Surpreme Court Rules in South Dakota V. Wayfair and What That May Mean to You!

State Sales Tax Rates

An unexpected notoriously bad Supreme Court ruling has come down in a case regarding the collection of sales taxes. The Supreme Court has decided that it's more important to protect large retail businesses than it is to protect smaller online operators. With this ruling businesses that do not have operations in other states will have to do the impossible task of collecting and distributing sales taxes to more than 12,000 different taxing authorities. They have effectively undermined small business by placing an undue and unique burden on them.

As a result of this ruling we will start collecting a small tax collection fee on top of a states average sales tax rate to accommodate this ruling to the best of our ability for all states that impose a sales tax. This ruling does ignore reality in that not even the largest companies can accurately or correctly figure out the taxes owed for every address as the jurisdictional boundary lines do not match zip code data. And despite what some have erroneously argued there is no workable means of determining what taxing bodies need be paid let alone what taxes apply for any given delivery address or product nationally. The same product in many states may have more than one tax rate depending on how the product is used/installed/advertised/etc- or even vary depending on what day it is sold ("sales tax holidays" is what they call them in some states, but what products are tax free depends on the state and it could be illegal to collect a tax not owed). It would also be cost prohibitive to mail a $2 check for $2.80 in taxes to some small tax jurisdiction where you have only had one customer buy anything ever. Something that could technically be required by this ruling. This however also depends on lots of other factors and many states require licensing and other things prior to being able to pay the state or local taxing authority the sales taxes owed. Which also can be an impossible task for an out of state retailer when a state requires a physical local address to comply and/or other licensing.

It also ignores the fact even large retailers have already not been accurately collecting sales taxes in many states where they have brick and mortar retail stores due to the complications in tax collection law. To be clear it is easier for a brick and mortar business to collect sales tax because they don't have to do it based on the destination address of a customer. They do it based on the stores own physical address so they at most have 2-3 taxing authorities to deal with and whatever other tax laws exist that apply to a given store. This failure to properly account and distribute is happening even within states with simpler sales tax collection rules-like New Jersey. For instance I saw Staples which is an international office supply store with operations in most if not all states fail for years to correctly collect and account for sales taxes on computer repair services after the law was changed in New Jersey 10+ years ago. Some repair services did correctly get taxed while others did not. Whether or not it was properly collected was dependent on the SKU an employee used to charge a customer for a given repair. I would presume newer SKUs were being correctly accounted for tax wise while older active ones were not.

Fortunately there are still options for those who think these taxes are unfair. New Hampshire, Delaware, Montana, and Oregon do not impose any general purpose sales taxes and there are even multiple popular migration movements to states like New Hampshire over these and other related freedom issues. For instance the Free State Project advocates for a society in which governments have no right to utilize violence against peaceful people even for the purpose of tax collection. It's like the expression "the end doesn't justify the means". The objectives may be worthwhile, but the immoral actions to get there can never be justified.

One of the justifications given for this ruling was that the loss of revenue from online retailers is unfair to the states with higher sales taxes. This logic completely ignored the fact states have the power to lower or eliminate sales taxes to attract business and tax revenue. Four states have no sales taxes at all, a fifth has no statewide sales tax, and a sixth has only a very low state sales tax. Keep in mind that while there are no or low sales taxes in these states this does not mean the states collect no taxes. As more businesses operate here as a result of lower operation and tax compliance costs more taxes are received from other revenue sources such as property taxes. Some states like New Hampshire don't have an income tax either and the overall tax burden is comparatively low due to smarter tax policies.

For more information on this ruling see Supreme Court Rules States Can Demand Outside Online Retailers Collect Sales Taxes