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South Dakota v. Wayfair, Inc. a Court Case with Wide Auction Industry Impact

 

The Supreme Court is giving South Dakota the chance to argue why merchants with no physical presence in the state should have to collect and remit sales tax on transactions made to South Dakotan residents. South Dakota v. Wayfair, Inc, Overstock.com, Inc., and Newegg Inc. would, in effect, overturn the Court’s 1992 decision, Quill Corp. v. North Dakota.

Recently, the Auctioneers Association of North Carolina supported an Amicus Brief with the National Auctioneers Association against the South Dakota law, as it would be burdensome to many auctioneers, both small and medium in size.   In looking at the overall picture, companies like Richie Brothers would also have a hard time with keeping up with the tax rates in the multiple jurisdictions.

North Carolina has been part of the talks for a Streamlined Sales Tax for 10 years or more, which applied a singular tax rate to online purchases versus the soon to be 10,000 tax jurisdictions that the South Dakota Law would require online sellers to support.  In this case, the State of North Carolina has gone forward and supported the South Dakota law.  If continued to go with their law, there are several bills on the books in which states would do the same, however, one law would go back retroactively 3 years.

In the opening of April, eBay filed an Amicus brief of their own, and stated:  “Should the Quill decision be overturned, it will greatly undermine the growth opportunities available to the hundreds of thousands (if not millions) of independent small businesses that sell online and represent a vital segment of the national economy,” eBay stated in a press release.

If the court rules in favor of South Dakota, auctioneers and online sellers would face crushing burdens, causing many to curtail operations:

  • First, the sales tax law does not cover just online sales.   If a person purchases an item in South Dakota then drives it across State lines, the Auctioneer would be responsible for the sales tax for that item in the state it would reside and vice versa.   Meaning in essence it would be up to the auctioneer to follow up with purchases and ensure that all applicable sales tax is paid.   

  • Second, there are other potential laws that are being written, such in Minnesota that states pretty much identical in scope, however will require sellers such as auctioneers online and off to pay Sales Tax from records they keep going back three years.
  • Third, the new law would subject online sellers to numerous compliance burdens, including audits in states around the country, litigation for under-collecting tax, and consumer fraud suits for over-collecting.  Additionally, being fined for state sales tax issues across state lines flies directly in the face of state sovereignty.

  • Fourth, If you are shipping items to say another state, their state tax law may have exceptions in their taxable items. For example, if you ship a bag of apples (or ordered it from Amazon) they would be subject to the 7.25% sales tax, however if purchased in a store, they are exempt from sales tax.  Or Parts Purchased for Use in Performing Service Under Optional Maintenance Contracts, would be exempt from sales tax, but would be required to be taxed as part of the law.

  • Fifth, being a little cynical, several states have proposed that they come up with software that can figure it out for you.  50 different pieces of software that is not integrated into any platform is not a government solution.   Not only that, but there has not been a government piece of software that could be trusted that was accurate and without error.

Many folks believe that net neutrality would resolve the issue, when in fact it would not.  “Net Neutrality allowed states to tax the transport of data and internet access,” said Matt Price, A+ and MCP Certified professional, “It has nothing to do with state sales tax.”

Just as an example, an online seller would be impacted by a change to Quill. An online seller has annual net revenues of approximately $60,000, “barely enough to cover the $8,000 (plus innumerable hours and stress) it has cost to respond to an audit in State of South Carolina.”

It would cost that seller $50,000 to hire an additional employee to ensure compliance with tax rules in jurisdictions across the nation.

Auctioneers both online and live should pay close attention to this Supreme Court on this as this will have lasting impact on transactions across the spectrum.   The case will be heard on April 17th.

Attachments:
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Download this file (Amicus Brief.pdf)NAA Amicus Brief Filing