Scott Peterson was just settling into a large conference room in the Seattle headquarters of tax automation vendor Avalara on the morning of June 21 when he got an email ping that changed
everything. The email was a news alert that reported the U.S. Supreme Court had decided the South Dakota v. Wayfair Inc. case. The court’s opinion stated that, for the first time, states and local governments could require online retailers to collect sales tax even if they don’t have a physical presence, or nexus, in the state or local tax jurisdiction.
For a moment, Peterson, who has spent nearly his entire career working on the sales tax issue—first as state tax director for South Dakota’s department of revenue and then as executive director of the Streamlined Sales Tax Governing Board before joining Avalara as its vice president of U.S. tax policy and government relations—sat frozen, astonished at the seismic shift in e-commerce tax law.
“I couldn’t believe that the state had won its case,” he says. “States never win their cases before the court.”
After the initial shock, he quickly collected his things, left the meeting and found a work space. He then set about rewriting the now-inaccurate marketing materials he had drafted in preparation for the court’s decision. The day was a whirlwind, he says, as his writing was frequently interrupted by the 14 media interviews he gave throughout the day.
More than 2,000 miles away, it was a chaotic scene at the Chicago headquarters of men’s skincare retailer Tiege Hanley. The startup’s controller, Kathleen Stark, hadn’t paid much attention to the case until the decision came down, and she read that South Dakota’s law requires retailers to collect and remit sales tax if they sell more than $100,000 in the state or complete at least 200 transactions with South Dakota residents. Given that Tiege Hanley is a subscription service that bills its customers monthly, that meant if the retailer had 17 customers in the state, it would have to comply with the law.
Roughly 1,000 miles from Chicago, Danny Gavin, vice president and director of marketing at Houston-based Brian Gavin Diamonds, an e-retailer of custom jewelry, got an uneasy feeling since the decision left it up to Congress to pass legislation to streamline the process. In the absence of Congressional action, every state would be on its own to try to collect taxes and some, he feared, might be overly aggressive. “That could put people out of business,” he thought.
Several months after the decision, Gavin continues to express similar concerns. While Sen. Jon Tester (D-Mont.) in June introduced a bill that would overturn the Wayfair decision, and two other bills emerged in the House that would simplify the current situation, few, if any, industry experts believe any legislation will pass this year. Meanwhile, 32 of the 45 states that collect sales tax have laws that enable them to expand their tax collection beyond the physical presence standard vacated in the Wayfair decision, according to the Tax Foundation. And
several states have already begun requiring out-of-state retailers to collect and remit sales tax, while a couple are engaged in litigation as they seek to require merchants to remit sales tax retroactively. Given that the Supreme Court has made clear that the precedent set in its 1992 Quill Corp. v. North Dakota decision is no longer the law of the land, retailers have little choice but to find ways to navigate the hodgepodge of state laws.
Amid this environment, many retailers, along with their accountants, lawyers and vendors, are scrambling to ensure their sites are compliant. But some others, such as The Pearl Source, are waiting to take action, even if it isn’t quite clear what exactly they’re waiting for.
“Now what?” asks Leon Rbibo, president of The Pearl Source, a Los Angeles-based jewelry e-retailer that’s been selling online for 12 years. While the court did its job in ruling on the constitutionality of states’ rights to collect, he wants clarity—from Congress, the courts or Amazon, which is where he sells a large share of his products—before he’ll begin collecting and remitting sales tax for states other than California. He doesn’t see Congress coming up with a solution anytime soon, which leaves the door open for states to make individual demands of retailers that may be tough to manage. “How is a normal small business owner supposed to educate himself about the sales tax laws in every state?”
A number of industry players, such as Jason Brewer, executive vice president, communications and state affairs at the Retail Industry Leaders Association, are decidedly unsympathetic…
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