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States Can Require Internet Tax Collection, Supreme Court Rules (bloomberg.com)
541 points by uptown 7 months ago | hide | past | web | favorite | 583 comments

What no one is talking about here is how this would be handled, especially for a small online sellers. There are almost 10,000 tax jurisdictions (https://www.washingtonpost.com/blogs/fact-checker/post/mccon...) and you're not allowed to collect sales tax unless you register for that jurisdiction. There is also a fee collected by most jurisdictions to register and most make you send in periodic reports, even if you didn't collect any taxes for them.

Read the story...

"...South Dakota, whose law requires retailers with more than $100,000 in sales or 200 transactions annually in the state to pay a 4.5 percent tax on purchases"

"..Kennedy’s majority opinion strongly suggested the measure was constitutional, in part because it has the $100,000 threshold and doesn’t try to impose retroactive taxation."

A clear bar is set for what is covered here and what is a burden.

Here's the problem with that $100k/200 transaction law. Small businesses have to do one of three things:

1) Assume that they will hit one of those limits and collect tax from the start. Once they've told the customer that they've been charged tax, they will have to file anyway. I don't see anything that says the first $100k/200 transactions are exempt from the requirement. And if you hit the limits this year, you'll have to collect taxes no matter what from my reading of the bill.

2) Keep track of how much has been sold to South Dakota residents and stop selling if they hit the limits.

3) Give up and tell South Dakota residents that they're out of luck and that a state with less than 900k residents isn't worth putting up with the filing hassles.

If I'm not sure if my business will take off, I'm probably not interesting in paying taxjar or someone else $5000/year just in their filing fees (to make sure I'm covered), so I'm most likely to go with option 3 and start by limiting sales to my home state, those with no sales tax, and those that aren't going to try and make me collect the sales tax for them.

This ultimately comes down to the fact that each state in the US behaves like an individual country in many ways, especially when we talk about taxation. It doesn’t jive well with the current lay of the Internet, and it will be interesting to see the reaction here. In Australia a single GST was introduced (long ago, July 1 2000) and it’s a big simplification for online transactions. The catch: everyone would need to agree to a number.

"jibe well"

Thanks, too long back to correct it now :(

This is probably a very simple question, buy will someone please clarify: $100K in sales - does that mean: 1) $100K worth of (3rd party, for an ecommerce platform) product sold via the platform, or 2) $100K revenue accruing to the platform, as the commission earned on sales of whatever amount.

$100,000 in sales is a very low bar. That's equivalent to a business with a single employee, the owner, and they're probably not making a livable wage yet.

$100k of South Dakota revenue is either an almost exclusively local single-owner business or a much larger internet shop.

But regardless, that kind of number is a full time job. If you're selling over the internet and making a full time job out of it, you can handle computing sales tax for SD residents. Yes, it's burdensome. Yes, it would be good to have a simpler federal framework for this. No, it's not the end of the world.

"No tax on the internet" sort of made sense in 1997 when it was a new and exciting market and we wanted to see what would happen. Now, it's just a giant subsidy for Amazon. We can put that money to better uses.

I think you've got it kind of backwards. The absence of tax collection is what allowed Amazon to become Amazon and this change is now a barrier to a new entity challenging Amazon.

Amazon voluntarily started collecting taxes nationwide without a blip to its bottom line.

The new law will in fact put Amazon's first-party goods in parity with 3rd party sales. Third party sellers could often undercut Amazon's own pricing due to the disparity.

This tax change is a huge win for Amazon on many fronts. Any protests they make to the contrary are strategic, imo.

It's a win for a part of Amazon's business, the part that stocks and sells its own products and is already collecting taxes. It's a loss for the other, larger side that gets paid to stock and ship products from 3rd parties who by and large do not collect tax.

This makes it tougher for these small businesses to compete and since Amazon takes 15% of those sales AND makes money off them for fulfillment services.

Perhaps. It could also incentive a new round of internationally based direct-to-consumer dropshippers to take e-commerce to the next logical level, now taking advantage of the differential in international sales tax regimes. Aliexpress is an example.

All this would do is create an opportunity for a SaaS startup or existing payments provider to offer collecting the correct amount of tax for you.

I personally worked on this sort of problem for a large company; most of the work is in figuring out what the business logic ought to be; turning it into code is (largely) trivial.

Figuring out the logic only needs to be done once, and the payments provider is the natural place for it to live.

Indeed, several already do this - Fastspring, Paddle, and there are services like Taxamo (although I'm not sure if Taxamo actually remit the tax on your behalf, or are just an API to calculate what your obligations are).

It could actually be a huge win for Amazon's third party sellers as well, as services such as FBA could handle the tax collection on behalf of the third parties. It just adds to the value that Amazon can provide in its services for sellers.

The stock market disagrees with you.

> $100k of South Dakota revenue is either an almost exclusively local single-owner business or a much larger internet shop.

Note, though, that for South Dakota it is $100k in annual revenue or 200 transactions per year.

Consider a company selling a subscription product/service for $5/month.

If they had a mere 17 customers in South Dakota, their South Dakota annual revenue would be a mere $1020, but they would have 204 transactions per year.

This assumes each re-billing on a subscription counts separately. If it could be counted as a single $60 sales that is merely being billed in 12 equal parts, then they would only have 17 South Dakota transactions.

I think this needs to be upvoted more. The 200 transaction threshold is very low for low priced products - I sell a $20 Photoshop plugin, and $4000 is not much revenue to suddenly have to register for & remit South Dakota taxes. Apparently Vermont will have the same 200 transaction threshold [1].

In practice though, indie retailers will use reseller services that collect & remit the taxes on their behalf, in return for a ~10% cut. I use FastSpring for my shopping cart, others use Paddle or Gumroad. The EU has had similar tax laws on internet sales since the mid 2000s, and Australia will enforce their own 10% internet tax on non-Australian internet businesses from July 1st.

[1] https://taxfoundation.org/amicus-brief-south-dakota-v-wayfai...

> - I sell a $20 Photoshop plugin, and $4000 is not much revenue to suddenly have to register for & remit South Dakota taxes.

I wonder if Adobe publishes how many noneducational Photoshop licenses South Dakotans buys a year. As I highly doubt you're in any danger of needing to pay SD tax.

At like a 10% profit (in the best case), that's a pretty terrible full time job.

You are grossly underestimating the markup on goods sold online.

> Now, it's just a giant subsidy for Amazon.

But it's not. This line is reasoning is very outdated.

They have built a massive network of warehouses all over the country, and that's the physical presence that a state sales tax collection clause needs to come into effect. Amazon has been charging people sales tax in many states for a few years now. (I wish I had a number of states, but top jazzy to look it up.)

>But regardless, that kind of number is a full time job. If you're selling over the internet and making a full time job out of it, you can handle computing sales tax for SD residents.

But it isn't just SD, it's hundreds, if not thousands of jurisdictions. One person doesn't have that kind of time.

Thanks for your assertions. Have you ever acted as a small Internet shop employee in close connection to the 'executives'? I have. From what I have seen, because people in small shops have to be generalists you are often splitting the attention of the people with the most comparative advantage to innovate by increasing their regulation burden. It isn't even the fiduciary cost of the tax that is impressive even though that's unfortunate that their mark is so low. It is the labour cost that adds up when people have to take time away from actually manufacturing product during early stage work.

> Now, it's just a giant subsidy for Amazon.

It was always just a giant subsidy for Amazon.

The computation is simple. Isn't the harder part the filing & paying?

I think that's the point. It's supplemental income for someone - not a real business.

That's not their entire sales, that's their entire sales to people in South Dakota.

If you do business nationally, with a million in revenue, $100k for South Dakota might not seem too bad, but $100k for California or Texas starts to feel really claustrophobic.

It's an interesting precedent.

It's $100k or 200 transactions. 200 transactions is just 17 customers with a monthly subscription.

For one state, so 50x that, which is $5m.

See [1]. Sales tax as a service is available from seven different providers. Shopping cart integration is available. You pay one bill, they handle the rest.

[1] http://www.streamlinedsalestax.org/

So this is another needless regulation that creates more useless rent-seekers?

Governments need to fund their operations, and allowing some businesses to dodge taxes because of arbitrary geographical differences is unfair and distorts markets.

