Sales Tax Collection and Supreme Court Ruling

Are you compliant with collecting and paying sales tax? The rules and laws are changing very quickly with the recent Supreme Court ruling on South Dakota vs. Wayfair.

Our today’s guest is Lizzy Greenburg CMO of TaxJar, a company that provides Ecwid E-commerce merchants with a solution for both collecting the correct amount and filing sales tax with the correct jurisdiction. We discuss physical nexus and economic nexus and how that applies to you.

Transcript

Jesse: Hey, Richard, how are you doing today?

Richard: Doing good, doing good, excited to get some knowledge in here.

Jesse: All right, so today is Knowledge Day. We are going to talk about one of the two inevitable things in life: death and taxes. Which one do you think we’re talking about today?

Richard: Since it’s an e-commerce show, I’m guessing taxes.

Jesse: We’ll save death for another subject or day.

Richard: Or another podcast.

Jesse: Yeah, for sure, another podcast!

Jesse: All right so with taxes, we want to bring on our partner from TaxJar, the CMO of TaxJAr, Lizzie Greenberg, how you are doing Lizzie?

Lizzie: I’m great, how are you guys?

Jesse: Excellent!

Richard: Thanks.

Jesse: Lizzie, where are you calling in from today?

Lizzie: I’m calling from Houston, TX. TaxJar is a fully distributed company. See, I’m excited to be on the show, and I’m really glad I didn’t dial for the death podcast.

Jesse: Yeah, that one’s not very exciting to show. Yeah, I don’t know, will get it on the schedule some time, all right. All right back to taxes. So, Lizzie, taxes usually don’t make the headlines very often, but it has this past summer with the Supreme Court decision, maybe was earlier, maybe was in spring, but for you guys, I bet you’ve been pretty busy with people all of a sudden thinking about sales taxes.

Lizzie: Yeah, it’s definitely been a change of pace: seeing sales tax on the news, again not topic that you hear about very frequently, but it’s definitely something coming on top of mind for a lot of e-commerce sellers, so. We are happy to be the resource to help, provide guidance and some knowledge on it.

Jesse: So with all the customers you have, what are they coming, what kind of questions are they bringing to you with this with the Supreme Court decision?

Lizzie: Yeah so there’s a lot of questions. So, you know, I don’t know how much we want to get into what’s actually happening, or focus on what they know about the ruling, or what happened with Wayfai, but I mean a lot of the questions are really about how to handle it.

Richard: I’d say go ahead and share just a little bit just in case, because some people tend to avoid, hopefully, they’re not evading, but they tend to avoid this, and so yeah, definitely give us a little backstory on what exactly was the decision.

Lizzie: Yeah, sure. So, previous to this ruling, the most prominent thing that related to sales tax and sellers needed to worry about was figuring out whether they had economic and physical nexus. So, what that means is where you have sales tax nexus in the state is where you need to pay sales tax. So, if you’re new to sales tax and you’re thinking: “Okay, do I need to pay in every single state and collect in all states in US?” The answer is NO. You really only need to figure out sales tax for the states that you have nexus which is where you’re doing business in that state, as defined as a physical presence.

So, a lot of things that gave e-commerce sellers nexus in a state would be things like a warehouse, things starting inventory, brick-and-mortar, retail locations, if you had employees in the state. There’s a number different days, and they’re really all primarily tied to a physical presence. And so as you see the growth of e-commerce, with things like Amazon and awesome tools like you guys have, with Ecwid e-commerce is really booming, the what was really written primarily for kind of that old brick-and-mortar world with this, you know, huge physical component to it.

And a lot of the states want a piece of that revenue. They want a piece of, they see the sales tax happening, and with brick-and-mortar, they don’t see as much of happiness with e-commerce. A lot of the states decided to come up with something we’re now refer to as “economic nexus.” And South Dakota is one of the first that put it into play.

