10 ms·

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

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.

c12 8y ago
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.
- the_watcher 8y ago
  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.
- chc 8y ago
  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.
TheCoreh 8y ago
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.
- tpurves 8y ago
  In fact they do already.
- pwned1 8y ago
  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.
  - lovich 8y ago
    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
    - mgkimsal 8y ago
      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.
      - lovich 8y ago
        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"
jeffwilcox 8y ago
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.
- rconti 8y ago
  What's a huge tax on infrastructure? The supreme court ruling? On what infrastructure? Software?
nolta 8y ago
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.
- WiseWeasel 8y ago
  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.
  - cm2012 8y ago
    Shopify/BigCommerce/Authorize.net/eBay/Amazon, etc. will handle it for you. Everyone uses SaaS software at some point in the process nowadays.
    - jakejohnson 8y ago
      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.
bluedino 8y ago
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.
deleted 8y ago
[deleted]
xoail 8y ago
Would love to see Stripe provide an API for this.
- jandrese 8y ago
  Seems like there should already be a service that does this. It's just static data, a microservice would be easy to run.
  - seandougall 8y ago
    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.
djsumdog 8y ago
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.
- ghaff 8y ago
  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.
- jakejohnson 8y ago
  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.
- deathanatos 8y ago
  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-holiday.html https://www.tn.gov/revenue/taxes/sales-and-use-tax/sales-tax...
dalbasal 8y ago
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.
- rconti 8y ago
  Well, regulatory compliance is an economy of scale too :)
saugnsckuigfh 8y ago
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).
- saas_co_de 8y ago
  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.
the_watcher 8y ago
It's absolutely a win for Amazon, who have been doing this for several years already, so their compliance costs are already baked in.
jonathanmoore 8y ago
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/ 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.
- Retric 8y ago
  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.
  - esturk 8y ago
    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.
    - Retric 8y ago
      https://en.wikipedia.org/wiki/Parable_of_the_broken_window https://en.wikipedia.org/wiki/Parable_of_the_broken_window 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.
      - raverbashing 8y ago
        There is economic gain for those collecting it. Of course, how much you can squeeze people and businesses is an everlasting question.
        madeofpalk 8y ago
s2g 8y ago
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?
emodendroket 8y ago
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.
wonderwonder 8y ago
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.
vkou 8y ago
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.

c12 8y ago

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.

the_watcher 8y ago
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.
chc 8y ago
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.

TheCoreh 8y ago

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.

tpurves 8y ago
In fact they do already.
pwned1 8y ago
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.
- lovich 8y ago
  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
  - mgkimsal 8y ago
    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.
    - lovich 8y ago
      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"

jeffwilcox 8y ago

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.

rconti 8y ago
What's a huge tax on infrastructure? The supreme court ruling? On what infrastructure? Software?

nolta 8y ago

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.

WiseWeasel 8y ago
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.
- cm2012 8y ago
  Shopify/BigCommerce/Authorize.net/eBay/Amazon, etc. will handle it for you. Everyone uses SaaS software at some point in the process nowadays.
  - jakejohnson 8y ago
    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.

bluedino 8y ago

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.

deleted 8y ago

[deleted]

xoail 8y ago

Would love to see Stripe provide an API for this.

jandrese 8y ago
Seems like there should already be a service that does this. It's just static data, a microservice would be easy to run.
- seandougall 8y ago
  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.

djsumdog 8y ago

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.

ghaff 8y ago
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.
jakejohnson 8y ago
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.
deathanatos 8y ago
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-holiday.html https://www.tn.gov/revenue/taxes/sales-and-use-tax/sales-tax...

dalbasal 8y ago

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.

rconti 8y ago
Well, regulatory compliance is an economy of scale too :)

saugnsckuigfh 8y ago

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).

saas_co_de 8y ago
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.

the_watcher 8y ago

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

jonathanmoore 8y ago

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/ 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.

Retric 8y ago
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.
- esturk 8y ago
  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.
  - Retric 8y ago
    https://en.wikipedia.org/wiki/Parable_of_the_broken_window https://en.wikipedia.org/wiki/Parable_of_the_broken_window 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.
    - raverbashing 8y ago
      There is economic gain for those collecting it. Of course, how much you can squeeze people and businesses is an everlasting question.
      - madeofpalk 8y ago

s2g 8y ago

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?

emodendroket 8y ago

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.

wonderwonder 8y ago

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.

vkou 8y ago

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.