One should note that its not the businesses that are dodging taxes, but rather citizens of the state that are dodging taxes (and not reporting them). From The Tax You Probably Forgot To Report ( https://www.forbes.com/sites/ashleaebeling/2013/04/15/the-ta... )

> Think you got a great deal not paying sales tax on your online purchases last year? In most states, there’s a pesky tax called “use tax” that you are supposed to pay in lieu of sales tax if you buy stuff out of state or online--and bring it in state. Theoretically, you’re supposed to root through all your receipts and credit card statements, calculate what you owe and report it on your state income tax return.

Or http://www.pmbusinessadvisors.com/use-tax-reporting-requirem...

> Use tax is a tax imposed on the use of taxable items and services in a state when the sales tax has not been paid. For example, use tax would be due if taxable property is purchased from a seller located outside of New York, the property is used in New York, and sales tax was not paid on the purchase. With online platforms and sales being increasingly popular currently, this concept is significant. Remote retailers that make sales into a state but do not have any presence there (i.e. an office, store, storage, employees) may not be registered to collect sales tax in that state because of the lack of presence there. However, the use tax reporting requirement that has been recently implemented by a number of states requires remote retailers to notify their customers that they may owe use tax on their purchases.

Good point, technically the businesses haven't been doing anything wrong, it's really more of a loophole than a dodge.

The problem is not the general idea of paying sales tax. It's the complication of having ten thousand different sales tax jurisdictions. Complying with the law should not be such a nightmare you need to hire a middleman.

It is way more complicated than just 10,000 jurisdictions:

    - mapping an address to one or more jurisdictions
    - digital deliveries might not have a shipping address
    - tax rates often depend on the type of product
    - product types have different definitions in different jurisdictions
    - some taxes are time dependent (back to school tax holidays)
    - some buyers are exempt in some jurisdictions for some products

Why not? We pay for all kinds of professionals to help us navigate what’s required to run a business, pay taxes, and follow the law.

"It's already complicated" is a very poor argument to justify increasing the complication a hundredfold.

Yeah, and it makes a barrier to entry, so a lot of potential economic activity does not take place, or it takes place off the records, and generates no tax revenue.

If you don't start a business because of having to pay a SaaS provider to setup tax payment, then you weren't really serious at all. Note this is only required at over 100k in revenue...

I don't think the proper solution to that is to just declare that you don't have to pay taxes at all when you sell to someone far enough away. Simplify things if needed, but don't give a nonsensical advantage to certain businesses.

The proper solution is to put the onus on the payment networks. They're large enough to build out support for this issue without it being overly burdensome. Internet retailers should only be required to report what customers bought and whether taxes were collected. Then payment networks can report to the states who can send taxpayers a report of the use taxes they owe.

How about putting the onus on the party that wants to collect money off transactions between other parties. If a government wants a cut, they can make it reasonably easy to comply or they can get ignored.

How does one legally define where one buys a product? Shipping address? Home address? Point of sale?

Seems to be the shipping address.

Some state sales tax rates are destination-based and others are origin-based. Since sales tax was not designed to consider the internet, things get complicated fast.

Then is shipping to an intermediary low-tax address (as a service) followed by a separate shipping event to your home an illegal circumvention?

Yes, you owe use tax to your home state on the difference in sales tax.

So any service that makes it easier to do business is a “rent seeker”? Does that include Square? AWS? Every site that does e-commerce web hosting?

I think its a rent seeker when uncle sam either dictates you give them money or buries you in shit you have to pay acme shovel co to dig yourself out of.

I think its more tenable for governments to provide an optional sales tax as a service and remit the money to the states. One singular report to file one party to pay.

If the service they're providing is only necessary because of artificial barriers, then basically yes. The banking cartel that controls the payment system is a huge fan of collecting economic rents, yes.

So how do you purport to have a global electronic payment network?

If the EU can manage instant bank transfers that cost less than a penny, the US can manage it too.

Bank transfer fees have nothing to do with the fees charged when taking payments via credit cards.

While the average EU interchange fee for taking credit cards is cheaper than in the US, it’s not “less than a penny”


Yeah, that's kind of the point. Credit cards are mostly supplied by a couple huge companies that aren't interested in improving their rates. It's very rent-seeking, even though there are very feasible alternatives that cost an order of magnitude or two less.

They aren't interested in improving their rates because providing a competitive credit card in the US isn't cheap. You've got cards that provide 2% flat cash back (Citi Double Cash, for example), or cards that provide even higher benefits on rotating or fixed categories. Interchange fees aren't going to drop unless American cardholders are okay with dropping these benefits, and seeing as merchants aren't likely to share the savings I don't see that happening.

The time to lower interchange fees was before reward programs became standard, interest is where card issuers make their money.

> Credit cards are mostly supplied by a couple huge companies that aren't interested in improving their rates.

This situation is called an oligopoly. I don't think it has something to do with government sanctioned rent seeking.

Government-sanctioned rent-seekers are not the only kind. The comment by User23 was about payment system rent-seekers in general, with no mention of the government.

The original comment I replied to was about a software as a service company that was a “rent seeker” because it helped businesses manage thier tax liability.

At one small company I worked for, we paid SAAS companies for:

- expense reporting and reimbursement (Concur)

- managing payroll

- Managing retirement benefits

- source control hosting (Github)

- Infrastructure (Microsoft Azure)

- Salesforce (I don’t know what they do)

- Training and Compliance

- Chat (Slack)

- Email, Office software (Microsoft Office 365)

- vending services


How are these companies any different than the company that helps businesses manage tax collection? They all saw a business opportunity and my company was glad to pay them so it could focus on its niche.

Yes but the mentioned problem comes from the companies forming an oligopoly.

VISA and MasterCard do pretty well from what I hear. PayPal too.

So the internet imposes a moral requirement for all states/provinces to have uniform sales taxes or value-added taxes?

Not moral, but some would say being a single country imposes a certain practical requirement that the taxes not be too complicated, if we agree commerce is a good thing and waste is a bad thing.

The United States of America is, in the terms of other countries, 50 states that have given up certain powers and responsibilities to a federal government but retain their own powers, including the ability to set tax policy inside their own borders.

The Commerce Clause gives Congress the power: "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." This has been widely construed as meaning that states cannot make taxes that affect other states' citizens unless they are doing business in that state.

The Supreme Court has just ruled that their earlier ruling (that Store A had to have some physical presence in State S in order for S to require A to charge sales tax) is wrong, and no such physical presence is required.

More importantly, it is now clear that American States can tax non-residents, even FOREIGN non-residents who have no connection with the U.S. whatsoever. There will be collateral consequences to this decision. For example, why should I have to pay out-of-state university tuition if I became a state taxpayer due to the sales--and soon to come other--taxes? Drive a car into my state? You have to pay a roads tax. It will be interesting to see how far this goes. Long-arm jurisdiction will become more robust, at the least; another rationale for diversity jurisdiction is removed.

>>For example, why should I have to pay out-of-state university tuition if I became a state taxpayer due to the sales--and soon to come other--taxes?

Did you pay income tax in the state, which will be what supports the university? Congrats, you get in-state tuition.

>>Drive a car into my state? You have to pay a roads tax.

Two points: 1) you are using the roads in the state, why can't you fund them? 2) that tax already exists, you pay it when you buy gas.

Congress has the ability to nationalize sales tax collection and remittance for online purchases. In fact, there have been bills introduced in the past that proposed to do just that.

We might actually see some movement in this direction now.

It looks like people are downvoting @dsr for, I dunno, being a pedant or something, but I think their point is important: Americans really do seem to value the extreme heterogeneity, and even outright waste, of having 50 different jurisdictions to do business in, rather than passing uniform laws at the federal level.

Although I do agree that in this case it's a bit of a disaster and going to be a huge pain, sometimes it is nice having 50 different jurisdictions.

Most things are pretty similar state-by-state, but it can be really nice being able to pick your laws if you have to. Maybe you love weed and you want to pick a state with legal weed. Or maybe you like drones and want to pick a state with fewer drone laws. So many things differ state-to-state, from REAL ID to trans rights to surveillance to taxes to guns to driving age to social aid to public transit. Gay marriage, slavery, and interracial marriage were all issues of the past but they were very important in their day too.

I do think it's an important part of what makes America America, and being able to "pick your laws" is an amazing freedom that most people don't have.