And South Dakota says: “Hey, I know that you, a lot of these retailers do not have a physical presence in my state in terms of operating those warehouses, inventory, and brick-and-mortar stores. But the fact is, you guys are doing business in our state, and we want a piece of that revenue, we want the sales tax to be charged. You are delivering products via our roads and all that, so we’re providing assistance in your business, so we’re defining a significant presence as two things. And these are two things will see in common with anything related to the states in economic nexus, one being a number that’s a revenue threshold, and another one being a transaction threshold.

So, South Dakota came down and said: ‘Hey, If you are doing over a hundred thousand transactions in our state, or you’re selling over two hundred products, shipping into our state, we now are requiring you to comply with sales tax.’

Jesse: Got it. So, even though that you don’t have a physical presence there, which was really the old standards, now if you sell a certain amount of products in South Dakota, you’re now required to pay sales tax there.

Lizzie: Yep, and so they put this out there and then in order to prove it, they suit a bunch of companies, Wayfair was one of the prominent ones that took them to court over it, and so this Wayfair vs South Dakota is the ruling that was the way up to the Supreme Court.

And what happened was in June of this year, the Supreme Court ruled that South Dakota was right and fair in requiring Wayfair to comply with sales tax laws in their state because they had met those thresholds that South Dakota put in place. So, essentially a bunch of different states had economic nexus laws on the books before this ruling came out, but there is no precedent in order to actually enforce that.

So, with this ruling, the reason why it’s getting so much press, is that people are figuring out: ‘Okay, now I have to handle sales tax in a new way,’ and why it’s confusing, is because this is the first time when there is a precedent to legalize an economic nexus law. So, it’s kind of blows up the whole idea of only having two comply with sales tax in states seeing if physical presence and now it’s, you may never, ever visit this state, but if your businesses are doing business in that state, and they have an economic nexus law on, that you need, you’re not required to.

Richard: So, is this happening on a state-by-state basis? Because that was an interesting number — $100,000 or 200 products, I mean, like, average $500 order is going to affect different people, a different number… Just wondering is every state going to run with that same number or how are they handling that?

Lizzie: Yeah, so that’s what’s happening right now. And so every day, you know, every week things are changing. So, right now there’s in, I think, mid-twenties and how many states actually have economic nexus laws on the books, but now that this is happening, you’ll see a lot more states are starting to create them every day. So, I think, yesterday actually Maryland came out with their descriptions.

So, it’s not standardized, it’s not a hundred thousand, two hundred transactions across every state, that’s specifically to South Dakota. So one of the tricky things with sales taxes is that everything is managed at the state level, there is no, a kind of, governing body that handles sales taxes, it’s all state-level. So each state defines it differently, so we have some states are coming out the hundred thousand dollars, two hundred transactions, with some states that are saying: ” A hundred thousand and five hundred transactions.” It’s all different for every single state, and there are even some states that are lowering that to saying… I mean, Oklahoma right now is looking at, doing ten thousand dollars for the economic nexus limit.

So that really changes things in terms of what these laws, who as an e-commerce business, these laws are going to affect, so if you think about: “Okay, it’s only a hundred thousand dollars or two hundred transactions, I’m in a small business, I’m just getting started. You know, that’s not really affecting me.” When you lower these thresholds, it really has it bigger impacts on small business and medium-sized business, that, you know, fall into those ranges.

Richard: So are they going, they grandfathering some of this back, it sounded like in what you were talking about there, was this rule in place with South Dakota, Wayfair was ignoring it and then they suit them because they were ignoring it? I didn’t quite get that piece. Making the law and it’s moving forward or, can they grandfather back and say: “Oh. you have been you been selling for three years you owe us for the past three years too?”

Lizzie: Yes, so it’s definitely one of the things I would recommend, based on whatever state you’re in and what economic nexus law you are required to comply with, whatever your, based on your particular business, it’s something to look into… I would say, generally, a lot of these states are using this as a forward-looking law and then even if they had it on the books, some of them will say, you know, “We’re not going to have any kind of look back or penalties in the past.”

