Direct-to-consumer shipmers of beer, wine and spirits can be required to collect sales taxes from customers and remit them to the state in which the consumer lives, the U.S. Supreme Court ruled today.
But we don’t think the decision will have any meaningful impact on DtC shipments.
Neither does Steve Gross, vp-state government relations at the Wine Institute. “For the most part this will have only a limited impact on wineries making Direct-to-Consumer (DTC) shipments, as most states already are collecting sales taxes on wine DTC since those provisions were included in the DTC statutes when they were passed,” he told us.
The decision overturned two earlier decisions – the most recent being 25 years old – involving catalog sales. Those cases held out-of-state retailers cannot be required to collect and remit sales taxes to any state in which it didn’t have a physical presence.
It’s estimated those decisions cause states to lose between $8 billion and $33 billion every year, the court said. South Dakota, which has no state income tax, says it loses between $48 and $58 million a year. Indeed, the opinion says, sales and use taxes fund more than 60% of South Dakota’s general fund.
In a bid to collect that missing revenue, South Dakota enacted a law making out of state sellers liable for the state’s sales tax if they shipped at least $100,000 of goods or made 200 individual sales in South Dakota a year.
In the court’s view that adequately protected small mom-and-pop businesses from having to register and deal with collecting and remitting sales tax. We haven’t read the statute, and we don’t know whether that is the greater of $100,000 or 200 shipments or not. But that’s a big issue because a book seller, for instance, could hit 200 shipments of a $20 book while falling $96,000 short of the $100,000 mark.
The court acknowledged concerns about imposing burdens on small business, but said the now overturned rule created its own ambiguities. “For example, a business with one salesperson in each state must collect sales taxes in every jurisdiction in which goods are delivered, but a business with 500 salespersons in one central location and a website accessible in every state need not collect sales tax on otherwise identical sales. In other words, a small company with diverse physical presence might be equally or more burdened by compliance costs than a large remote seller.”
It notes, also, that “the rule produces an incentive to avoid physical presence in multiple states,” and gives the example of two businesses that sell furniture online.
“The first stocks a few items of inventory in a small warehouse in North Sioux City, South Dakota. The second uses a major warehouse just across the border in South Sioux City, Nebraska, and maintains a sophisticated website with a virtual showroom accessible in every state, including South Dakota.
“By reason of its physical presence, the first business must collect and remit a tax on all of its sales to customers from South Dakota, even those sales that have nothing to do with the warehouse. But the second hypothetical seller cannot be subject to the same tax for sales of the same items made through a pervasive Internet presence. This distinction simply makes no sense,” the court said.
We reached out to national bev/al associations as well as ShipCompliant for comment. While ShipCompliant didn’t respond to our question by press time, we suspect that it will adjust its program to not only handle excise taxes but also sales taxes.
We also suspect software companies such as QuickBooks will do the same. As will companies that provide shopping carts for online sellers. We asked Memberful, which provides subscription accounting software for online sellers, if it had any plans to deal with this. The response:
“Sales tax is absolutely 100% on our radar. It will most likely be through a third-party provider like TaxJar or similar. We’ll make it easy to integrate and you’ll pay that provider separately from Memberful.”
Which means, in our opinion, that the decision will have little, if any, impact on direct to consumer sales.
First, assuming other states follow the South Dakota example, there will be a threshold that many wineries, craft breweries and craft distilleries won’t meet.
Second, services like TaxJar already exist. TaxJar’s rates, for example, start at $17 a month, and that covers 1,000 transactions. For an additional $20, TaxJar will make one sales tax filing a year. More filings obviously cost more.
Third, we don’t think most people order on line to dodge sales taxes. We think they order online for convenience or for availability of product.