A poll from the American Catalog Mailers Association (ACMA) finds that 16 months later, the Wayfair decision from the U.S. Supreme Court is causing greater harm than anticipated to ecommerce, catalog and other merchants.
John E. Hayashi, Managing Director, Tax at BPM, warned in April that the Wayfair decision may cause “significant collateral damage in the form of tax collection burdens placed on ecommerce sellers.”
The Supreme Court ruled 5-4 in the Wayfair decision that remote sellers with no physical presence in a state must collect and remit the sales tax for each state whenever a consumer from that state purchases goods or services online or through a catalog or other direct mail vehicle.
“The SCOTUS decision has brought on considerable unintended consequences for remote merchants,” said ACMA President and Executive Director Hamilton Davison in a statement. “Just 16 months after the decision, many ACMA members and others continue to scramble just to survive due to the ruling’s aftermath.”
Davison called the cost to retailers for tax collection software exorbitant and the results of the poll “frightening.”
Among other findings the survey shows:
- 56% said their sales decreased as a direct result of the SCOTUS decision
- Remote merchants have had to pay up to $275,000 as an initial investment for sales tax collection software, including consulting services
- Companies have paid up to $500,000 for recurring expenses of sales tax collection, with 85% saying it wasn’t budgeted.
- 89% say they’re concerned about future audits by multiple taxing jurisdictions
“Although we believe the sales declines will be temporary as customers get used to the new sales taxes, the real issue behind the decrease is there’s been no communication on this coming from the states at all,” Davison said. And there’s still no solution for mailed-in orders, which represents 10% of industry-wide remote sales. Some remote merchants get as much as one-third of their orders mailed in.”
In the Wayfair decision, the Supreme Court ruled that sales tax requirement apply to remote sellers and service providers with a “substantial nexus” presence in a state. In South Dakota that means an annual volume of sales of $100,000 or more, or at least 200 transactions, but the metrics are not uniform across states.
Davison said ACMA calculated that the $100,000/200 transaction threshold established by the high court for South Dakota means a merchant with $35 million or less in annual sales, roughly equivalent to the SBA standard of a small business, is exempt from taxation by that state.
“In Kansas, the seller is liable from the first dollar, effectively meaning every company is subject to the (taxation) requirement,” Davison said.
A state-by-state chart published by the Sales Tax Institute shows Kansas has no threshold for a substantial nexus, while California raised its sales threshold to $500,000 in April. In addition to states, taxing districts and municipalities may also enforce the Supreme Court decision, as does Nome, AK.
ACMA survey participants were asked to offer “war stories” of the impact of the Wayfair decision, with the following among the responses:
- “We will very likely close up our 100-year-old business because of this. … .”
- “Based on our delay in getting the software implemented, we now owe about $500,000 on past due taxes that we were not able to collect and still owe … .”
- “We raised our prices to account for the tax as many customers are mail-in and our internal systems are not set up to reflect the addition of a tax to products for refunding. We can’t make exceptions for blackout dates and price tiers for different items. So even in the states where we are remitting tax, we may not be doing it correctly.”
- “Depending on the state, we may also be responsible for collecting local options taxes as well. This would cripple a small business such as ours as we simply do not have the resources to comply with this.”
“As these results show, states are getting increasingly bold and there is no countervailing force pushing back,” said Davison said, noting that ACMA is seeking funding for test case litigation against a few states.