X
X

Find Your Specialist

X

Contact Us

    Go Back

    Small Business Relief vs. Wayfair

    “The family-owned furniture makers, tool and die shops, clothing boutiques — they shouldn’t be forced into spending big on sales tax consultants and software,” said Sen. Ron Wyden (D-OR), opening up a Senate Finance Committee hearing on the fallout from the Wayfair decision. The Supreme Court in South Dakota v. Wayfair decided that states can tax the online sales of out-of-state sellers for products delivered into their states. Since Wayfair was first decided in 2018, many states have aggressively enforced laws that require online businesses to collect and remit these taxes. 

    As Wyden points out, 45 states and hundreds of localities have their own laws for sales taxes, with differing tax rates and regulations for how the taxes are collected. The varying rules and definitions of what constitutes taxable products further complicate the issue. Many states have an exemption for small businesses based on the annual sales volume or number of transactions; however, the rules still vary and many ensnare what normally would be considered small businesses. Most have an economic nexus standard of $100,000 or $200,000 in sales per year or a 100 to 200 transactions rule and tax businesses that meet either of those thresholds, according to testimony from the Government Accountability Office. Think about it; a stay-at-home mom who sells soap could easily meet a 100-transaction threshold!  

    Witnesses Recount Compliance Problems 

    The witness testimony at the hearing was compelling. John Hennessey of Littleton Coin Company, Inc. in New Hampshire said the company spent $218,000 in 2018 alone to begin compliance with the sales tax rules of over 12,000 jurisdictions. The company continues to spend $50,000 per year for annual software licensing, registration fees, tax filing fees, accounting fees and legal advice. 

    “I didn’t start a business to be a sales tax expert,” explained Michelle Huie, who owns VIM & VIGR Compression Legwear in Montana. Huie said after paying consultants, she discovered she had economic nexus in 22 states, not including Montana, because her home state has no sales tax. She also pays $50,000 a year to attempt to stay compliant. “I’m part of a forum of thousands of eCommerce sellers. We want to be compliant and pay our taxes accordingly, but the current conditions make it excessively complicated and add major costs and administrative burdens as well as fear that we’re not doing something correctly,” she lamented. “I know of businesses that have had to close because the administrative complexities and costs were just too much for [the] owners.” Huie then called for some type of national uniformity criteria for sales tax collection. 

    Craig Johnson, Executive Director of the Streamlined Sales Tax Governing Board (SSTGB), told the Committee his organization is working with states to make sales tax collection simpler and more uniform. Member states have simplified and modernized their sales tax systems through conformity with the Streamlined Sales and Use Tax Agreement, a blueprint for states to simplify and modernize tax compliance; however, only 24 states have passed conforming legislation, and those states became full members before Wayfair was decided. While the success of the SSTGB in simplifying state sales tax collections is real, its reach is limited. 

    Possible Congressional Action 

    Wyden believes “Congress ought to step in and give small businesses some relief” by exempting small businesses that have revenues under a certain threshold and creating “clear, standardized rules that lay out what states can require of small businesses outside their borders.” Wyden co-sponsored a bill in 2019, the Online Sales Simplicity and Small Business Relief Act, which would prohibit online sales tax collection on small business remote sellers until Congress approves an interstate compact on taxing remote sellers. The legislation defines small business remote sellers as businesses with no more than $10 million in annual gross receipts. 

    The Supreme Court took up the Wayfair case because Congress failed to enforce a national strategy for state taxation of remote sellers. Because of the sheer amount of revenue gained by states, estimated by GAO to be more than $32 billion, and state governments’ sway in Congress, it is unlikely that Congress will act anytime soon.

    Related Articles

    • 01.25.2023

      A New Year Means New Privacy Laws

      Ever since the General Data Protection Regulation (GDPR) came into effect in May 2018, US state privacy laws have been passed in Virginia, Colorado, Connecticut, Utah and, most pressing of them all, California. The California Privacy Rights Act (CPRA) went…

      Continue Reading
    • 01.19.2023

      The New Rules Under Section 174

      Internal Revenue Code Section 174 has long been used by taxpayers to deduct certain expenses related to research and experimentation (R&E) in the current year.  The code section was originally enacted in 1954 to eliminate uncertainty in the tax accounting…

      Continue Reading
    • 12.20.2022

      IRS Customer Service May Improve in 2023

      With 4,000 new customer service representatives and plans to hire 700 new Taxpayer Assistance Center (TAC) employees, taxpayers soon may get relief from endless hold times, no in-person help and unresolved problems.

      Continue Reading
    • 12.12.2022

      Reduce Taxable Income with IRA Distributions Transfers

      IRA owners who are age 70½ or over can transfer up to $100,000 per year to charity to reduce their taxable income. These transfers, known as qualified charitable distributions or QCDs, offer end-of-the year tax savings and can count toward required minimum distributions (RMDs) that taxpayers who are age 72 must make each year. Think of it as a tax-free charitable rollover of IRA funds.

      Continue Reading
    • 12.02.2022

      UK R&D Tax Reliefs – Where Are We Now?

      In the November 2022 Autumn Statement, the Chancellor announced significant changes to the current Research and Development (R&D) tax reliefs. The key announcements were a change to the applicable rate of the Research and Development Expenditure Credit (RDEC) and a…

      Continue Reading
    • 12.01.2022

      1099s Required for 2022 Tax Year

      Taxpayers earning income from selling goods or providing services may receive a Form 1099-K, Payment Card and Third-Party Network Transactions, for the first time in early 2023, when the 2022 forms are due. The requirement to file Forms 1099 have…

      Continue Reading
    • 11.28.2022

      IRS Uncovers $3.1 Billion in COVID Fraud

      The IRS Criminal Investigation department (IRS-CI) has partnered with the Justice Department to uncover and prosecute fraudulent activities related to the federal government’s COVID relief programs. To date, the IRS has conducted 840 investigations involving fraud amounts totaling more than…

      Continue Reading
    • 10.25.2022

      IRS Inflation Reduction Act Increases Funds

      The Inflation Reduction Act of 2022, enacted in August, increased funding for the IRS by $80 billion through 2031 for enforcement activities, operations support, systems modernization and taxpayer services. The legislative language, Treasury Secretary Janet Yellen and IRS Commissioner Charles…

      Continue Reading

    Privacy Overview

    When you use or access the Site, we use cookies, device identifiers, and similar technologies such as pixels, web beacons, and local storage to collect information about how you use the Site. We process the information collected through such technologies, which may include Personal Information, to help operate certain features of the Site (e.g., to prevent online poll participants from voting more than once), to enhance your experience through personalization, and to help us better understand the features of the Site that you and other users are most interested in.

    You can enable or disable our use of cookies per category.
    Always Enabled