Now, the actual ability to move wherever you want can sometimes be limited. If you're in Vermont and you want New Hampshire laws, well, that's easy. (Differences: weed, guns, advertising, taxes, many more.) But if you're in Maine and you want Hawaii laws, a move like that probably isn't doable. Still, I think it's a valuable freedom.

I spend $1000/yr in effort and fees on my federal income tax return. There's nothing especially practical about letting the feds take care of things.

Where do you get to see the list of providers?

Thanks. I'd swear that button only gave me a menu when I clicked on it before.

With fee, do you mean that you have to pay a yearly fee for simply registering as possibly collecting taxes for that jurisdiction? Not sure what most is, but ~30-50 pay-to-play fee's a year will certainly hurt the small businesses.

I think it's good to start harmonizing the sales taxes, but such a fee (if I understand you correctly) should be removed...

I'm in Colorado and I had to pay $66 up front. $50 is a deposit and $16 is the fee every two years. I see that California doesn't have a fee but I know other states do.

TaxJar will register for you in the States that you need for ~$100 per state, plus their fees (https://www.taxjar.com/state-registrations/) -- I'm sure Avalara does something similar but that's ~$5000 that a small business probably won't have.

Colorado has home rule cities with their own tax license, rules, submission. Even due dates van be different per municipality.

It's a system designed ages ago, not only pre-internet, but even pre-car.

For internet businesses it's really unworkable to require they submit anything other than state sales tax but even that is onerous due to registration fees and old and nonstandardized submission systems.

what do you think about this idea ? :


That’s exactly the point. Only the biggest companies with large pools of compliance accountants and attorneys will be able to do business.

Unless it can be outsourced? Companies providing an Internet storefront that takes care of sales tax should do well. Could Stripe do this?

I mentioned it elsewhere in this thread too, but some companies like Paddle & Fastspring (and I think 2Checkout/Avangate) already do this.

As far as I know, Stripe doesn't do this, they only provide integrations for services that will calculate your tax obligations. (My guess is governments will eventually force Stripe to pay the taxes themselves directly.) Here's Stripe's page with tax calculation integration options:


Until you pay one of many existing SaaS providers a modest fee to do this for you.

suddenly the EU VAT system looks awesome :-)

The US system of local sales taxes doesn't look awesome ever. If there were one economic reform I would push in the US it would be advertised price is final price (i.e. if you say "I'm selling this for $9.99" then that's all you pay, and the taxes are all inclusive) this would pretty much force underlying tax reform as businesses lost their shit having to deal with the insanity.

Note that the disaster area that is US regulatory overlap means passing a law like this is probably impossible without constitutional amendment.

Right now in the US it's often difficult, and sometimes impossible, to know how much you'll actually be paying in any transaction. It's ridiculous, and from a pure Econ 101 perspective it's a first order problem in the market.

I've worked on price display for a large-ish company. The funny thing is that our company, and probably others, would really like to show all-in pricing! It's easier for us because we wouldn't have to do things differently in different countries.

But we can't make the switch unilaterally because if we're the only ones doing it, then we look more expensive than everyone else and lose sales. Even if the final price is the same, consumers tend to just look at the up-front cost when making buying decisions. So we'd need everyone in our market to switch, or nobody can. So basically it would need to be mandated by the government.

Yes it’s nuts and it seems like a popular thing to fix electorally. I think that it’s a case of lack of political imagination.

And unless you are extremely familiar with local tax law you have no idea which purchases are even going to be taxed. If you go to the grocery store and buy the following:


raw chicken

rotisserie chicken

prepared sandwich

bread and cold cuts

toilet paper


20 oz soda

12 pack soda



prepackaged donuts

donuts from the bakery

cat food


DO you know which of those items are going to be taxed and at which rate? Me neither!

>Note that the disaster area that is US regulatory overlap means passing a law like this is probably impossible without constitutional amendment.

I actually don't think so. The FTC covers truth-in-advertising laws.


You just use tax software to do it. Then you can just classify each item. Most small businesses only sell a few thousand products and others sell less than a hundred. How does it take to classify all of those? A few hours tops. After that the software does the rest....condoms going to 32932 zip...taxable...raw rice going to 92322 zip...exempt. very easy for a computer to do. The software provider would do all the research.

This still requires vendors to correctly mark up their products-- to a level of detail that handles all the local rate differences, and shopping carts to be retooled to store said classifications and pass them to whatever tax-calculation service you need. Not to mention paying for the service to query.

It's probably less of a problem for someone starting from zero, but I'd imagine there's a type of vendor that's a huge nightmare. The firm that basically said "we can sell anything we can get from our vendor", and stocked their cart with thousands of SKUs, many of which exist only as lines in CSV files so they may not even know what they are offhand. The cart was probably built in the Eisenhower administration so good luck extending it.

It would be interesting to see some states offer a "trade convenience for savings" model-- rather than try to navigate a maze of regional rates and product categories to decide if a widget is taxed at 8.2% or 8.3, just file a one-page form and charge everyone 8.5% on everything. Saying "pay us $50 per year more in taxes, rather than spend $50k and ongoing service subscriptions to optimize the rates down to the penny" is a pretty compelling argument.

I think his point was as a consumer it is difficult to know your final bill since some items are exempt, some are taxed at a lower rate, etc.

Yes, exactly.

1) I was talking about a consumer in a grocery store not having a clue as to what they'll actually pay until they get to the register, not a company shipping products.

2) Zip codes have zero to do with taxing jurisdictions; zip codes merely tell you where the closest post office is.

Certainly trying to use Truth in Advertising was always my first thought, but Truth in advertising laws are pretty toothless and I imagine any attempt to do something like this using that mechanism would get tied up in the courts for a long time.

I would love someone to at least make the case -- it seems like a non-partisan thing, surely the free market types should be in favor of price transparency, while liberals should be against misleading consumers.

The free market types I know are generally opposed to requiring tax be included because they think it would hide the "true" cost of the tax from consumers. They seem to like when a consumer is disappointed by the difference between the base and "plus tax" price because they think it will motivate people to try to get sales taxes reduced or eliminated.

> The free market types I know are generally opposed to requiring tax be included because they think it would hide the "true" cost of the tax from consumers.

In this case the "hidden cost" would be clearly printed on the receipt.

I agree, but only if they don't include the merchant's profit margin in the price, either.

Exactly: If someone wants to argue that there's a dollar-amount that represents a "deeper truth" -- as opposed the amount the customer actually has to pass over the counter -- then why stop halfway at taxes?

A rhetorical question, since obviously because it serves the agenda of the merchants, who want to set up a "let's you and him fight" situation between consumers and government.

If we really start peeling the onion, we can talk about the merchants' profit margins, and then also externalized costs in the form of stuff like pollution and bankruptcies (and the tax money spent to clean those up.)

Tax Increment Financing is used so much (abused) by local jurisdictions for infrastructure improvements, sales tax will never go away. It's a mess.

TIF is a property tax financing scheme. Abuse or not, its use has very little impact on sales tax.

It has a very large effect on what shows up next to the "sales tax" label on your receipt. Sure if they were honest it would say "fee to make the developer's interest payments", but it never says that.

Yeah Australian GST is a flat 10% and doesn’t allow you to display ex GST pricing to the end customers where it applies.

I recall going to a cafe in India, looking at the menu price, handing over cash then being asked for more. It would be impossible for me to account for which taxes would be applied at what rate to work out the end price before paying.

While I appreciate the simplicity of “tax-inclusive pricing”, I think that “tax is added” vs. “tax is included” pricing is highly important for transparency. Frustrating as it may be for other reasons, I like that a buyer is reminded every time they walk up to checkout how much they are paying the government for the privilege. I think that’s part of the reason why EU VAT rates are so much higher than US sales tax rates. With tax-exclusive pricing, buyers are very aware of the tax.

I also think it sets it up so that sales taxes are actually paid by the intended target - they buyer. When Ireland changed its VAT rate from 21% to 23%, I suspect very few coffee shops changed the price of their latte from €3.00 to €3.06. So it feels like the tax increase can end up being paid by the seller, not the buyer.

As someone from (and in) the EU, I'm very much aware of the VAT. It's almost literally printed on every fucking thing. It's certainly very much apparent on any bill, receipt, invoice, sales printout and whatever piece of paper or data we get during economic exchanges.

