SOUTH DAKOTA V. WAYFAIR – WILL THE SUPREME COURT BE FAIR TO SMALL BUSINESS?
Our firm and many of our clients are closely watching the US Supreme Court as it hears oral arguments on tomorrow, April 17, 2018 (the day after tax day) and considers the South Dakota v. Wayfair. Considering it was determined years ago that a business has to be, in layman’s terms, present in a jurisdiction before it was obligated to collect sales tax, it is not surprising that sellers on Amazon.com, Wayfair.com, Ebay.com, Jet.com, Walmart.com and the like have not considered collecting sales tax in those jurisdictions where they had no physical presence. Major retailers have always shipped into states in which they had no stores and charged no sales tax.
The Dilemma: revenue lost by states due to online selling
The states have a problem. About 50% of Holiday sales in 2017 were made online. Sales tax revenue is one of the ways state and local governments survive. States are facing a deficit due to the decline in sales collected as a result of online sales.
The Dilemma: the burden on smaller enterprises
The real dilemma is both one of competition and one of of desperate impact on small online sellers. Today, few international sellers collect sales tax. US-based online sellers are then at a pricing disadvantage if they collect sales tax when their competition does not.
Sellers do not have accurate or complete information from the marketplaces to be able to timely and correctly file in each state and local jurisdiction. Amazon and other marketplaces move inventory as they deem necessary to meet customer needs and sales data and customer names and detail data are not comprehensively and consistently provided to the online sellers. The inventory is sold anywhere that the market place, such as Amazon, chooses to let consumers purchase. The burden of reporting to all of the states and local jurisdictions is onerous. The cost of compliance and the risk of failure to comply with states and all of the local jurisdictions within those states may cause many online retailers to close their doors.
At the Walk Law Firm, we represent many online e-tailers particularly in buying or selling brands or in funding their companies. Our clients are very entrepreneurial and look at this issue as a way in which governments make it harder for small business to succeed. It adds confusion and complexity to already heavily negotiated disclosure in merger and acquisition transactions.
CNN reported on April 15, 2018, their view of the upcoming oral arguments. I agree with the concerns raised and am hopeful that our Supreme Court does not put the onus on small business and online retailers. If it deems it is necessary or appropriate to permit state and local governments to require online sellers to collect, report and pay sales tax in jurisdictions in which they have nexus only as a result of selling in a market place, then it is our view that the various market places should be responsible for collecting, reporting and paying the tax to the states and local jurisdictions.
Let’s hope our Supreme Court appreciates the need to continue to grow small business in the US.