So, we as Taxjar, our goal’s to make e-commerce easier for everyone, we’re solving at by sales tax, we specifically are on everything that’s going on that relating to this, and so we’ve created a map that you can see on our website and on our blog, it will show you exactly what is current, future, planned, or something pending obligation. So if you’re wondering for your particular state, you know, some states have had it on the books, you know, it’s something that happened in the past, but you could also see if your state potentially has something that has passed and it’s going to be an effect later this year. So then you don’t have to worry about look back at all because it’s a planned economic nexus law. So, it really depends, there’s no one answer on whether the U.S are going to look back, but generally, the feeling is the most of these are forward-looking.

Jesse: So, the states, they want to get paid, the main-street businesses that have been complaining that the e-commerce people are not paying their fair share. So there, you know, their hands are out and they want their money.

Lizzie: Yeah, I mean, if you think about it, we are all have been watching, you know, the growth of Amazon and growth of e-commerce. If your state, sales tax is a big part of the revenue, and as you see brick-and-mortar sales decline, you also see what percentage of your known sales tax decline. As a just to online, if you look at places, like Amazon, they’re actually collecting sales taxes in every single state for their own purchases. You see a shift in the way, you know, business is happening online and, you know, the government has to keep up with that. So, it’s a really tricky thing, but hopefully we could help, you know, in this podcast, and in the future as well, just break this down for sellers and help them to understand that it is scary, it is really complicated, but it’s something that, it’s the new way of doing business. I guess you could say.

Jesse: For sure. And I think, yes, sales tax if you if you have just started the business and think you need to read 50 states laws and could some a little bit scary, but hold on everybody, there is a solution out there, that’s why are we doing this podcast to let you know, that Ecwid has built-in, has TexJar built in to the Control panel. So, it’s very simple to activate automated sales tax, so when you are selling into Maryland, and Maryland changed the law yesterday, that you don’t need to panic on that.

So, Lizzie, how are you guys are able to keep up with all these different states and, I mean, are all these states’ laws, like, automatically reflected into your tables and calculations?

Lizzie: Yeah, it’s a great question, and I think that’s at one of the things, it’s a piece of advise, that I give to all sellers right now and e-commerce businesses, when they ask, you know, “What do we do about this?”

The answer is, choose a solution provider, because if you think about, you know, when we talk about how this is all managed on the state level, keeping up with that might be really daunting, choosing someone as a technology provider that’s focusing on this, that’s the easiest way for you to, kind of, leverage the effect that we’re have today on it, so that your business has everything you need to keep going.

And so the answer for the question yes, we’re keeping up for everything, really into this, we always have. This seem like a really big change for a lot of focus. To be honest, rates change all the time, sales tax has been changing all the time and we’ve been keeping up with that so far. So, while this may seem like a really big change, it is, but we are ready for it.

We have a research team that keeps up with everything and goes on, so we make sure that all of our customers are up to date. And one thing I do want to point at is that, one of the biggest questions, so far, when they think, when they come to a sort of understand an economic nexus and they start to think about “how is this affect my business? How am I suppose to figure it out? We all these direct laws out there, how much just to figure it out, what is important to me?” So, one of the things we’ve done as we’ve launched something called “The sales and transactions checker.” And what this is, it’s an automated, kind of audit that tells you, based on all of your information, so if you connect Ecwid, and you just open up your TaxJar dashboard, if you sell multichannel, if you sell, on eBay or things like that, you can combine all of your information in a Taxjar for free, and it will tell you exactly where you meet economic thresholds.

So, if you have in a Google a hundred thousand dollars state and two hundred transactions, that figuring out piece by piece, where it affects your business, will just tell you that automatically, so. If that’s what you are wondering, if you are new to economic nexus, that kind of figuring out how this really affects your business, I definitely recommend checking, it’s completely free. And then you could also explore the other ways so we can help you after you check that tool. But it’s called the “Sales and transactions checker,” and you can find it on our website.