Since VAT is a tax that is paid by the customer but usually remitted to the tax authority by the merchant, it has to be shown on the receipt.

When I'm buying privately I care about the price I pay - not the price a business can pay when reclaiming the VAT. It's not like VAT is going away with next change of govt, or even with Brexit. Everything gives you a receipt breaking out the VAT or shows it in the online basket and checkout for those that care, or reclaim, so I don't see how it lacks transparency.

Why does it matter who of buyer or retailer covers the few pennies, or if retailer makes a small price change to stick at a .99 or .00 price point? Retailers have done this forever in both directions.

> Note that the disaster area that is US regulatory overlap means passing a law like this is probably impossible without constitutional amendment.

Why would a law like that contradict with the constitution?

Its worst at the liquor store where taxes are some significant percentage more, so the price is $18.99 but I know I'll pay some amount between $22 and $27.

I prefer it the way it is. Invisible taxes will be raised higher than visible ones.

This is so true. I'm not a smoker, but cigarettes are a great example of this as they are often sold as "tax priced in" because they are taxed at such an extra high rate compared to standard sales taxes.

As an example; the sales tax rate in my region is 7%, but cigarettes are then flat taxed $1.36 a pack so roughly 20% tax at the state level, plus often times there is an added "local option tax" which adds on top of this.

Hmm, always 30% or sometimes 8%?

It's very simple how it would be handled:

(1) very large organizations with retail over a wide area as a core business focus would handle relations with taxing jurisdictions directly as a central function.

(2) medium scale organizations would outsource tax compliance to specialized vendors that would handle it.

(3) very small organizations would either do the same as medium orgs (assuming vendors handle them) or just not sell into many jurisdictions.

Agree lots of people here are overly sensational. In the most basic terms it simply consists of getting somethig like avalara, configuring it correcrtly and then avalara does the rest. No different than setting up quickbooks. Yet people here make it sound like it is the end of the world.

Truth be told most here are just mad that their online sales tax loophole is getting closed.

3 would be a source of political pressure for those jurisdictions to simplify tax compliance.

There is a threshold in the South Dakota bill for $100k in sales in the state. Small online sellers are not affected

That's just the exemption SD chose to apply, and which they could change at any time. Other states may choose to not have such an exemption.

You are also now open to tax audits from all other states, since you may need to prove you are below any exemption limit.

It's a bad deal for small business no matter how you slice it. I think that if your revenue is below ~$100m annually, the future is beginning to look bleak. Very helpful to the big players like Amazon in killing off small competition.

That’s a bit of a leap. It looks like fully automated compliance from the existing services. From collection to remittance is about 3-5k a year. With more competition it will likely become cheaper.

Why would it? Why in particular wouldn't the fact that you are required to pay for their services allow the entire industry to jack up prices substantially?

Why wants to win by being the asshole who did it for $500 instead of say a percentage of revenue?

>Why would it? Why in particular wouldn't the fact that you are required to pay for their services allow the entire industry to jack up prices substantially?

Basic economic principles. You compete by lowering your price. So more competing providers would make it highly likely that price moves closer to cost, because there is a higher chance that one will defect from the current price structure.

To put it plainly. You run a gas station but the guy across the street gets all the customers. You both charge $3 but your cost is only $2. What do you do to get more customers? Lower the price.

Please see the price of epi pins

That is a government-granted monopoly. There is no such dynamic here.

> With more competition it will likely become cheaper.

I wish I shared that faith in market forces. What seems more likely to the cynic in me is that a big player like PayPal will incorporate it into their merchant services, obtain some overly broad patents on the process, use those to stifle competition, and make the service a nominally cheap add-on (but only for their own customers).

100k or 200 transactions... that 200 bar is pretty easy to hit w/ monthly subscription SaaS providers.

The case was about whether physical shipments using common carriers constituted a local nexus and required collecting local sales tax. SaaS and other services without a common carrier would not meet that standard.

17 people for 1 year or 9 people for 2 years whichever comes first.

Sounds like a business opportunity.

Funny, I hear anti-competitive not business opportunity.

It's a business opportunity now, but as with many government laws, in the future businesses end up depending on government forcing their markets existence. So then they lobby for the government to keep the system, even if it's out dated or badly thought out. We can't stream line anything, because entrenched businesses don't want anything to change.

It makes me sad the world is this way.

it really is sad,

but a petition is always an option?


Avalara just went public and is benefitting from the ruling: https://www.geekwire.com/2018/avalara-stock-soars-following-...

Tax Jar is another. I dont have a problem paying the fees but as stated above, the filing in all jurisdictions is such a pain it will knock out alot of small sellers online. The seller will have to pay a bond in nearly every state and some cities which can add upto thousands of $$. No clue how the Chinese sellers will handle it, they probably just wont remit.

I think eBay and Etsy side hustle sellers especially should be worried. This helps large internet retailers like Amazon. They have the systems in place to charge and remit sales tax for 3rd party merchants, they've just been waiting until this ruling happened.

If only we had .. machines which can look up an item in a huge list of items and find some specific properties about it.. just think! We could sell maybe two or three of these machines a year.

then states need to step in and set "online" rates that trump the local rates. many states already do similar with Ad valorem taxes on automobiles. Taxes aren't your only problem, there local restrictions on items sales that one area considers hazardous or regulated that another doesn't even acknowledge.

Watch Amazon offer it as an AWS service...for a 0.2% fee.

Or just buy out avalara and take over the whole market.

> What no one is talking about here is how this would be handled, especially for a small online sellers.

Strange huh? Seems like the little guy is being attacked by the elites in every manner possible. Whether it is small online sellers, small time youtubers, independent freelance journalists, small time artists, writers, etc, seems like the rules are being changed to favor corporations and the heavy hitters. Heck, even search and social media results/algorithms are changing to cater to corporations.

Odd that this story hasn't gotten that much traction anywhere either. You'd think something this important would be all over hacker news and social media. I remember Bezos used to be very vocal whenever internet tax issues came up. He's been awfully quiet. Oh that's right, amzn is no longer a small time book and music seller.

> You'd think something this important would be all over hacker news and social media

It's the top story on... Hacker News.

I remember a service already available in the 1990s to compute and collect proper tax in every US zip code. Its not rocket science folks.

Well, since zip codes don't map to taxing districts it's pretty much screen doors in submarines. Not possible to compute taxes via zip code for the 50 US states plus territories.

I have a hunch that this will, in the end, be a massive win for large retailers vs. small ones. The task of figuring out how to calculate tax for all states is more or less the same amount of work regardless of size, which means for someone like Amazon it's more or less trivial, but for a mom-and-pop store it's a major hassle.

Thankfully with Shopify it is extremely easy and straightforward to manage for my wife's small online store. Their platform does a great job properly charging taxes by state, county and city in certain situations. Then using an inexpensive plan from https://www.taxjar.com/ the entire filing and paying process is 100% automated.

In 10 minutes I was able to file and pay all the sales taxes to several state, dozens of California counties and a handful of cities that charge additional taxes on top.

This assumes these mom and pop shops have heard of these services. Personally I was helping someone get their little internet store off the ground and it was a huge hassle even with woocommerce.

If they accept credit cards online, their credit card solution ought to include tax management feature.

Usually, small shops can ignore stuff like this until they get a bill from an authority, or get big enough for it to matter. As long as they save money for estimated tax liability (approximately equal to their local tax rate), they are fine.

And what would it look like if Mom & Pop were starting an ice-cream shop instead of an online storefront? Would they _not_ have to pay tax then?

I get that being subject to regulation or taxation is more burdensome than not being subject to it, of course that's the case. But it does not follow that requiring sellers to pay sales tax is unduly burdensome.

If the underlying complication of tax is the problem, fix that.

> And what would it look like if Mom & Pop were starting an ice-cream shop instead of an online storefront? Would they _not_ have to pay tax then?

They would only have to pay sales tax in one tax jurisdiction, the one in which they are physically based and in which they can vote to change those taxes.

> But it does not follow that requiring sellers to pay sales tax is unduly burdensome.

What follows is requiring sellers to track and remit sales tax in some 10,000 jurisdictions is burdensome.

With a brick-and-mortar storefront, they have to figure out one jurisdiction's salestax (rate and what is taxable), their own. That is quite literally orders of magnitude simpler than this.

Also orders of magnitude fewer customers you're targeting, probably at least 350 million fewer.

