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cdetdi

Out-of-State Tax Collection in USA Re: "South Dakota v. Wayfair" Decision

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I'm very surprised this topic hasn't been opened yet, perhaps it is going on in another forum that I have not seen yet.  On June 21, 2018, the US Supreme Court reversed over a decade of established precedent that allowed sellers to not collect sales tax on out of state transactions.  

Quote

In a 5-4 decision, the Court ruled in favor of South Dakota and overruled Quill Corp. v. North Dakota and National Bellas Hess, Inc. v. Department of Revenue of Ill. The Court concluded that “the physical presence rule of Quill is unsound and incorrect.” This is a big deal, since Quill had been the law of the land since 1992 regarding nexus for remote sellers and National Bellas Hess since 1967! - Sales Tax Institute ("https://www.salestaxinstitute.com/resources/south-dakota-v-wayfair-is-decided-what-does-it-mean-for-you"

For an online only company like ours, this is a small nightmare.  We are now required to collect sales tax and remit it individually to each state if our sales total over 100 or revenue over $100,000 within a calendar year.  This means 46 different tax rates and monthly filings.   Since this change in law came from the court, rather than from new legislation, each state has put out (or is trying to put out) new legislation and guidance for how out of state sellers should deal with that state's respective sales tax.

To make things worse many areas have "local" or "county" based tax rates on top of what their state charges.  There are thousands and thousands of different tax rates throughout the country.

Our sales exceed that threshold in all states except 1 or two, so we are now left struggling with how to deal with this new tax situation. 

My initial response was to simply create the 46 tax zones necessary and remit tax to those 46 states every month.  However, this ignores all local/county tax regulations, too.  I have found a collection of third-party service providers who make sales tax rating tools.  These are pay services (of course, another expense just so that we can pay more money) and would require work to allow their APIs to plug into the oscommerce framework.  I don't know of any add-on or module that can integrate my shop with a third-party tax rate.

I would like to hear from other shop owners who are also struggling to determine the best course of action to comply and perhaps together we can formulate a good way forward.

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Look here:

In July, I wrote to my Congresscritters asking for Congress to take the lead in sorting this out (yeah, right. sigh...). A three point program:

  1. Force the states to come up with a unified sales tax classification system, so a merchant only has to figure out once which tax class something goes in, and not state-by-state.
  2. Make every state publish CSV tables of rates per tax class for either statewide or state+ZIP Code. Everybody knows their state and ZIP. Not everybody knows their county or tax jurisdiction. Leave it to each state to decide how to allocate rates and remittances among the tax jurisdictions a ZIP Code overlaps.
  3. Set up a simple one-form, one-payment tax remittance system covering all states, so that merchants can simply transfer how much tax they collected per class per tax zone to a CSV file, and submit one payment, and they're done for every state.

I would think that state, county, district, and city taxes could be combined into a single number for any ZIP Code. Leave it to the states how they want to distribute it (item 2).

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cdetdi...I totally agree!  This is a total nightmare scenario for a small e-commerce business like ours too.  Have you already implemented something to collect and pay other states?  I can't even wrap my brain around the process of getting Seller Permits in all states let alone all of the county tax rates.  Keep in mind counties change their tax rates so even when/if this is set up you'd have to monitor all of these changes.  Then once sales tax is collected you'll have to have a reporting capability, file and send the tax funds to each state.  Some might have monthly, quarterly or annual requirements.  These requirements can change as well.  Then there's the potential to be audited by any of these states.  It is completely unworkable. 

Of course, OSCommerce is not flexible enough to make any of this easy if even possible even if I could afford the added effort to do it. 

Now I have some companies that drop ship for me and they are requiring Seller Permits in each state we have them drop ship as well as sales data or they will no longer drop ship for us.   The overhead will create is enormous! 

 

1. What have you already done to comply if anything?

2. What are you plans to comply?

3. Will you stay with OSC or go with something else?  If something else, what?

I hope Congress does get involved and fix this because this is a nightmare.

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There is no need to worry about any state where you do not have a nexus (i.e., stay under the old rules). Just ignore other states, as they have no mechanism to enforce tax collection. Once they have implemented a streamlined system as I outlined in my previous post (and restated below), it will be painless to comply and I will be happy to do so. Until then, trying to comply with 45 or so states' sales tax rules is absurd and I won't do it.

Write to your congresscritters (both representative and senators) and urge such a system to be adopted:

  1. A unified nationwide set of tax classes, so merchants only have to figure out what class a product or service falls under, once.
  2. Lookup tables published by states, organized by state and ZIP Code, with a single rate for each tax class. Leave it to each state to break down remittances into state, county, city, special district, etc. amounts. These should be CSV format that can easily be read into a database. Central clearinghouses must be authorized to distribute these tax tables so merchants have a central point to get their information and be notified of updates.
  3. A single point of remittance for any given merchant: one form, one CSV list of collected taxes per state/ZIP/class, one payment authorization. This might be a federal agency, several private agencies, or each state's tax agency. Remittance frequency would be annually for small firms up to weekly for the very largest businesses. There will be no exemptions for any business, no matter its size -- the idea is to make it so painless and simple that no one will be burdened, and reporting can be fully automated.

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I've created the needed tax zones for every state with a 0% rate for now until we exceed the 200 transaction or $100,000 limit for the state. That was the easy part. Unfortunately now, since our business is located in California, I have to figure out how to deal with all of the California tax districts since California insists that the Wayfair levels apply PER DISTRICT but you only have to collect the statewide tax rate of 7.25% unless you exceed the threshold for a tax district. Currently that is almost 250 different districts. It took a while to enter all those into our accounting software. I'm going to have to figure out a way to add a subzone table for the California zone at least and somehow keep track of transactions per subzone and switch the rate to the district rate if the threshold is exceeded. Fortunately the state provides a WSDL file that will allow you to automatically get the tax district and rate for any given address. Unfortunately they provide absolutely no documentation on how to use it. Hopefully congress will pass something that will establish a single rate per state and a central reporting/collection center but I'm not going to hold my breath.

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"200 transactions or $100,000 limit" what? What system is this in compliance for? There is no national requirement to collect sales tax in other states that you lack a nexus in, so just ignore them. I'm certainly not going to go crazy trying to keep on top of every other state's tax policies! Until they make in painless to comply (ZIP Code based, national tax classes, single point of remittance), I'm not doing anything. Even NY is only going to get my local (8%) rate. If they want me to apply the correct rates for 80-something tax jurisdictions, they'll have to come up with a sane system first.

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