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Supreme Court Ruled On Wayfair - Be Prepared.

By Matt Price

The Supreme Court has heard the arguments, and they have decided – now it is law.   I have been watching this case not because of a morbid fascination with laws and how they are written, but the content in which was written.

Many here in North Carolina will say “Big Deal” – but here’s the deal – now that South Dakota won, plan on every state to follow suit.  Many states are copying and pasting the laws into their attempt to feverishly pass the laws, and I would assume that out of the 35 states that had an opinion, they have a bill in their state congresses that will pull the trigger in the same fashion.

Why are you so upset about this Matt?  It only counts for South Dakota and online sales.   No, it does not.  This is the biggest misgiving of the entire battle.  Let’s see what the law really says.  Section 1 now reads:

“Notwithstanding any other provision of law, any seller selling tangible personal property, products transferred electronically, or services for delivery into South Dakota, shall be subject to chapters 10-45 and 10-52, and the seller shall collect and remit the sales tax.”

This is just half of it.  In other words, if you are selling personal property, electronic goods or products to be delivered to the State of South Dakota – you are on the hook for the sales tax, even if it is an auction in Florida and transferred to South Dakota.

The second part of it reads: “The seller shall follow all applicable procedures and requirements of law as if the seller had a physical presence in the state…” this means that you are on the hook to get a Sales and Use Tax License from the state to collect the taxes in those jurisdictions.  Yeah while it is free to apply for a Sales Tax permit, there are other Business Registration Fees that Apply.  Which ones?  It depends on what you are selling.   This can get really, really messy!

So Matt, the threshold is $100,000 or 200 items in the state – what’s the big deal?   Well if you are an online seller and do simulcast auctions across the 50 states and 35 states enact such laws – the governments are always saying “Our brick and Mortars get taxed regardless – why do we have those limitations.”  Poof they are gone, and your on the hook for the tax the next legislative round.   

You know – if you sell $50 in products online then have a live auction and they have items that are over $100,000 – you are on the hook for sales taxes for $100,050.    So it is really easy to go over in what you think is innocent sales – but to South Dakota – you are in the midst of tax evasion because you might not have collected sales tax on that $50.

Retroactively, their law goes back in the previous calendar year or current calendar year.  So for 730 days, they can go back and look and see that you have not paid your fair share.  PLUS if you take a look at it, “The South Dakota (SD) state sales tax rate is currently 4.5%. Depending on local municipalities, the total tax rate can be as high as 6.5%.” However, other states that are pushing bills that are soon to pass have a three year retroactive clause, one of which is Michigan.

Other, local-level tax rates in the state of South Dakota are quite complex compared against local-level tax rates in other states. Cities may impose municipal sales and use tax of up to 2% and a 1% municipal gross receipts tax in addition to sales tax (on certain goods and services). Sales tax may also be levied by tribal governments.”

So now you see where it gets overly complex.  Now to get more into the law that is now “constitutional”:  “Notwithstanding any other provision of law, and whether or not the state initiates an audit or other tax collection procedure, the state may bring a declaratory judgment action under § 21-24-1 in any circuit court against any person the state believes meets the criteria of section 1 of this Act to establish that the collection obligation is applicable and valid under state and federal law.”

This means that the State of South Dakota, if they think you are skirting their law, they can bring a declatory judgement against you to force (or harass) you to pay the taxes that they believe are due to them.  So what is a declatory judgement?   A binding judgment from a court defining the legal relationship between parties and their rights in the matter before the court.

This argument now turns into if it is constitutional on the bases of “Taxation without Representation.”  Furthermore, enforcement can be in a forum that you might not be able to make.  And by the way, the law says: “The circuit court shall act on this declaratory judgment action as expeditiously as possible and the circuit court shall proceed with priority over any other action presenting the same question in any other venue.”

Meaning that they will make it a priority to come after you if you miss remitting the tax to the state.  They may not have teeth in their state, but see the last piece of the sentence “shall proceed with priority over any other action presenting the same question in any other venue.”

So if they do this – I will sue!  Well, you won’t because their law states specifically:  “Any appeal from the decision with respect to the cause of action established by this Act may only be made to the State Supreme Court.”

At least nine states have bills in their legislatures this year that would facilitate the collection of sales taxes on remote purchases according to NCSL, which keeps track of such legislation. They include Rhode Island, Michigan, Wisconsin, North Dakota, Georgia, Hawaii, Idaho, Illinois, Iowa, Massachusetts, Kansas, Texas, Pennsylvania, Virginia, New Jersey, North Carolina, Nebraska, New Mexico, New York, Oklahoma, Utah, Washington and California.

Since the decision, the number of sales tax jurisdictions have surged. With over 11,000 taxing jurisdictions in the United States, “each with its own rules and ability to conduct audits, compliance with each is not a trivial task.”

Prior and current proposed federal legislation like the Marketplace Fairness Act and the Remote Transactions Parity Act would expand sales tax collection authority, but with the requirement that states simplify their sales taxes to ensure that they do not overly burden the national economy. Finding such a solution is a good first step to protect businesses from costly compliance requirements and still allow states the ability to collect on online consumer purchases.

South Dakota disagreed and wrote their law to go to the Supreme Court.