As I reviewed the online sales tax laws that this week’s Supreme Court ruling validated, I found a potential problem in the small-business exceptions. SDCL 10-64-2 says out-of-state vendors have to collect and remit South Dakota sales tax if their sales cross one of these two thresholds “in the previous calendar year or the current calendar year”:
- The seller’s gross revenue from the sale of tangible personal property, any product transferred electronically, or services delivered into South Dakota exceeds one hundred thousand dollars; or
- The seller sold tangible personal property, any product transferred electronically, or services for delivery into South Dakota in two hundred or more separate transactions [SDCL 10-64-2, enacted 2016.05.01, approved by U.S. Supreme Court 2018.06.21].
So suppose you knit mittens in Minnesota and sell them online. By December 30, 2018, you’ve filled 195 orders for South Dakota customers this calendar year. Then on December 31, 2018, you get five more South Dakota orders. You’re obligated to collect sales tax on every sale you make to South Dakota in 2019. You’re clearly obligated to collect sales tax on sale #200 on December 31, 2018. But what about 2018 sales #1–199? Does South Dakota expect you to collect tax on those 199 earlier sales or not?
My friend Wayne says no: SDCL 10-64-6 says, “No obligation to remit the sales tax required by this chapter may be applied retroactively.” Michigan businessman Vladimir Gendelman either did not read that statute or thinks the Legislature only intended to prevent the state from seeking retroactive taxes for the period from May 1, 2016, to June 21, 2018, during which court review kept our remote vendor sales tax law under injunction. Gendelman says South Dakota’s online sales tax law requires to either collect sales tax on every sale to South Dakota from day one and refund buyers if his company doesn’t hit the annual threshold of 200 sales (or $100K) or send South Dakota customers #1–199 a bill when they get customer #200:
Prior to Thursday’s decision, online businesses only charged sales tax on South Dakotan purchases if they had a physical presence in the state. Now, any business that earns more than $100,000 or 200 transactions from South Dakota annually must collect a sales tax from clients. That’s not a problem for large companies like Amazon that are already equipped to handle these requirements — but it’s horrible for smaller business like Company Folders that simply aren’t.
It’s impossible for us to anticipate whether or not we’ll hit a threshold of $100,000 year-to-year. Just one large purchase could send us over the edge. Are we supposed to charge everyone from South Dakota a sales tax and then refund them later if it turns out the tax isn’t required? That would be a logistical nightmare and require an expensive new software solution that we can’t afford. We also can’t exactly charge clients a sales tax after the fact if it turns out the tax is required; we respect our clients too much to push that hassle onto them [Vladimir Gendelman, “Guest Column: Supreme Court’s South Dakota Sales Tax Decision Will Cripple Small Businesses,” Oakland Press (MI), 2018.06.22].
Rather than risk the hassle, Gendelman is refusing to take orders from South Dakota:
“It’s disappointing to have to turn away business,” said Vladimir Gendelman, founder and CEO of Company Folders, Inc., “but the Supreme Court hasn’t left us much choice. This is an irresponsible decision that will have horrible implications for any small business that sells online—including Company Folders” [Company Folders, press release, 2018.06.22].
Gendelman also shares the concerns that Aberdeen online vendor Laure Swanson expressed in March about the complication and cost of complying with sales tax requirements from multiple jurisdictions.
I wonder, Vlad: instead of turning down good business, why not do what Custom Touch Homes did for the City of Madison several years ago: declare that customers take possession of their purchases at the moment you box them up and ship them and collect sales tax at the warehouse, for your home state of Michigan, on every sale?
I have yet to see anything on the internet where a real person has a clew about how and when to collect internet sales taxes from states that don’t have them yet.
Maybe it isn’t humanly possible and this is a bad dream.
Now imagine the Michigan businessman reading not only South Dakota’s statute but reading 48 other
statutes and trying to comply with every one. I don’t envy him. Does the ruling also address
city sales taxes?
Supreme Court rules that internet businesses must collect all state and local sales taxes
From LA Times. I didn’t post the article because it is hidden behind paywall.
Then there is this guy who seems knowledgeable but technical way above my pay grade.
Edwin … To write that 48-state-inclusive sales tax computer code and rent it to any business would take about two weeks in Silicon Valley. Business is in business to pass on business costs.
Are South Dakota citizens so cheap that they won’t buy from Amazon because of the sales tax? You save enough by not starting up the Volvo and driving downtown, to pay most of the tax and you don’t even have to get dressed to shop. Sheeeeeesh!!
On a local note … there are probably young people in Madison writing the code right now. Or they should be.
I apologize for not consolidating these thoughts into one post.
~ This guy sells folders? Like, paper folders to put paper files in? I just got a new phone that has 64 gigs of folder space in it. I’d say Mr. Gendelman and his “logistical nightmare” (that any teenage computer code writer can fix) is looking for a way to get out of the folder business. And who can blame him with such a negative attitude. Business people are fearless and love change. At least the successful ones, anyway. One of the most fun things about business is to take people like Vlad’s customers with innovative and aggressive thinking.