Jesse: Oh that’s awesome. So that helps with the newer changes in the law that are happening really as we speak. Now, I’ve been on e-commerce for a long time, and the nexus question has always been a big one. So for merchants that, maybe they’re not hitting those thresholds in certain states, is there also way to check whether they have, physical nexus, where, you know, maybe there’s a warehouse, you mentioned these things before, but is there, do you have a way for customers to also check more the traditional nexus?

Lizzie: Yes, so I think for this piece, nexus is different for every business, based on how you are doing your business. But we do have, the trickiest thing, hopefully, that you are in the business, that you have a major warehouse in a certain city or a state, you probably didn’t know that by now, it’s probably not, you know, you don’t need a tool that tells you where you have your internal logistics. But I think the biggest question focusing on into that you’re talking about is focused also on Amazon. If you’re using a third-party fulfillment service, something like Amazon FBA, then the question becomes: “Okay, I now have an inventory store and all these warehouses that’s being shipping to customers, I have physical nexus as a result of that. How do I figure that out?”

And Amazon provides you with all that information within some reports called the Inventory Event Detail, within Merchant Center, but the easiest way is to use Taxjar, we will take a look at all of your transactions and pull it up on your dashboard and tell you, we’ll put a little Amazon FBA badge next to the states that we say, you may have access to do FBA. The next step is to figure it out if you want to comply and sort of collecting and we will tell you automatically.

Jesse: Wow, that’s really cool, I was not aware of that. So, and I know it’s a problem, particular with FBA because there are warehouses in practically every state, and when you send stuff to Amazon, you do not necessarily know what state is it going to. So, you might be, like: “I’m trying to avoid such and such state” and the next thing you know, you have stuff there. And so how do you, do you plug into Amazon? So when people sell on Amazon do you plug in their Amazon account or how does that work?

Lizzie: Yeah you can attach our directly to Amazon and it’s going in via the API you do it once you never after connect it again somewhere to how you work with Ecwid, once you’ve got that connection, and we pull in all of your data from there, and we create sales tax reports for you. So the reason why I mentioned that, is the reason why it’s kind of important for sellers that are multichannel is that this state doesn’t care where you made a sale or, you know, that this was an Amazon sale versus, you know, your Ecwid store sale. The state cares how many sales you made in their state completely. So if you’re selling multichannel, you need to aggregate all that information in order to know how much sales tax liable. So when you see these laws that say, you know, if you have 200 transactions going into South Dakota, they’re talking about 200 total, not 200 in the Amazon, or 200 on Ecwid, or 200 eBay it’s total business. So, seeing all that information in a single spot is the best way for you to get a handle on knowing where you stand.

Jesse: Sure. And if am I correct in saying that, if your product was in an Amazon warehouse in South Dakota, at one point in the year you’re automatically expected to collect sales tax there, is that the case?

Lizzie: Yeah, if you are an, so if you have that physical presence, having a warehouse and your products are being stored there, then yes, technically, according to the law you are, you know, have that physical presence that gives you nexus and you’re required to collect and remit sales tax. And the next question we get a lot is, you know, “Should I do that?” When is the time to comply?

Jesse: That was my question, yeah. So you’re giving us the information and then it’s still up to the merchant to decide whether I need to send that four dollars to South Dakota or not or.

Richard: And we can preface by saying: “You should check with your attorney.” You know, like, we get all that like this isn’t completely like “follow these rules.”

Jesse: And we’re not telling you not to pay taxes. Never. That’s never my advice. This is recorded for posterity. But, what I’m hearing is it is — you give the information to the merchant, and the merchant then can make that decision on, you know, “do I comply or not?”

Lizzie: Yes that’s exactly. So we, as technology company, we’re not TPAs. We’re not, like, giving you this information with a recommendation that you have to do something. And so in that, you know, we’re the technology provider, we’re telling you all the information, we’re making it easy for you to get everything you need to make a decision for yourself. But we would recommend, you know, if you have specific questions about that talking with the sales tax TPA. We have vetted experts on our site if you need help finding someone, that specifically knows sales tax. And if you’re, you know, current TPA doesn’t handle that.

