High Court Rules on the Taxation of e-Commerce

August 02, 2018

Tim Schuster, in this episode of The Bottom Line, examines the landmark Supreme Court decision in the Wayfair case on e-commerce taxation. Tim looks at what’s behind the decision, how broad the impact will be, and what you can do to prepare if you sell online.


Transcript

Dave Plaskow: Hello and welcome to the Bottom Line. This podcast examines the everyday business and finance issues faced by closely held and private businesses. We hope to provide you with news you can use in what we like to think of as a jargon free zone. I’m your host Dave Plaskow, and with us is Tim Schuster, a manager in EisnerAmper’s Private Business Services Group. In this episode we’ll discuss the recent court ruling on the taxation of e-commerce. Hey Tim.

Tim Schuster: Hey Dave. It’s good to see you.

DP: So Tim, the Supreme Court made some news last month. Tell us about it.

TS: Oh, of course. So, the Supreme Court handed down an important, sweeping decision. Some of you have heard of this referred to as, I’m going to use in-quotes, “The Wayfair Case”, allowing states to collect sales tax if a company has a virtual presence, rather than just a physical one. This is being referred to as having nexus in the state or, you know, sufficient physical presence. Physical was the key word here.

DP: So why do you think the Supreme Court ruled the way it did?

TS: It could be partly to give a more level playing field to brick and mortar stores…

DP: That makes sense.

TS: …only companies. You know, most people viewed brick and mortar stores as being at a competitive disadvantage to online stores who did not have a physical presence in a state, and thus, did not have to collect sales tax and, you know, most people here have purchased stuff on Amazon pre them having nexus to New Jersey, you know, would know that you didn’t have to pay sales tax at a specific time. And, honestly, if I was a cynic, it could just act as a vehicle for states to generate revenue for public works projects and to plug budget deficits, you know, either way, it’s the consumer who ends up paying the price.

DP: Well, you mentioned Amazon, and we all know Amazon rules the world. So, you know, give us a sense of the scope of all of this.

TS: Sure, so, you know, well, you know, remote sales, you know, account for nearly half a trillion dollars per year.

DP: Wow.

TS: Which is a lot when you think… that’s staggering, you know, and that number is only going to continue to grow as more and more people are switching over to online commerce. You know, in other words this is big enough to deal, you know, that is game changing for a majority of the states and the taxability of items that are purchased. So there’s a huge plug here that a lot of states are going to be able to collect on the sales that are in those states.

DP: Ok. Now, without getting to in the weeds on the technical details, tell our business owning listeners what they should know and what they can do moving forward.

TS: Oh, of course. So, you know, a couple suggestions are, first, make sure you examine the states where you have sales and where you are planning on selling into. You also want to evaluate software and systems to collect tax data and to be able to file returns in multiple jurisdictions. This is something that you will have to budget for. There is going to be, more likely than not, some added cost to companies to really make sure they are going to be in the compliance side. And lastly, it would be beneficial, to run this, honestly just by your accountant, which, you know, hopefully is us, who are experts in this field and can help guide you through this process.

DP: Ok. Now, with any decision such as this from the courts, there’s usually some unresolved issues, unintended consequences. Any of that here?

TS: Oh yeah, there are plenty, you know, how does this impact drop shipping and distributors? What does… when does this actually take effect? I’ve been reading some articles – some states might come online as early as October. Will Congress pay any provisions to help small businesses? You know, I’ve read some things from here and there, just to kind of see where things are going, and, you know, just almost like Tax Cuts and Jobs Acts, we’re still waiting for a little bit of guidance.

DP: Yeah, and I think… I was reading in some, some pieces they said that there might be, in some states, it may be on the first dollar...

TS: Yup.

DP: …of sales. There might be a threshold.

TS: Yup.

DP: So, you know, things like that to be aware of.

TS: Usually a safe harbor number…

DP: Yeah, yeah.

TS: …is probably going to be there. But yes, we’re still waiting for some guidance.

DP: Ok. And what about for business consultants such as yourself, where do you fit into all this?

TS: Oh, yeah, so, I mean this is a real hot topic area right now. You know, once the case was settled my colleagues and I have been meeting with our clients and… that have exposure in this area to get businesses up to speed. I mean most of my clients are dealing with online presence right now, so, how to get them up to where they need to be in order to be compliant. So, we have expertise in this area in the firm. Actually, Gary Bingel who heads up our state and local tax practice has been running a real tour-de-force to get content out there, and I know there’s links on our website that you can watch videos or read articles that are being published about it. But just make sure you get a chance to do that. Like, read up on this and talk to your accountant. The one thing that I foresee happening, especially for a consultant like myself, is, you know, I can see state tax issues rising or, you know, audits rising. I don’t know if you have ever been through a sales and use tax, or any of you guys listening have been through a sales and use tax audit, it’s pretty, pretty grueling. So I can see the States really picking up an uptick over the next few years, just because now that they have the opportunity to look back and see exactly how the compliance was going, they’re going to go in and look at your records.

DP: Sure.

TS: So, you know, you just want to make sure your I’s are dotted, T’s are crossed, speak to your accountant, make sure everyone’s all on the same page ‘cause if that does happen you don’t want to try to get this done without having everything set up ahead of time…

DP: Sure.

TS: …if that makes sense.

DP: Sure. Ok. Well, moving on, let’s, uh, let’s get to your New Jersey Historical Society fun fact of the month.

TS: Sure, absolutely. So this actually is about our friends to the west in Pennsylvania, specifically the Liberty Bell. It first rang on the first public reading of the Declaration of Independence and it was last rang on George Washington’s birthday in 1846. It received its fatal crack shortly after its last ring, and honestly, if you ever get a chance to come visit – it’s actually pretty funny – if you ever get a chance to visit the Liberty Bell you should really look closely at it because back in the day they actually misspelled Pennsylvania on it. So, you know, back then they didn’t have spell check like they have now…

DP: Yeah, yeah.

TS: …so, you know, once they… that one guy put the engraving in wrong, that’s it, so, forever Pennsylvania is spelled incorrectly on the Liberty Bell.

DP: Wow. Well get out there and check it out.

TS: Absolutely.

DP: It’s one of our national treasures. Well Tim, thanks for this valuable information.

TS: My pleasure.

DP: And thank you for listening to the Bottom Line as part of the EisnerAmper podcast series. If you have any questions or there’s a topic you’d like us to cover, email us at contact@eisneramper.com, and visit EisnerAmper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.

About Tim Schuster

Mr. Schuster is a Senior Manager providing tax compliance services to individual filers, as well as assistance on tax returns for companies in the manufacturing and real estate industries.


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