Did Supreme Court Potentially Bankrupt Tens of Thousands of Online Businesses? | Hacker News Reader

Did Supreme Court Potentially Bankrupt Tens of Thousands of Online Businesses?

seekingalpha.com

16 pointspedro8432 comments

My biggest issue with paying taxes in other states is what services are they providing? You pay federal taxes which covers interstates, you pay taxes on your shipping fees which should cover state roadways.

So if I pay South Dakota sales tax then I should be able to contact state representatives, should be included in votes for any state referendums that affect my business and should basically be considered a citizen of that state. Otherwise I see it as taxation without representation.

I'm not disagreeing with you, but the logic here is that the company isn't paying the sales tax, the individual making the purchase is.The company is "simply" transferring that tax to the appropriate state government. Except it's not simple and you can be fined or go to jail if your business does it wrong.

Currently the vendor is asked to take sales tax on behalf of the purchaser. If they don't, then the purchaser must pay a use tax. Only that isn't happening. So SD has now put the sole burden on the vendor which means that they are liable if the tax isn't paid. This also means that if your business currently doesn't file sales tax you will have to add that work load to your current business which you didn't have to before. That is an added cost that didn't "have to" exist prior to this ruling. Let's call a spade a spade here, this is a tax on the vendor.

This all sounds like my one man SaaS site now needs to have employees and keep extra book work for states I will never physically be in and who doesn't feel they need to hirden their citizens with actually paying their taxes. That should count for something.

By that logic, China which pays tariffs on some goods it sells in the US should be able to vote in US elections?

I'm not saying there aren't issues, but it is not anywhere close to a black and white one.

China does not pay tariffs on goods it sells in the US. The importers of those goods into the US do.

There’s a lot here to take apart.

First of all, you’re a citizen of the United States. You can be a /resident/ of a state, but citizenship is conferred by the federal government, not the states.

Second, you’re not paying the tax, the customer is.

Third, it is absolutely not taxation without representation, which was a charge the British colonists made against the government in England because they had no representation in parliament. You, however, have several representatives at various levels of government, as do your customers paying taxes. You might argue that your representation isn’t good, and depending on the state I’d argue that too, but you absolutely are not taxed without representation now in 2018.

Taxation does not entitle you to vote in elections. If I drive through Ohio and buy some gas, do I get to swing by again in November for the election? I don’t know the relevant legal philosophy, but states can absolutely levy taxes in other states and it’s ridiculous to suggest that paying them entitles you to voting rights.

The issue here isn’t so much the tax, as the compliance costs. Before this ruling I could set up a small online store and ship to anywhere in the US, filing only a tax return in my home state (if at all). Now, I have to register as a foreign entity in 48 states, each of which can cost hundreds of dollars plus hundreds of dollars yearly.

This increases the cost of opening an online retail business by orders of magnitude.

As soon as the vendor is required to collect this tax, and is responsible for it to be paid, I'd consider it the vendor's tax. SD stopped making it the consumer's tax when they lifted the burden on them to pay it. If the vendor doesn't collect it the vendor still owes it because SD says making their citizens pay use tax doesn't work.

When you drive through Ohio you are using services paid by Ohio citizens. The gas you buy had to drive on state roads, cleared of snow by state plows, and sold to you by people who use other state services. Since you don't live there and are just using their services I think it's perfectly reasonable to be taxed.

But what if you never stepped foot in Ohio? What if sent a box in the mail, using the FedEx who charges you money for their services, pays taxes in the states they physically exist, pay for vehicle licenses and property taxes and income tax. All of which comes out of the fee I'm paying them. Has SD gotten enough money from me yet? Still haven't actually used any services that aren't consumed by the one thing I'm doing and paying for, shipping a box

The employees that work in Ohio get to vote, get to have protections by Ohio government, get access to services. The businesses get protections too. And yet I, the vendor, who lives in a completely different state, and never uses a single service of theirs beyond those required to ship a box (odd that there is no extra taxes on sending a letter USPS) is then required to do ohio's job of collecting taxes, and pay any that I miss collecting or am charged a fine. Sounds to me like Ohio is requiring me to fill a job position I did not previously need or else pay a fine. That is all money that now goes to someone else because Ohio says so. Could have sworn that is taxation.

And as for voting rights, I think everyone is disregarding the fact that employees vote. If a referendum came up that would make their job harder or even make it impossible, the employees get to vote on it. Not saying they wouldn't all vote the way the company wants, but their are votes cast for defending their livelihood. Since my company has no physical presence I don't have that same representation. Yet I'm again still required to do everything an in-state business is required. I had none of these issues when my business only existed in the state I live in. And where I and all my employees vote.

You aren't paying taxes to other states, you're paying taxes to your own state. It's now just now a requirement that out-of-state businesses collect and remit that sales tax on your behalf like in-state business already do.

(You're also confusing citizenship with residency.)

Except that in-state businesses use services of the state they exist in. Out of state businesses do not, yet they will be required to perform an additional service of collecting taxes for other states because those states have deemed it "too difficult" to do themselves by enforcing a use tax.

So if I got this right SD says the task of collecting taxes from those who reside in their state is not possible for them to do, and unless they honestly think it would cost the vendor $0 to perform this task, they are imposing additional cost of doing business when they provide no services to the out-of-state vendor.

The good news, is that so far most states seem to be modeling their legislation after South Dakotas so hopefully there won't be a ton of rule variation.

The filing requirement is the real kicker. Until small business software like Quickbooks and Turbotax for business makes it trivial to file in every state. The compliance cost will be VERY high. In Hawaii for example, you have to file and pay your excise tax return every month. Multiple that by every state and you have a lot of work.

I suspect those companies that sell inexpensive items will probably restrict the number of states they sell to until the software support is there.

