Sales tax concerns worry numismatic sellers
- Published: Jun 29, 2018, 3 AM
The numismatic community is mobilizing to overturn or, at the least, minimize the effects of a June 21 U.S. Supreme Court ruling paving the way for the collection of additional sales taxes nationwide, including for those interstate sales made over the internet.
The 40-page opinion on South Dakota v. Wayfair Inc., et al, provides that a state can now require online retailers beyond its borders to collect the state’s sales-tax revenue from the state’s consumers.
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The U.S. Supreme Court heard arguments April 17.
An explanatory excerpt from the court’s opinion follows:
“South Dakota, like many States, taxes the retail sales of goods and services in the State. Sellers are required to collect and remit the tax to the State, but if they do not then in-state consumers are responsible for paying a use tax at the same rate. Under National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U. S. 753, and Quill Corp. v. North Dakota, 504 U. S. 298, South Dakota may not require a business that has no physical presence in the State to collect its sales tax.
“Consumer compliance rates are notoriously low, however, and it is estimated that Bellas Hess and Quill cause South Dakota to lose between $48 [million] and $58 million annually. Concerned about the erosion of its sales tax base and corresponding loss of critical funding for state and local services, the South Dakota Legislature enacted a law requiring out-of-state sellers to collect and remit sales tax ‘as if the seller had a physical presence in the State.’
“The Act covers only sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State. Respondents, top online retailers with no employees or real estate in South Dakota, each meet the Act’s minimum sales or transactions requirement, but do not collect the State’s sales tax.
“South Dakota filed suit in state court, seeking a declaration that the Act’s requirements are valid and applicable to respondents and an injunction requiring respondents to register for licenses to collect and remit the sales tax.
“Respondents sought summary judgment, arguing that the Act is unconstitutional. The trial court granted their motion. The State Supreme Court affirmed on the ground that Quill is controlling precedent.
“Held: Because the physical presence rule of Quill is unsound and incorrect, Quill Corp. v. North Dakota, 504 U. S. 298, and National Bellas Inc. v. Department of Revenue of Ill., 386 U. S. 753, are overruled.”
The complete 40-page court opinion can be found at https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf.
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But the ruling goes beyond the collection of sales tax from online sales, according to a June 25 statement released by David Crenshaw, chief operating officer for the Industry Council for Tangible Assets, a numismatic trade organization.
Crenshaw says while most news reports covering the decision refer to “internet sales” subject to state sales tax, two important points are overlooked.
“The first is that all remote (interstate) sales are subject to the decision, not just internet sales,” according to the ICTA statement. “For example, sales across state lines could be taxed whether originating from an internet transaction or initiated in any other form whatsoever and however communicated.
“The second is that the court’s opinion assumes that the consumer’s (buyer’s) residence dictates the point of collection.
“The court’s assumption as to point of collection means that a seller must find a way to deal with thousands of state and local sales-taxes instead of calculating a sale as if made in the seller’s state and local residence.
“Therefore, unless Congress acts, numerous sales-taxes will become targets of state legislatures, not just internet sales. More importantly, sales-taxes can be applied to anything of any kind or character, hypothetically including accounting and/or legal advice, stocks and bonds, commodities like natural gas and products moved through pipelines—an endless list.
“Many states have taxes on their books already that were struck down as violating interstate commerce. The Court places those laws back on the table.
“In ICTA’s opinion, Congress must do something it seldom does. It must take a lead to avoid unforeseen consequences. Federal legislation is needed to ‘build a fence’ around appropriate state laws affecting interstate commerce. We will be working toward that end.
“ICTA will have much more detail and analysis at the World’s Fair of Money [Aug. 14 to 18 in Philadelphia, Pennsylvania].”
Jimmy Hayes, ICTA’s legislative lobbyist and a former congressman from Louisiana, says Congress must act to head off imposition of conditions that were never intended. As a result of the court’s ruling, Hayes said it is likely that states will revisit current sales tax exemptions in place as they seek additional funding. And each state will take an “every man for himself approach” in guarding their respective funding stream, Hayes said.
Jeff Garrett founder and president of Mid-American Rare Coin Galleries in Lexington, Kentucky, said he’s still trying to sort out the implications of the high court’s ruling.