But the other thing we have to think about is, you know, you’ve got to use a little bit of common sense and the biggest answer to the question of “at what point do I comply?” is really a question of what is your risk tolerance as a business. So, you know, as you talked about a second ago you said if you have four dollars here. We have folks that used Taxjar and if they have a penny in a state, they go and comply and deal with it. And that’s a 100 percent all right and a great way to go. But you have to think about materiality and the cost, you know, for your business particularly. If you’re running a business that, you know, you don’t have a lot of sales yet and, you know, have a very small margin. It might not be worth your effort to go and comply and register and start paying sales tax to a state, but the costs and time associated with that if you have four dollars that you own.

Jesse: Sure.

Lizzie: So Texjar will tell you where you stand, so you can kind of take a look at that and see what your liability is we estimate how much you would own in that state to kind of give you that kind of gut check. You’ll have to figure out for your business what makes sense for you based on your risk tolerance. So if you’re OK if you have that four dollars and the state comes after you, and gives, you know, penalties and fees, say, that four dollars end up being hundred and four dollars. So let’s just ballpark something.

Jesse: Sure.

Lizzie: If that hundred and four dollars are going to put you out of business, then, by all means, start collecting and start remating and, you know, handling that four dollars. But if that’s not material to your business, if you just rather pay the fine and, you know, move on and take a risk on that, then that’s totally okay too. Obviously, you know, I’m not recommending you break the law and don’t comply, but there’s a piece of common sense there that sellers need to kind of think about, and it’s up to each individual business to determine what their individual risk tolerance is. If I’m okay, saying: “Okay, I’m going to let this ride, because, you know, it’s going to cost me more to comply than it is to actually give them the money,” then go for it. And when it gets to the point that makes you nervous and is something material that, if you got caught by the state or penalized, then the only way a kind of safeguard yourself and protect yourself is to register and start complying. So, it’s up to you to figure out what that threshold is for your business.

Richard: So, Lizzie, since you are integrated with API into Ecwid, how does it work, as far as returns? Do you guys adjust or is there any sort of calculation there, is that left up to the merchant to figure that out?

Lizzie: Yeah, we did the full service. So, with the TaxJar integration with Ecwid and we can help with the calculations as I’m sure many of your merchants already know. But once you’ve actually collected the right amount or, you know, whatever amount you intend to collect, and we help you with the full automation all the way into filing. So we offer our product called “Autofile,” and with autofile, we submit your filing to the state and as many states as you’d like us to for an additional fee, and you never have to worry about it.

So if you’re managing sales tax in multiple states, if you have due dates that are maybe variety, so the state will assign you how often they need you to file, so you may have a monthly responsibility. You may also have a different state with a quarterly and a different state with an annual. Keeping track of all those due dates in addition to figuring out how to file, those two things are completely solved with Autofile. So you tell us: “Hey, I file on this date monthly, you submit my payment and go for it, and I never have to worry about it.” So yes, it’s called Autofile and we hopefully kind of eliminate your sales tax headache, as we like to call it.

Jesse: Wow that sounds awesome, I know, as a business owner the things I want to focus on our marketing and, you know, new ads and emails, when I get to the point of the year when I have to pay taxes, it’s, boy, it’s tough.

Lizzie: I mean, as you said, like the things you mentioned with, you know, advertising and whatnot, those are all profitable revenue generating activities. You want to spend your time on what you’re going to grow your business. You don’t want to spend time on something like sales tax, which has no revenue potential for your business.

Jesse: Oh for sure and then particularly also the, you mentioned the different times you would have to pay, you know, it’s one thing that, OK, income tax has to be paid at the end of the year. OK got that, but sales tax. When do you need to pay, like, you know, July is kind of a big time is it, is there other times?

