions passes muster since it is “a considerable amount of business,” but what of the click-through nexus and cookie nexus statutes adopted in many other states without such thresholds?

If the Wayfair decision makes the South Dakota rule a de facto safe harbor, are click-through and cookie nexus statutes, or Colorado-style reporting statutes, now obsolete?

Wayfair also remarks approvingly that the South Dakota statute “is not retroactive,” but it does not explicitly address whether due process forbids states to enforce collection obligations that accrued under this kind of statute when Quill was still the governing law.​

 

[theBaron]

One off enforcement from a Tax Crazy State and I say that with sincerity. They went after every "show" they could find that year. I doubt we see a lot more of that because it costs money and most of the time, they go after deep pockets. Also, not sure a huge amount of resources are available to pursue these types of enforcement.

Tom

It was enough, though, to throw a scare into nearly every vendor and kill that particular show. The club only was able to renew it again a couple of years ago, and it still isn't back to where they were before the "raid". I suspect it had the effect of getting more revenue declared, than the cost in sending the agents out, which was probably minimal to the department.

We had our PA revenuers come in to our show, too, a couple of years after we moved back to Valley Forge from Wilmington, Delaware. In that case, the agents were out of the Department of Revenue's field office in Norristown, about a 20-minute drive down 202 from the convention center. I know of two vendors who had a hassle, one of whom won't do shows in PA anymore because of it. Again, it probably cost the department nothing additional.

Prost!
Brad

 

[tdubel]

It was enough, though, to throw a scare into nearly every vendor and kill that particular show. The club only was able to renew it again a couple of years ago, and it still isn't back to where they were before the "raid". I suspect it had the effect of getting more revenue declared, than the cost in sending the agents out, which was probably minimal to the department.

We had our PA revenuers come in to our show, too, a couple of years after we moved back to Valley Forge from Wilmington, Delaware. In that case, the agents were out of the Department of Revenue's field office in Norristown, about a 20-minute drive down 202 from the convention center. I know of two vendors who had a hassle, one of whom won't do shows in PA anymore because of it. Again, it probably cost the department nothing additional.

Prost!
Brad

Actually with the budget cutbacks in recent years, there is great difficulty in doing this type of enforcement. They are focusing on big fish. Basically a lot of States run an algorithm that correlates with Sales reported on State Income tax returns. They are going after large sales b/c they have decreasing workforce and frankly it is easier to get money out of large companies with less headache. The funny thing is recent audits our firm has had in house with the State of New Jersey, we performed what is a reverse audit and ended up either neutralizing the assessment or actually gaining a refund for our clients where they had overpaid tax. It is a double edged sword sometimes for the States to audit. And I will be honest, it brings a smile to my face when we beat the States!

TD

 

[marco55]

Especially New Jersey Tom.It's a greedy state.
Mark