How do you handle knowing what items are taxable vs non-taxable for each item and taxing district? How do you handle customers who are tax-exempt? How do you handle tax holidays and reduced tax on school items in August?

How much do you end up having to pay for TaxJar? It looked to me like the monthly plan was cheap but you'd get totally hosed if you tried to use them to auto-file all the taxes. Are you filing yourself?

So you assume. As a small business you are unlikely to be audited, but that software could easily be wrong creating a huge minefield and potential liability.

So that would be the software companies' liability. And such business practice can differentiate good ones from the bad ones. I'm seeing a new business market here even.


There is zero economic gain from more complex tax rules. Further, the software does not absolve you of liability. At best they may agree to cover it, but that's unlikely and they can also go broke if they get it wrong.

States want to collect taxes. Now that they have a consistent policy position, you may see interstate agreements to harmonize collection.

There is already a precedent with DMV data sharing agreements, and some states will collect sales taxes for others as well.

"...and some states will collect sales taxes for others as well."

I'm having a hard time coming up with an example where this makes any sense. Can you elaborate?

Sure. New York and New Jersey collect sales taxes for each other as an example.


It’s a big deal for cars — without this people in NYC metro would have a hard time otherwise.

Actually, current sales tax software provided by South Dakota and other states does absolve a merchant for liability if used to calculate sales tax due.

I agree with this approach!

Actually, the federal government should oblige each member state to provide the algorithm, and sign it cryptographically and have it expire every X fixed time interval, and have signed algorithms for the current and next time interval, so that software can automatically fetch and stay up to date.

Then the "business opportunity" of navigating FUD evaporates. Currently any such enterprise charging for such a service can spend a fraction of their budget lobbying against harmonization...

Since it would be an obligation of the states to the federal government, these algorithms (provided by each member state) should be hosted on a fixed federal government site.

Time to start a petition?

This would reduce costs of tax collection for all parties.

What is the most convenient format for this layered geographic data? Are the tax district boundary polygons already otherwise available as open data? What do localities call these? Sales tax tables, sales tax database, machine-readable flat files in an open format with a common schema?

How much tax revenue should it cost to provide such a service on a national level?

States, Counties, Cities, 'Tax Zones'(?) could be required to host tax.state.us.gov or similar with something like Project Open Data JSONLD /data.json that could be aggregated and shared by a server with a URL registry, a task queue service, and a CDN service.

While the Bitcoin tax payments bill passed the Senate and House in Arizona, it was vetoed in May 2018. Seminole County in Florida now allows tax payment with crytocurrencies such as Bitcoin:


> According to a press release, the county will begin accepting Bitcoin (BTC) and Bitcoin Cash (BCH) to pay for services, including property taxes, driver license and ID card fees, as well as tags and titles. The Seminole County Tax Collector will reportedly employ blockchain payments company BitPay, which will allow the county to receive settlement the next business day directly to its bank account in US dollars.

This could also help reduce the costs of tax collection and possibly increase the likelihood of compliance with the forthcoming tax bills!

these are all very good questions, and only a community discussion of people with the right skills and interests can draft a petition, if enough people contribute to the discussion we can make the proposal more reasonable and robust against valid criticisms... but I believe we can make this happen by just starting the discussion. We can bitch on Hacker News, or we can draft a proposal for the different government levels. The more reasonable we draft it, the higher the probability the petition will be a success. I think it wouldn't be hard to argue against this proposal that a legally enforced computation should be open source, i.e. not just the algorithm for the computation but also all the data lists and boundary polygons used in the algorithm...

There’s zero national economic gain from _any_ variation in law from state to state, but either you’re in favour of state’s rights or you’re not.

>here’s zero national economic gain from _any_ variation in law from state to state

Yes there is. States compete with each other and this prevents any one of them from having laws that are much crappier and more oppressive than average because when that happens businesses and people leave.

So competition might prevent one of many downsides to different states having different laws? I don't see why this means there's any benefit to that situation over just having one set of laws?

Depending on your political leaning, you wouldn’t want the same laws in GA as in CA.

That’s a relatively unusual leaning. Most people think their values should be universal.


Not as unusual as you would think, given that it is a basic principle of both the EU (despite what Eurosceptics would have you think) and the US.

You’ve just described variation as a way of mitigating the effects of variation.

There’s a case to be made for variation, but that ain’t it.

The model [1] GP alludes to claims that competition forces small governments to provide better (more efficient, more optimally chosen, etc) local services than monopoly governments, for the same reasons that competitive companies are expected to provide better services at a lower price.

[1] https://en.wikipedia.org/wiki/Tiebout_model

Wrong. You'd move to New Hampshire if this was true.

How do you know I'm not planning to?

There's a lot of similar problems with having sets of 52 plus federal employment laws.

Its not surprising that one US right wing think tank thought the UK with its "socialist" NHS and higher income tax was a freer place to business.

There is economic gain for those collecting it. Of course, how much you can squeeze people and businesses is an everlasting question.

Complex tax does not mean greater tax.

Nonsense. Your accountant isn't even liable if you're audited by the IRS. They're not gonna give a crap you used some rando SaaS

Which is why the sales tax calculation algorithm should published and cryptographically signed by each state:


I wonder if a single member of congress knows what the words 'cryptographically signed' means...

I think you are conflating several different types of liability here.

If: i)your accountant messes up due to negligence or worse, ii) you get audited, and iii) it turns out you owe far more than you thought, then you are liable to the Govt for the extra amount owed. The accountant may be liable to you for professional negligence, damages etc. Your damages against the accountant are not the extra amount owed (because it is what you should have paid in the first place), but losses caused by the mistake. In the above scenario, the Gov't may assess a "penalty" and/or "fee" for late payment of taxes, but those fees are usually waived and/or extremely nominal. In the above-scenario, criminal liability simply does not happen. The above is not legal advice.

Isn't the same true of TurboTax?

Many online payment gateways already offer some kind of sales tax API. Keep in mind in California, sales tax changes per county. In places like Tennessee, the tax rate can change if your item is a grocery or isn't a grocery.

There are companies that already sell massive lookup tables or API access to calculate a lot of this stuff. I think for most retailers, this won't be that big a change.

Most mom-and-pop online stores have disappeared too. Gone are the days when you went to Pricewatch.com and Pricescan.com. Now all the individual shops just create a store on Newegg, Amazon and eBay. I'm pretty sure the big players will start offering up tools to do these calculations for them as well.

Tennessee also has a "Sales Tax Holiday" on which certain items are tax exempt during certain times (during the holiday). And because we know how much programmers love date and time manipulations, it starts on "the last Friday in July" (I mean, it kinda had to, to be a weekend).

[1]: https://www.tn.gov/revenue/taxes/sales-and-use-tax/sales-tax...

An exemption such as this is one of those things that I'd say is not worth supporting unless you're based out of TN, or do enough of sales there to make it worth your while. Sure, I'd implement it if it's required but every special case is just another point of failure.

But if you don't support it, are you liable for collecting more tax than required? How do you "not support" it? Just reject purchases from people in TN during the holiday?

Disclaimer: I am not an accountant. I would figure tax holidays are optional and might even require an application to take advantage of. So you would charge the regular sales tax and remit it to the state.

UPDATE: Out of curiosity I looked it up. And it looks like sales tax holidays depend as usual on the state. The MO back to school one is optional if less than 2% of merchandise is affected. But the TN one doesn't look optional.

Collecting 'tax' on an untaxed item could be considered acting falsely under color of law.

"Under color of law" means that you're a law enforcement official. Collecting extra tax and then remitting to the state will almost certainly not cause you any issues.

>"Under color of law" means that you're a law enforcement official.


Collection of taxes is done to enforce law, unless the state is compelling people with something else?

> Collection of taxes is done to enforce law

To _comply with_ law.

comply with and enforce

No you just have to remit the tax.

There is no tax in this situation.

Washington State has a line item on the report for over-collected sales tax. I don't know what happens to that number, though.

I'm pretty sure that in most states so long as you remit the tax to the state, they are happy to take it, even if you didn't have to collect it. You only really get in trouble if you collect the tax from customers then pocket it.

You dont have to participate in the holidays though. If you charge a tax on an exempt item during the holidays then you just have to remit the tax. No system changes required.

The obvious solution here is that TN will not include online stores in the sales tax holiday.

