– June 21, 2018
In SOUTH DAKOTA v. WAYFAIR, INC., ET AL., the Supreme Court ruled today that states can force online businesses to pay sales taxes whether or not they have “nexus,” which, roughly speaking, means having a physical presence in the state.
I have a small online business, www.economicsecurityplanning.com, which sells personal financial planning software. During our 25 years in business, I’ve lived in fear of today’s decision. We have employees and, thus nexus, in 6 states. Each time we hired someone in a state, we immediately registered to pay sales taxes.
But doing so required further tasking our sales-tax processing company at, for us, a very high price, to process yet an additional state’s sales tax payments. It also led, as I discovered to my horror, to our needing to file a corporate tax or gross receipts tax return in each of the 6 states, annual reports in several of the 6 states, reports in several states about workers compensation and unemployment insurance and a variety of “small” fees. The compliance cost of hiring the sales-tax processing company, paying our accountant and responding to the weekly and sometimes daily letters about filing this form or that is already costing my company $50,000 a year.
$50,000 a year is a huge sum for a small company, especially one like mine that is investing every penny it earns to grow and just breaking even. Based on the Supreme Court decision, my company’s tax compliance bill as opposed to tax bill could easily come to $150,000 if, as I suspect, states will be emboldened by this ruling and apply what they call “economic nexus” and levy corporate income or gross receipts taxes to any company selling any products to any entity in their states.
Yes, South Dakota, which prevailed in this decision, is currently exempting, from sales taxation, small businesses with $100,000 or less in state sales or fewer than 200 individual transactions. My company’s cheapest product — www.maximizemysocialsecurity.com — sells for $40. If we sell 200 licenses of this program to folks in South Dakota, revenue from that state will total $8,000. So it doesn’t take a large dollar volume of business for my company to be forced to pay sales tax in South Dakota. Fortunately, South Dakota doesn’t tax corporate income or gross receipts. But it’s only one of two such states that taxes neither. The other is Wyoming.
I’m not sure that the Supreme Court Justices understood that forcing companies, large and small, to pay sales taxes will, over time, likely force companies, large and small, to pay corporate and gross receipts taxes in the 48 states that levy such taxes.
And, here’s the kicker. You have to file even if you have no tax liability. This is our case. We’d be forced, thanks to today’s decision, to pay our accountant to submit not 6, but 48 corporate or gross receipt tax returns. This will all be required in order to pay zero, nada, nichts, rien, niente, … in taxes since we are currently making zero profit! And to add icing on the cake, even if you have zero taxable income you are, it seems, forced to pay a basic filing fee. Multiply a small, say, $300 fee by 48 states, and you’re talking close to $15,000.