Online Burden

Online retailers may soon need to collect sales taxes when they sell items to people who live in states with a sales tax.

On June 21, the Supreme Court ruled that a state may collect sales tax from taxpayers located in other states. The ruling stems from a 2016 case in South Dakota, where the state government sued Wayfair—an online furniture retailer—to collect state sales tax. Under the new ruling, an online seller in Oregon—which has no sales tax‚ would have to tack on sales tax when selling to someone in a state which has a sales tax. The rapid implementation of that ruling has some retailers concerned.

Valerie Sasaki, of the Portland law firm Samuels Yoelin Kantor, wrote on the firm’s website that the ruling: “is going to open the floodgates for state sales tax audits on out of state companies that sell goods or perform enumerated services for customers in their states.”

On Nov. 28, U.S. Senators Jeff Merkley (D-Ore.) and Ron Wyden (D-Ore.) wrote a letter to Senate majority Leader Mitch McConnell (R-Ky.) and Senate Minority Leader Charles Schumer (D-New York) asking them to enact legislation before the end of the year to protect small businesses from the “excessive burdens” as a result of the court’s decision.

In the letter, the senators wrote that some states have established implementation dates as soon as Jan. 1, 2019. They also wrote that it’s possible that states will attempt to seek retroactive tax collection, imposing additional burdens and creating additional constitutional challenges. It would be a totally new system to implement in Oregon, where retailers don’t yet have systems set up to collect tax.

“We do not believe it is realistic to ask small businesses to have these new systems set up shortly after the holiday season, which is the busiest time of the year for retailers,” the senators wrote. “This is especially true in states where firms have no experience collecting sales taxes.”

According to the Oregon Department of Revenue, the court’s decision would mean Oregon businesses selling to customers in states with a sales tax will need to collect and pay sales taxes to the sales tax states, if they meet the requirements.

Bend has many companies that operate in the online marketplace, including larger retailers such as Ruffwear, Hydroflask, Silipint and Cairn, as well as smaller retailers that sell items from their websites.

Matt Keenan, an accountant and financial analyst for Cairn—a Bend-based company that sells boxes of outdoor-based gear online—said in an email the Wayfair ruling has changed a lot about online sales and there are still a lot of unclear issues.

“Businesses who sell online should work with their accountants to find the most appropriate route for their business,” Keenan said. “Anyone with an even mildly complicated situation would probably outsource to a company like Avalara (a company that does tax compliance.) They are not cheap and if states do end up trying to enforce retroactive collection, it’s an additional financial burden—paying taxes they never collected.”

Merkley and Wyden asked in their letter for a moratorium of one year to provide time for businesses to comply with the new law.

“Previous Congressional consideration of remote sales tax legislation shows that there is bipartisan support for a runway, or phase-in period, for small businesses to comply with any new collection requirements,” the senators wrote. “For example, both the Marketplace Fairness Act and Remote Transactions Parity Act would have provided time for small businesses to adjust.”

“I (personally) support our Senators’ push for a ban on retroactive sales tax collection,” Keenan said. “In addition, this large change in how e-commerce works in the U.S. should not have hinged on this one ruling with—per Avalara’s website—over 25 states having laws go into effect within seven months of the ruling.”

“State laws are too complicated to force businesses to do this on such short notice,” Keenan continued. “For instance, a change in revenue recognition rules (ASU2014-09) by FASB (Financial Accounting Standards Board) was passed in 2014, going into effect in 2017, then delayed to 2018—almost four years for the change to take place. Almost four years for companies and accounting firms to plan for the changes and how each business will adapt.

“This sort of sweeping change should have a much longer and much more detailed roll out process,” he said.