> Keep in mind in California, sales tax changes per county.

More than that. Sales tax in California can change arbitrarily, not just by county. E.g. different cities in the same county can have different sales tax. To further complicate things, shipping address may have a city on it but they might not actually "live" in that city.

E.g. in SoCal there is a city of "Westlake Village", which spans the Ventura-LA county border, which technically is a city in LA County, but technically is just a neighborhood within the city of Thousand Oaks in Ventura County.

When I last looked at this a few years ago for a project, for certain problem addresses, no one got them right. Not Macy's, not Amazon, etc.

The only real way to properly calculate sales tax is to geolocate their location.

The ruling is technically limited to states which do not impose burdensome restrictions on interstate commerce. The ruling specifically notes that South Dakota streamlined its sales tax process.

It doesn't matter what Westlake Village wants to charge in sales tax to Amazon. In order for the sales tax to survive South Dakota v. Wayfair, it must be minimally restrictive on an out-of-state vendor. This means that it can't include local sales taxes, because an out-of-state vendor can't be expected to know about such taxes unless they do sufficient business with that locality. Note that both of the current federal sales tax laws before Congress also disallow local sales taxes in favor of state-level sales taxes.

Long story short: there will be up to 50 sales taxes that online stores must deal with.

In order for the sales tax to survive South Dakota v. Wayfair, it must be minimally restrictive on an out-of-state vendor.

While the outcome you describe might be a good one, I think you are greatly overstating when you read into this decision a new standard of "minimally restrictive". Major vendors already charge local sales taxes to the best of their abilities, and almost certainly will continue to do so.

This decision merely says that there is nothing inherently unconstitutional about a particular South Dakota law requiring a retailer without a physical presence to collect sales tax on behalf of the state. This does mean that a law in another state with similarly restricted characteristics is likely to survive review as well. But it doesn't (yet) create any line that says all of same characteristics must be met.

If New York City were to attempt to enforce the same law, it might find enforcement difficult, but it likely would not have constitutional impediments. If another state were to choose some wider scope, it too might well be judged constitutional. At the least, we wouldn't know until more cases have been decided: it's not yet clear how much 'stare decisis' has been thrown out here.

Instead, this case sets a standard for what is clearly constitutionally allowed, saying that there no longer a requirement of physical presence, but doesn't say much about what else would be required. It gives Congress an opening to pass a clearer national law about what the standards need to be, but doesn't create such a standard itself.

Still reading the case in detail, but these quotes address your comments head on and indicate that SCOTUS likely would not support a state scheme allowing for a multitude of local sales taxes (a la California).

EDIT: While it is true that the dissenting opinions wanted Congress to solve this problem for them, the physical nexus rule was (and generally always has been) a construct of the Courts, and should have been struck down by the courts. Having a legislative counterpart is no excuse for letting bad decisions live.

EDIT2: Also, SCOTUS did not strike down the nexus requirement, only the specific physical nexus requirement of Quill. The dicta quoted below strongly suggests that complex sales tax system would require stronger nexus than the South Dakota regime.

"Complex state tax systems could have the effect of discriminating against interstate commerce."

"That said, South Dakota’s tax system includes several features that appear designed to prevent discrimination against or undue burdens upon interstate commerce. First, the Act applies a safe harbor to those who transact only limited business in South Dakota. Second, the Act ensures that no obligation to remit the sales tax may be applied retroactively. S. B. 106, §5. Third, South Dakota is one of more than 20 States that have adopted the Streamlined Sales and Use Tax Agree­ment. This system standardizes taxes to reduce adminis­trative and compliance costs: It requires a single, state level tax administration, uniform definitions of products and services, simplified tax rate structures, and other uniform rules."

Also, SCOTUS did not strike down the nexus requirement, only the specific physical nexus requirement of Quill.

Yes, this is important to note. Still, much of logic involved in the decision makes it sound like in the future nexus may be defined quite loosely, based largely on the states' desire to collect the tax and the practical difficulties involved, rather than just being a redefinition of "substantial nexus". Consider this part:

Under this Court’s decisions in Bellas Hess and Quill, South Dakota may not require a business to collect its sales tax if the business lacks a physical presence in the State. Without that physical presence, South Dakota instead must rely on its residents to pay the use tax owed on their purchases from out-of-state sellers. "[T]he im­practicability of [this] collection from the multitude of individual purchasers is obvious." [[cite]] And consumer compliance rates are notoriously low.

This might be good change socially, but it feels more like the court is pushing a policy change rather than offering a reinterpretation of the constitutional requirements. In this part of the logic, there's no change of the interpretation of nexus (since it's based on only the customer's failure to obey other existing laws), and yet it's used as justification for why the state has a right to demand action from an otherwise out-of-jurisidiction company. Same nexus (or lack thereof), but different constitutionality.

While one would hope for a balance between burden and benefit, I think it points to a much more inclusive concept of nexus. In the absence of a clear national law, until there is a case showing the limits in the other direction, I'd guess that states will pass more and more inclusive laws on who is required to collect on their behalf. We'll likely end up in a situation where a multitude of state laws technically require most retailers to collect, but selective enforcement means that only the large (or unpopular) players are pursued. I didn't like this previous approach of on-the-books but unenforced use taxes, but I'm uneasy about this outcome too.

Exactly. If the goal is parity with B&M stores, then little vendors will be required to match all the locale taxes as well.

But that's only if you're company doesn't have a point of presence in that state right? If you have an office in California, then you do have to use a service/API that handles all those crazy local taxes cases (or at least attempts to).

As a fellow former resident of the county-spanning Westlake area, I can tell you that even the people that live there don't know where they live. I was debating with a friend of mine just the other day, and her and her mom couldn't even agree what city they lived in. Then I looked it up on the map, and different maps gave different answers. And they keep building new houses, so who the hell knows which tax jurisdiction each individual house is in? The people that live in them can't even keep track!

Definitely not unique to CA, either. But I agree most online retailers don't write their own payment processing code anyway.

Programming one of these for a Canadian website for provincial tax to hook into another recurring payment script, that hooked into PayPal was an annoying overhead especially when the company was bootstrapped and had like $0 revenue to even care about at that point.

I would hope Stripe or people using online services like Shopify will quickly add support for everyone. But the state by state, county by county, grocery vs non grocery stuff sounds like a goddamn nightmare.

EDIT: You won't be able to just be some just launch it break stuff and fix later SASS. You will have to keep track of all this shit and send out 50 different cheques, or track when your company has reached the minimum to have to pay sales tax back.

The support for this has been there on Shopify for quite some time. With a tool like https://www.taxjar.com/ I was able to easily pay all the state, county and city taxes in a few minutes for my wife's small online shop.

Still, tested correctness is different from guaranteed correctness. Either the taxation is unambiguously defined in law (howver scattered within the law) or it is not and we have void for vagueness.

The people who define the taxation are payed by taxes, so why not require the deliverable to include a cryptographically signed algorithm? Then all the shops can have free peace of mind:


What is likely to happen is Congress will finally pass the Marketplace Fairness Act which requires states to comply with the Streamlined Sales and Use Tax Agreement before they can collect the sales tax. 23 states already fully comply with the agreement.

As part of the agreement those entities without a physical presence in the state pay only a single state agency all sales tax and not have to pay tax to individual localities within the state. For each state the type of products subject to tax and the rates of tax on them are uniform across the state.

The states are also required to make available free of charge databases with boundaries and the tax rate on goods within each boundary. States must not hold any businesses liable for the under or over collection of taxes based upon any errors in their database. In addition the Streamlined Sales Tax Board of Governors certifies service providers. If a busines uses a certified service provider they are not liable for under or over collection of taxes based upon an error by the service provider. There are currently 7 certified providers. The certified service providers provide data regarding what taxes need to be collected on a transaction, will collect the tax on behalf of the business and submit it to the state on behalf of the business. Many e-commerce platforms already integrate with one or more CSPs. I imagine those that don't today will quickly do so or if large enough become a CSP themselves.

Brick and mortar don't get to do that either, so why should online ones?

When I launch a single brick and mortar store, I have to worry about the tax jurisdiction that store is in.

When I launch a single small web app, I have to worry about everything single tax jurisdiction in the country.

I'm super not opposed to taxes, but I do think this is an area that the federal government should step in. If only to provide a standardized system for different jurisdictions to report their sales tax laws.

