Before 2018, wholesaler Halstead Bead Inc. collected no sales taxes on its online sales, which represent virtually all of its revenue. That’s because the company did not sell to retail customers in its home state of Arizona, the only state in which it had a physical presence.
All that changed in June 2018, when the U.S. Supreme Court in its South Dakota v. Wayfair Inc. decision ruled states can require out-of-state companies to collect sales taxes on online transactions, even if those sellers have no retail store, office, warehouse or other physical presence in the state.
Since then, Halstead Bead has spent more than $277,000 trying to comply with its sales tax obligations for the 13% of its sales that go to retail customers, mainly craftspeople who sell at flea markets and fairs, says finance director Brad Scott. That’s more than $10,000 per employee for the 26-person company that generates annual sales of about $6 million.
What makes collecting sales tax complicated for Halstead Bead and every other online seller is that there are 13,000 jurisdictions in the United States that impose sales taxes. In addition to the 45 states with statewide sales taxes and the District of Columbia, that includes cities, counties and taxing districts that fund such services as schools, water systems, fire and police departments, and parks. Each of those jurisdictions has its own tax rates, rules on which products are subject to sales tax and filing requirements.
Congress could ease the complexity by creating national sales tax rules, but no action is in sight. That leaves online retailers with little choice but to invest time and money in keeping up with sales tax rules.
To get immediate access to the rest of this article, sign up for a free Strategy Membership using the Join for Free button below. If you’re already a member, please sign in.