Mr. Lansing is rambling more than his usual 5 toke afternoon. I say, change the law to smite them on an accrual basis and have an army of tax accountants crawl up everybody’s arse. That’s what Mr. Sutton will do.
Your brain is a treasure, Grudzie. Don’t go changin’.
Now that you mention it, some pot might be good, tonight. It’s been years. They don’t sell it here in Littleton, you know. We’re an aerospace town. But … naw. Standing in line behind all those Rapid City customers is too time consuming. A Scotch might be good, around ten, though.
PS … It’s sales tax Grudz. Not rocket science.
I have been told that my brain is a treasure and no toking for me. Perhaps a Balvenie at nine or so. grudznick is required to turn off the computer machine and get into the covers well before 10.
Balvenie? Impressive. New to me and I’m an efficianado. Thanks. 😊 Enough, though. Herr Heidelberger gets mad if we talk amongst ourselves.
Edwin, yes, municipal taxes are included in this ruling. The legislation in question (2016 SB 106, now SDCL Chapter 10-64) subjects big remote sellers to SDCL 10-45 and SDCL 10-52. The former covers state sales tax; the latter covers municipal taxes.
If Grudz needs a night cap try a Ball- Peenie. Guaranteed to send you to la la land.
So, the ruling covers 40 some states and who knows how many municipalities.
Happy code writing guys and gals.
Are folders available locally? I think we’ll be ok.
It’s sales tax not rocket science. Here are 18 software choices (to plug in) that will allow your bookkeepers to keep the books and your sales force selling.
PS … paper folders are the buggy whips of this decade
The third paragraph after Wayfair is mentioned should give many small businesses pause to consider.
The rest of the article has potential horror stories as well. I’m guessing this Genie is gonna be hard to put back in the bottle and will lead to all kinds of complications, lawsuits, bankruptcies, and who knows what else.
Laurence Kotlikoff is a flim flam man, extraordinare. It’s his job to scare people by inventing doomsday scenarios and then selling them his $40 booklet ($140 for financial planners). He’s the kind of guy you see on late night television with ads on shows that seniors watch.
He says he spends $50,000 a year on accountants but that covers the six states he sells in that already make him pay sales tax. He doesn’t mention his gross receipts or what percentage of his business goes to accounting costs. It’s understandable that he’s upset over a new cost but selling your product in a state obligates you to pay that state’s sales tax. He and other small businesses have been cheating state revenue streams long enough. It’s hard to feel sorry for him because this article is just a pitch for some new pamphlet he’s writing to sell to scared people.
How about a big smile for all that new tax money and a discussion of how to invest it? My ex-pat choice would be to stop dumping cheese whey into the Sioux River and starting the process of reclaiming The Sioux as the greatest, unrealized asset the state currently has?
You don’t need new money to end sales tax on food. Just do it. The money people don’t pay in food tax will be spent on other things and the revenue stream won’t end … it will probably rise.
Thanks for the info, Porter. I didn’t bother to check because the article was supposed to be from Business Insider. I will pay more closer better attention next time.
I had a South Dakota ad follow me to a Philadelphia site saying 98% of South Dakota’s waters are open for fishing. I’m guessing many are impaired and the fish inedible.
MFI … I sure wasn’t criticizing you. The article has good information and biased information.
I guess it’s not surprising that Russian German negativity bias folks need to look for something wrong with new things. Complaining is more prevalent than in most places. Until taxes, government and liberals get a fair footing in SoDak, nothing will ever get better.
Porter, it’s always smart to look for something wrong in new things, remember the affordable
health care roll-out? Experience tells us it’s better to look for what might be wrong ahead of time
rather then have something wrong bite you in the butt three months in.
As for paper folders; when I go to the farm service agency I get paper folders, four farm numbers,
four paper folders. I go to get legal work done I see paper folders. Of all the businesses I get bills
from there is only one e-bill. Paper folders will be around for a while.
Yes, I’m German.
I know you’re German, Edwin. That’s why I brought up your social and behavioral tendencies. Most people spend more time thinking about how to make a new idea work and are confident in their ability to tweek any problem that may arise. Things progress quicker.
Glad you still use paper. Hope it continues so you won’t have to change.
For which I do not apologize, Porter.
Edwin. Why would you apologize. I’m commenting not criticizing. Any member of any ethnic group should be proud of how they are. But, they should also be tolerant of how other ethnic groups are. Much of the tribal divisions in politics these days is because of lack of tolerance to others.
You had me fooled, Porter.
I have no more critical comments for today.
The culture north of Sisseton is rich with Volga German heritage. I knew many folks in Watertown who came from there. You’re 74. Who am I to try and tell you anything? Pleasure talking to you. Until next time.