“Although I am concerned about how this will effect our business, I really do not have the facts yet,” Garrett said. “It’s extremely complicated from what I have read. Many states do not have sales tax on coins, and it would be a true burden to file sales tax returns for every state that collects taxes for coin sales.”
The 5–4 ruling, in the opinion of some numismatic sellers, will have a devastating effect on sales and create a paperwork and bookkeeping logjam. It is unknown how the court’s ruling could affect sales tax exemptions on bullion that are in effect in nearly three dozen states.
Petition from eBay
The online firm eBay is asking buyers and sellers on its auction platform to sign a petition “and join the fight to protect entrepreneurs, artisans and small businesses from potentially devastating internet sales legislation.” The petition and signatures will subsequently be forwarded to the state governors, members of Congress and President Trump for action.
The petition seeks to:
??Keep the Internet as free from government taxation and regulation as possible.
??Protect entrepreneurs, small businesses and artisans from new taxes, audits or collection burdens because they can least afford the added costs.
??Continue to prohibit states and localities from applying and enforcing sales and use tax laws on small, remote local businesses who have no political or voting connection to the taxing state.
??Reject tax policies that raise prices on consumers who shop online with small businesses for artisan, craft, religious, vintage or other niche products because they should not be paying more taxes.
Steve Ivy, co-chairman and chief executive officer of Heritage Auctions in Dallas, says the court’s ruling should have little financial impact on the auction firm’s business.
“Heritage already charges sales tax on applicable items in seven states,” Ivy said. “Plus, coins are exempt in over 30 states already thanks to the good work of the Industry Counsel for Tangible Assets.”
Ivy further explains, “It’s a misnomer to call this sales tax an internet tax. The appropriate taxes will be charged based on where the merchandise is delivered, regardless of how the customer purchases the item. So, as an example, if a client attends the American Numismatic Association sale in Philadelphia, buys a coin in our auction and takes delivery there, Heritage is not required to collect sales tax as coins are exempt in Pennsylvania.”
While the court’s ruling will increase the burden of paperwork, it won’t be nightmarish as some sellers believe it will be, Ivy said.
“It will certainly create more paperwork, but I don’t see it as a nightmare,” Ivy said. “In fact, the states have been ahead of this issue for several years, creating a streamlined system for compliance. Moreover it is likely that Congress will enact legislation simplifying the process. We’ve invested a lot over the years in developing financial software and training our accounting staff to anticipate changes like this so I think the nuisance factor for Heritage will be nominal.”
Valerie Wickboldt, communications director for the Florida Department of Revenue, said the Department is reviewing the Supreme Court ruling and its impact on Florida sales tax.
The state of Illinois is anticipating the hundreds of millions of dollars in additional tax revenue as a result of the court’s ruling, says Terry Horstman, communications director for the Illinois Department of Revenue.
“[Illinois Department of Revenue Director Connie] Beard is very pleased that the United States Supreme Court overturned the 1992 decision in Quill and recognized that the physical presence requirement of Quill does not reflect the 21st century marketplace. To be clear, this is not a new tax. Illinois residents are already obligated to pay a Use Tax on out-of-state purchases and this prudent decision will allow states the ability to enforce Use Tax laws that are already in existence, bringing in an estimated $200 million in new State revenue for Illinois annually. With this decision, we level the playing field for Illinois brick and mortar retailers.”
Horstman notes that Illinois’ Public Act 100-0587 “adopts the same standards as South Dakota for out-of-state-retailers to collect Use Tax on sales to state purchasers. The Act provides that, beginning October 1, 2018, an out-of-state retailer making sales of tangible personal property to purchasers in Illinois will be required to collect Use Tax if its cumulative gross receipts to purchasers in Illinois are $100,000 or more; or the retailer enters into 200 or more separate transactions to purchasers in Illinois. This law is not retroactive.”
Horstman continued, “The State of Illinois estimates this Public Act will bring in an additional $200 million annually ($140 million for Fiscal Year 2019) from the 6.25 percent Use Tax that will be collected. Locals will receive their share of Use Tax collected.”
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