NH online retailers bemoan post-Wayfair sales tax climate
Business voice frustration, confusion at Shaheen-Hassan hearing
If you want to understand why it costs Littleton Coin Company $275,000 to set up a system to collect sales taxes imposed by dozens of states in the wake of the U.S. Supreme Court’s Wayfair ruling, just listen to the company’s president, John Hennessey, talk about the sale of three coins.
Depending on the state, if the coins are legal tender, they aren’t taxable. If they are not legal tender they may be taxable, but that depends, because if the value is determined by fluctuations of the gold bullion market, they aren’t taxable, but if they are defined by rarity, they are, and if it’s determined to be both, Littleton has to pick one to determine the amount taxed.
Furthermore, he told a field hearing of the U.S. Senate Small Business and Entrepreneurship Committee, held Wednesday in Concord, if the three coins are purchased separately, they are taxable; if they are purchased all at once, they aren’t. But if one is returned, the remaining two are now taxable.
“I have thousands of such transactions, and I have to apply thousands of state and local jurisdictions to every one of them,” said Hennessy.
Littleton Coin was one of four New Hampshire companies with horror stories, brought forward by the state’s two U.S. senators, Jeanne Shaheen and Maggie Hassan, to build their case for a bill, not to end online sales taxes, but to simplify them.
The Online Sales Simplicity and Small Business Relief Act would ban retroactive taxation, as well as exempt businesses with less than $10 million in sales and delay all sales tax collection until 2021. But Congress has yet to pass any legislation dealing with the U.S. Supreme Court Wayfair decision, which came June 2018.
Before then, states could not force sellers to collect a sales tax if they have a physical presence in the state. Now they can, though states have thrown up various barriers.
Last session, New Hampshire passed Senate Bill 242, requiring foreign taxing jurisdictions to notify the NH Department of Justice 45 days before trying to collect a sales tax. The department could then challenge the request if it believes it is unconstitutional.
But states can only do so much, said Shaheen, who warned that the Wayfair ruling would usher in “a new era of significant compliance costs and tremendous confusion for small businesses, particularly in states like New Hampshire that don’t have a sales tax, and had no infrastructure for navigating this new hurdle … and now the very risks that were warned against have materialized.”
Since June, the states collected about 0.7 percent of general fund revenue, according to National Taxpayers Union,
But it wasn’t the actual tax that the companies were complaining about. It was figuring out how to comply with it.
Dwight Moore, CEO of Tradeport USA, a Dover company that resells products returned by customers on online, tried to figure it out himself by going on states’ websites.
Many states have different thresholds, determining what size a business would have to be before it has to collect the tax. He figured that his company had collected the sales taxes of a dozen states, “but we aren’t 100% confident that we got it completely right,” and that didn’t even account for sales taxes imposed by local jurisdictions.
He said he could use an Amazon tool to determine taxes, but would have to pay Amazon 2.9% of tax liability. eBay will collect and file for free, but only in 21 states.
“For the rest, we are on our own,” said Moore, adding, “we can’t do this ourselves.”
The cost to go through an outside firm? Moore estimated it would be about one or two percent of revenue.
Ailie Byer, president of Centennial Auctions in North Conway, said that the firm isn’t the seller but the agent of the seller, yet it has to collect sales taxes on behalf of the seller. If states insist on retroactive liability, “how do you go back to prior years and ask that of the buyers?” she asked. “It is practically impossible.”
This affects many other members of the National Auctioneers Association, which she serves as a board member. Nine out of 10 of the members have fewer than 20 employees. She knows one Kansas company that plans to shut down already because of the tax.
Scott Badger is vice president of sales and co-founder of Lupine Pet, which employs 65 workers and manufactures and sells pet accessories in Conway.
Badger estimates that his firm will spend $20,000 a year to hire a software firm. And that doesn’t count the filing fees for each jurisdiction and possible auditing costs down the road. And he still isn’t sure whether he is doing things right.
“The company is swamped by all the new businesses, and we get conflicting answers about how their own systems work because of the complexity” of the online sales tax arena, he said.
There is some attempt by states to coordinate their laws: the Streamlined Sales Tax Initiative. A lot of states do try to adhere to the standard for “economic nexus,” which means a company won’t be taxed unless it did $100,000 in sales or 200 transactions in a year in that state. But one state’s threshold is $1.
And some states define “nexus” as where a company’s server is, or which company hosts the website, or where the warehouse or the suppliers are, said Byer. Some companies that sell though eBay might be exempt on their own but, eBay crosses the threshold as far as California is concerned, so those transactions are taxed.
There is no national clearinghouse to sort out all these questions, said Badger. “It’s like a vending machine. There is no national resource that you can go to.”