It seems like a very very clear use of the commerce clause and regulation of interstate commerce.

That analogy is not perfect, if you restrict your web app to only serve people within the same single tax jurisdiction as the brick and mortar store, then there is no need to worry about every single tax jurisdiction.

But I fully agree with you regarding the need for the federal government standardizing.

See my comment at https://news.ycombinator.com/item?id=17367669

Congress has had decades to step in. They declined to, largely due to an anti-tax sentiment among a large block of them. Absent a resolution from Congress, and no indication that they'd do anything, the courts had to work with what they were given.

We should differentiate between 1) standardizing the tax calculation algorithm, and 2) standardizing the taxation rates

As long as the two are conflated nothing will change. Irrespective of political/personal/ideological position on nr.2) I think most of us can agree on nr.1)... (except for the bigger chains, and the FUD navigation services.

Yes, there are affordable sales tax APIs available for calculating sales tax. Usually massive lookup tables are at the zip / postal code level and don't provide enough granular detail by jurisdiction to accurately collect sales tax. They also don't contain logic around product exemptions, customer exemptions, shipping taxability, sales tax holidays, etc. I recommend using an API if you want to avoid under-collecting or over-collecting sales tax.

However, this is a HUGE change. Instead of registering for a sales tax permit and remitting tax for one state, smaller merchants will have to do this in many states if they meet a certain threshold. They will likely have to use sales tax compliance software to aggregate all of their transaction data across multiple platforms (Amazon, eBay, Walmart, etc) and their shopping cart, then report / remit accordingly.

It's not just rates, it's product categories that matter. The rules separating one product category from another can get incredibly arcane. Here in Minnesota, a pizza ordered from Papa John's is taxed but from Papa Murphy's it isn't - because the Papa Murphy's isn't cooked. Clothing isn't taxed, but determining what is or isn't considered clothing isn't always easy out at the margins. If you live in a state you can get guidance on this stuff, but if you don't you might not even know to look.

> In places like Tennessee, the tax rate can change if your item is a grocery or isn't a grocery.

That's not even the half of it. Grocery vs. non-grocery changes the rate. Some services that are tax exempt in other states are not in Tennessee.

And in Tennessee, you have the state level of 7%, and the ability for it to rise up to 9.75% based on a whole lot of inter-dependent local tax overlays.

The 2.75% difference comes from county, state, school district, transportation district, and "special purpose district" levies. All of which are optional to levy and voted on at the local level, and which may or may not overlap with each other to "stack" up to that cap at 9.75%.

Avalara, which is the de-facto owner of the sales tax calculation software space, has a good write up[1].

[1] https://www.avalara.com/taxrates/en/state-rates/tennessee.ht...

One of the things I've been wondering is if "state sales tax" in this ruling includes cities, counties, other subdivisions, or just full state level taxes only.

> There are companies that already sell massive lookup tables or API access to calculate a lot of this stuff. I think for most retailers, this won't be that big a change.

Ok great so you know the tax to collect. How do you remit to a vast amount of jurisdictions? You think that's trivial? It's not.

Hopefully you're right and that there will be/are services that make it fairly easy/cheap for anyone of any size to be compliant without a lot of extra work. While there are a lot of edge cases, the reality is that companies using a payment processor will probably be fine even though there's a mistake here and there--which no one will actually know about.

And the reality is that small businesses will mostly just fly under the radar if they want to even if some states don't have a floor for the sales that trigger taxes.

The South Dakota tax only applies if you sell more than $100k or send more than 200 shipments, which factored into the decision:

Respondents argue that “the physical presence rule has permitted start-ups and small businesses to use the Inter­net as a means to grow their companies and access a national market, without exposing them to the daunting complexity and business-development obstacles of nation­wide sales tax collection.” These burdens may pose legitimate concerns in some instances, particularly for small businesses that make a small volume of sales to customers in many States. State taxes differ, not only in the rate imposed but also in the categories of goods that are taxed and, sometimes, the relevant date of purchase. Eventually, software that is available at a reasonable cost may make it easier for small businesses to cope with these problems. Indeed, as the physical presence rule no longer controls, those systems may well become available in a short period of time, either from private providers or from state taxing agencies them­selves. And in all events, Congress may legislate to ad­dress these problems if it deems it necessary and fit to do so.

In this case, however, South Dakota affords small mer­chants a reasonable degree of protection. The law at issue requires a merchant to collect the tax only if it does a considerable amount of business in the State; the law is not retroactive; and South Dakota is a party to the Streamlined Sales and Use Tax Agreement, see infra at 23.

That's still difficult to comply with. Imagine 50 different laws like that, each with their own tiers, and consider the difficulty accounting for them all and staying in compliance. That's not even getting into municipal taxes.

Which is why the issue remains, as it has been since Quill, the extent of the seller's contacts with the state.

If you're making $100k to each 50 states, then you've got $50 Million in Revenue and can afford to do it.

If you've sold 10 t-shirts at $20 a piece, then your total sales of $200 isn't worth bothering with.

If we want there to be problems we can certainly create them, but doesn't seem all that complicated if we want it to work.

You mean $5M not $50M.

100k * 50 = 5M @ 2% profit margin that's 100k per year.

Enough to live comfortably on, but not exactly a big money. Further, the ruling applies to all taxes and has no cutoff under 100k/year required.

I'm curious where your 2% margin came from in this estimate. From what I can tell, that number is often quoted as Amazon's profit margins, but I'm not sure smaller more-specialized online retailers necessarily need to match Amazon's low margins.

If you are manufacturing something then the profit margins can be much higher. However, for retail 2% is fairly solid and likely above average when you include people losing money, but not outstanding.

> If you're making $100k to each 50 states,

Isn't it $100k or 200 transactions?

200 transactions is just 17 customers with a year of monthly subscription payments.

Not to mention remitting the money to the proper place. Not a trivial matter at all.

Avalara has automated return filing.

Shopify/BigCommerce/Authorize.net/eBay/Amazon, etc. will handle it for you. Everyone uses SaaS software at some point in the process nowadays.

Yes, those platforms may handle sales tax calculations automatically for you for their specific platform. That's only the very first step. Merchants will then need to report and remit their sales tax to each state. If those platforms plan to handle the entire process, trust me they have a ton of work ahead of them if they decide to handle it in-house.

Note that popular services TaxJar and AvaTax will do automated filing for you as well.

The remittance is the key, and part of the reason that I've only ever partnered with other companies that can handle that sort of thing.

Arguments like this annoy me. Someone has it figured out so it's OK for these complex tax implementations to exist. No, it's not OK, and it's not a solved problem. We recently implemented sales tax collection using the TaxJar API combined with Stripe. It took at least a month to integrate. These integrations are huge drains on business productivity. Government has to stop creating these complex rules. Create simple rules and stop treating everyone's time with such reckless abandon.

The problem is each government wants to make rules of their own and no one can agree to streamline. Then comes the issue with democrat and republican politics. Republicans will want low tax and little services while democrats the opposite. Good luck getting them to agree.

The end result is smaller busineeses get stomped. Only solution i see is to streamline it with software. Software is getting easier to use so hopefully it becomes less burdensome.

We don't. We're one of those mom-and-pop businesses that uses a self-hosted shopping cart, and use Braintree as our payment processor which has no sales tax recording system that I'm aware of.

That sounds harder and more expensive for the business than simply having a standard system to collect and pay the sales tax.

Paying sales taxes online for the one state where I have a business that does retail sales takes between 10 and 30 minutes, depending on how complex that quarter's sales were.

Multiply by 50 states, and it's up to 25 hours a month of work.

For those of you who have never done this, sales taxes are a lot more complicated than they seem. In the three states where I've had retail businesses, different types of products have different sales taxes and each has to be reported individually.

It gets exponentially more complicated if your state also has use, consumption, or other retail taxes; and if it requires you to report purchases your company made out of state.

If I had a popular company, even with small sales, I could easily see this becoming a week-long headache I offload onto my accountant, who will then charge me extra.

So not only do I have to raise prices to include the sales tax for various states, I have to factor in the extra accounting expense.

But if the cutoff really is $200k per state, and you really had 50 states to take care of -- You'd be looking at a minimum of $10M in annual sales. If you're a $10M company, I think one of your accountants could spare the 6 hours per week taking care of it.