Further tightening the near-monopoly those companies have over the processing of legally required tax filings. They're the only real winners here. If is not possible for a small business owner or individual to realistically handle their own tax filings, the onus is on the government to address the complexity of their tax laws and regulations.

There are multiple companies, and none of them have anywhere near to a monopoly share. Not only that, many companies will develop this capability in house, and the margins for this service start getting excessive, those companies will have a good incentive to offer it externally.

So yes, these services won't cheap, but that'll be due mostly to intrinsic costs, not monopoly rents.

As others pointed out when this topic first came up, there are services like TaxJar that will collect and file sales taxes. The challenge is that you have to set all of this up of course and connect it to your accounting systems in some way. And the cost for collecting and filing in all relevant states seems to be something over $10K/year (assuming that there aren't now also business licenses, etc. required).

One can hope that states will approach this sensibly. One expects that at least some will not and, best case, there are going to be some compliance costs for small businesses.

Congress has the ability to nationalize sales tax collection and remittance across State borders and bills have been introduced in the past that propose to do just that.

So with this decision we might (should) see Congress solving this issue. The Supreme Court had practically begged Congress to act before overturning Quill.

https://www.forbes.com/sites/beltway/2018/03/21/congress-has...

>In its 1992 ruling in Quill v. North Dakota, the High Court said states could require retailers to collect sales tax only if those businesses had a substantial physical presence — known in legalese as nexus — in their jurisdictions. But the Court, which called the legal issues surrounding nexus a “quagmire,” strongly urged Congress to resolve the many unanswered questions surrounding remote sales: “The underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve.”

Which is, in fact, the point of the Roberts' led dissent as well. Basically that this would be better off as a Congressional effort and that, by overturning Quill--even though there were good reasons to do so--the majority has thrown a wrench into ongoing efforts to work towards a national solution.

Wouldn’t it make more sense to just incorporate offshore in the Caymans or British Virgin Islands to do an ecommerce business now? Or would that foreign entity still need to collect sales tax from USA consumers?

Trump might impose tariff?

If anyone has caused undue pressure on businesses - and hence customers - it's Congress. The Supreme Court interprets when Congress is unclear. Congress has incentive to always be unclear - it gives them wiggle room to negotiate for your vote.

It may also have saved tens of thousands of brick and mortar stores. I often buy expensive items from B&H in New York instead of a local seller who has to add 9% CA sales tax.

Except this isn't going to hurt the big online retailers undercutting local brick-and-mortar stores. Companies like Amazon have whole divisions that deal with sales tax (in the US and globally). They won't be happy about this ruling, but they won't have real problems being complaint. This hurts small online niche and specialty businesses with very thin profit margins, the mom-and-pop online shops and one-man-startups.

Except a lot of local sellers lost the fight to the big chains and then the big online retailers a long time ago. There's maybe one local photo place in the Boston area who could compete with B&H and they're inconvenient enough I haven't been there in years.

B&H probably will be hurt by this a bit. Compliance probably won't be a big deal and they beat out Amazon for a lot of specialty equipment. But they also sell a lot of DSLRs and the like too. They just basically lost their price advantage of Amazon for many items. (And, for those of us with Amazon credit cards, Amazon will mostly be cheaper once these rules go in place.)

I agree that battle has largely already been lost, I was just making the point that this ruling isn't going to significantly help brick-and-mortar retailers as they are in competition with large online retailers who are already undercutting the local B&M shops by far more then the sales tax rates and won't have issues staying in compliance with lots of complex laws. I only see this negatively effecting small online business, the niche stories, single-person operations, etc. I'm not familiar with B&H specifically, so I couldn't comment on them specifically.

In photography equipment the local sellers are actually often very competitive if you set aside sales tax. If B&H starts charging sales tax I'll definitely go more to local seller.

This decision enables a state-imposed tax on inter-state shipping of goods purchased in other states (via mail-order catalogues or internet e-commerce -- aka "virtual showrooms" as Kennedy's decision calls a website, in order to drop the now-abandoned requirement for "physical presence").

Don't be fooled by it being labeled a "sales tax". In actual fact, the Supreme Court has enabled tariffs between the US States. Which is exactly what the Commerce Clause was intended to prevent.

I thought this only applied to businesses with over $100K in sales?

Or 200 orders.

That is specific to the South Dakota law that the Supreme Court made its decision on.

That said, the Supreme Court also had language suggesting that one reason it decided in favor of South Dakota was that its requirements weren't onerous. This might suggest, for example, that states should have some minimum threshold but the decision didn't supply one or state so explicitly.

IANAL but, if I head to guess, this isn't going t be an apocalypse but there are going to be some uncertain times, some state will probably push the boundaries, compliance costs will rise, many small businesses won't comply and try to fly under the radar especially given it's not clear what teeth a state has against out-of-state retailers with no physical presence, etc.

I suspect it’ll mean a move from independent web shops to “marketplace platforms” which will handle the tax implications.

Bonanza.com probably stands to gain the most from this. Shopify and similar products will likely adapt to gain as well. WooCommerce and other “self-hosted” shops might actually end up dying from it.

From The Article: "Yes, South Dakota, which prevailed in this decision, is currently exempting, from sales taxation, small businesses with $100,000 or less in state sales or fewer than 200 individual transactions."

Unless I'm miss-understating, this ruling makes every company that sells online subject to the local tax law in every state they make a sale in (for even small companies this can easily be most of the 48 continental US states). The concern is that every state will have different rules for exemptions and filling requirements, so even knowing if you are exempt and/or need to file is going to be a significant cost for a small businesses just to be sure they are in compliance... even if they owe no actual sales tax.

Time for the US to move to a single VAT/GST model?

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