I've worked with a lot of small businesses so I don't mean to disparage things but this seems like a really obvious law that should be enforced.

But if the cutoff really is $200k per state

That's a pretty big if. The $200k cutoff from the article is South Dakota. I've never had a business in a state that had any cutoff at all. Only sell $1 this quarter? Pay the tax.

Or you could just outsource it to companies like TaxJar that specialize in this and pay a few bucks to have to all done automatically. After this ruling I expect more and more platforms will have this sort of thing built in. One or two more fields to fill out for your products, but otherwise completely automated.

a few bucks

Please be more specific.

Also, remember that every single one of those bucks will be passed on to the customer in higher prices.


Considering you are already required to do it for where you are located it's just a little more work to automate it for all locations.

That page doesn't appear to factor in filing costs, which run up to $5000/year.

Also, I wouldn't generally classify it as "a little more work", since in many cases the old system could be hard-coded and the new system requires reworking the checkout flow to capture the full mailing address and pass it through an external API before calculating the transaction total.

$100K can be quite a low number, if it's revenue not profit.

Consider selling 100x$1000 computers at $50 profit per each, vs 1000x$100 jewelry at $50 profit per each.

200 shipments is nothing, and $100k isn't particularly meaningful revenue, either. I don't know what kind of margins people get, but I'd guess $100k yearly revenue isn't even enough for one person to live decently, let alone afford to handle keeping up with a business.

It's 200 shipments or $100k in North Dakota which would be impressive for any mom and pop eCommerce site that isn't somehow focused on ND. Almost no one lives there.

Time to push those annual (vs monthly) SaaS plans I guess...

Congrats to Avalara on their recent IPO, pretty good timing... this is a Seattle-area firm that does local/state/etc. tax calculations. In the end, it's a huge tax on infrastructure.

What's a huge tax on infrastructure? The supreme court ruling? On what infrastructure? Software?

I find it highly unlikely that mom-and-pop stores will have to collect and remit taxes to other states.

From they very start of Quill they said: "we ruled that a "seller whose only connection ... is by common carrier ... lacked the requisite minimum contacts with the State." So the issue was: how substantial does the seller's contact have to be?

The court ends this decision by saying "the first prong ... asks whether the tax applies to an activity with a substantial nexus with the taxing State... sellers who engage in a significant quantity ... are large, national companies ... undoubtedly maintain an extensive virtual presence." So the issue remains: how substantial does the seller's contact have to be?

The underlying logic of the law hasn't changed, they just fixed some imprudently broad language referring to a physical presence.

So I doubt the SCOTUS abandoned one bright-line rule for being flawed in favor of another bright-line rule that equally fails to address the underlying issue of substantiality (e.g. imposing a "single-sale" rule).

In order to enforce this ruling a State Attorney General would have to file a lawsuit against a company and get an injunction requiring them to collect taxes and get a judgement for back taxes.

Small businesses will just ignore this because there will be no enforcement unless you are operating at a scale large enough (millions in taxes) to justify enforcement.

Payment processing services will most likely provide a solution to do this automatically. Charging credit cards is already pretty complicated, and they abstract it away already, so it would make sense for them to provide this as an additional service.

Agreed. I envision "tax compliance as a service" being offered by processors or third parties.

My only question is then whether individual municipalities in states that allow them to have their own sales tax will also now be able to force compliance. If that's the case, what a nightmare for online retailers.

That's how large retailers do it already. I worked at a company that created software for calculating sales and use tax for large retailers. It was an incredible headache and I doubt any retailer would do it themselves since they can also point to the vendor as the liable party when a mistake is made, and those mistakes will be made.

We even had areas where we could not find the correct tax because the government in charge refused to tell us

And... I've conflicting info from different states as to when the sales tax should be calculated. I'm dealing with a project right now that is both "pay now" and "delivery and services paid for later". At least one state said they'd prefer us to calculate the tax both at 'time of sale' and after money is collected after the service is provided/delivered, and because the rate may have changed (between months, for example) and they want the higher amount.

And there was that standardized sales tax system that the states were going to adopt but only ~15 did if I recall correctly. I can't remember the name but I do remember that each state then added their own idiosyncrasies to the "standard" and they inserted incorrect data we had to catch.

Or the 100s of thousands of literal exceptions such as "windows 98 physically shipped to a customer once in California on CD so you need to calculate the tax on it as a physical good forever, even when it's sold and received over the internet"

The supreme court decision was basically a refinement of what constitutes a nexus with respect to common carrier shipments. 200 sales, or $100k in revenue per year is what is reasonable here. It will be interesting to see what LA, Chicago, and NYC do to handle this specifically.

I mean if you're already offering a tax compliance service for 50 different sets of books does it really get that much more complicated adding more?

Already done, Google AvaTax and TaxJar.

Payment processing services could certainly build out their own solution to collect and remit sales tax, but a lot of merchants sell on a variety of platforms and channels. For instance, a merchant might sell on Amazon and their own eCommerce site powered by Shopify. They might also have an ERP system as a "single source of truth" to record all of their transactions. Each of these platforms collect sales tax differently, possibly providing automatic calculations or simply leaving it to you to provide your own rates. This can get complicated very quickly and a payment processing service only has insight into the data you're passing over to them.

That's why companies like TaxJar and Avalara are focused on sales tax -- to integrate with every shopping cart, payment processor, marketplace, accounting, order management / ERP platform out there to combine all of your transaction data and determine how much sales tax you need to remit in every state.

They can match up rate to location, but most jurisdictions have their own laws on what items are taxable. There are also jurisdiction-dependent tax holidays. For example, Texas has a weekend in August where certain kinds of items (that are "back-to-school" appropriate) are tax free. So you have to know not only the rate, but also the rules for categorization, and those vary by jurisdiction and time of year, sometimes differently from year to year.

They will just hire avalara to do it. Do you think a payment processor is going to hire hundreds of tax accountants to look all this stuff up?

Cheaper to just hire avalara to do it for you.

In fact they do already.

Not sure how much there's left to disadvantage. Regulation, as a rule of thumb, benefits larger businesses.

These days, the structural advantages larger businesses have are huge. Many of them are on feedback loops.

There're reasons we will soon see several companies pass the $1trn mark, reasons that aren't economies of scale.

Well, regulatory compliance is an economy of scale too :)

It's absolutely a win for Amazon, who have been doing this for several years already, so their compliance costs are already baked in.

There's a bunch of services that you can send your transactions to and they'll return sales tax data via API, your accounting software should have integration for them already. Worst case you can do them on a simple web form online (enter the address, types of goods, etc)

Those same services can also automate your tax filings with each state. It's not free, though.

Except for the part where mom-and-pop stores were competing with large retailers operating out of state, who could undercut them because they weren't charging sales tax.

I suppose we should continue that state of affairs, because heaven forbid we hurt the mom-and-pop online stores... Which make up a tiny fraction of overall commerce, compared to physical mom-and-pop stores.

Would love to see Stripe provide an API for this.

Seems like there should already be a service that does this. It's just static data, a microservice would be easy to run.

If you have the resources to proactively keep your data up-to-date, then a lookup API is trivial. But it also doesn't begin to address remittance, which is by far a bigger burden.

I agree. The most challenging task for smaller in house built sites is going to be figuring out how to stay up to date with the hundreds of tax rates especially in CA as well as modifying their systems to handle blended tax rates when a customer orders both a digital and physical product.

How many mom and pop stores go through the hassle of maintaining their own software for this vs just paying someone else to handle it, who can do so trivially?

I expect that some third-party solutions will spring up, but of course that's more money that any third-party retailer has to pay.

That is an interesting take on it. I was thinking it would be more of a level playing field for small physical retailers if the larger online stores had to charge the same retail tax.

My thoughts were that if you bought something from a store it would be x% more expensive with sales tax than purchasing off of amazon and having it delivered without needing to pay sales tax.

This way both have to charge the same sales tax and the difference in price will simply be down to the costs relating to owning a store.

Amazon already collects sales taxes based on the state the order is delivered to, despite not being legally required to until now. They've already baked the compliance costs into their prices. Smaller retailers who weren't doing this will suffer, as they now need to raise prices.

You seem to be conflating online vs. physical with large vs. small. There are small online merchants and large physical retailers — for example, Walmart is significantly bigger than, say, the online bakery Vegaron.


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