Lizzie: Yeah. It’s a great question, and it’s something that, is I think, it’s a big frustration with folks that have to compile with sales tax, because you can’t control what the state gives you for your frequency, and every state is different. So you may have a state that says: “You need to file monthly in Kansas”, and “Уou need to file quarterly in Texas.” But the thing is that, as you mentioned there’s no, like, a date where it says: “All monthly filers file on the 13th of the month,” or, you know, every single state has their own date within that month, and you have to file. So even if you’re monthly everywhere, you may have 10 different days of the month that are your due dates. You can certainly pay early.

Jesse: Sure.

Lizzie: You know, just want to make it easy for business, and a lot of states actually give you an early filing discount, which helps kind of cover the cost of compliance as well. So, just you know, being a good citizen and filing your sales tax, not being a headache for them — they reward you and giving you a little percentage of that back.

But yeah it’s, you can’t control it. Generally, it aligns with the size of your business, so in terms of how much money you’re making. So we kind of go back to the first conversation we had, the states want their money. And if you’re a very large seller, they want you to pay them monthly, so they get that sooner rather than if you’re a smaller seller, they’re fine to wait for you until the end of the year potentially. But so the months, where the quarterly filing, and annual filing, and the monthly filing kind of all coincide at the same month. So, like, July as one, January as one, those are the months that tend to be a little bit more hectic for e-commerce businesses that are managing sales tax, because it’s basically the quarterly filing ones that tend to get you busy.

Richard: So I was also going to ask, we’ve covered quite a bit here and thank you so much. This has been super useful, and I’m sure listeners are definitely appreciate it. Are there any questions that we should be asking, that we haven’t asked, that you could think of?

Lizzie: Yeah. So, I mean, when you are asking that question, I think back to kind of just the general question of “What are you supposed to do?” I think, you know, people as near podcast for really great advice and, you know, the kind of actionable insight what, how do you handle this Supreme Court ruling, how do you handle sales tax, and I think there are three things that I think about, that I’d like to leave sellers with.

One is determining your nexus. I think that’s the first place to start, you know, you’ve heard a lot, we’ve talked a lot about, you know, filing and due dates and all these different things, but the first thing is to figure out where your business has nexus use TaxJar, you know, figuring out physical access and use our tool for the economic nexus. And then just take a look back at your overall business and figure out if you have any other presence. And the next thing is, figure out how to stay updated. So there’s a lot of unknowns going on with and, you know, the Supreme Court rulings, and news states, and the economic nexus all the time. So make sure you’re subscribing to a service that’s going to keep you updated.

We have a sales tax blog that keeps you updated. Also, your product is always updated, and, you know, with everything that we do, but choose something that you can rely on because I don’t recommend going out it alone. Unless you have a passion for sales tax, as we do.

Jesse: I’m going to put myself in the category of “I want you to do it for me.”

Lizzie: We’d love to do it for you. And yeah, I mean, the last thing I would say is just, you know, figure out a way that you can handle sales tax and leaned forward, so use technology, use a solution like TaxJar, and accept it as a cost of doing business and move forward, you know, a lot of folks are waiting for a marketplace to step in and solve sales tax for them, or Congress to step in. It’s just going to continue that sales tax headache that we talked about. So it’s one of the things we have to accept as the reality of, you know, doing business, being in an e-commerce space, sales tax is going to be one of those things that are part of our future, and so use that piece of technology to automate it, move on and really focus on that using your time to grow your business and doing the things that are going to drive impact for you. Don’t waste your time on it.

Jesse: That makes perfect sense, I mean, I think for people listening here just keep in mind: “Yes, sales tax can be confusing, but the solution is right there. You just need to enable it inside your Ecwid Control Panel, and sales tax problems essentially go away. So, Lizzie, that was super helpful for our users, I hope people found some benefit from that. Rich, are you ready to tackle some sales tax on your own?

Richard: No I’m going to let them do it too. But I did want to ask real quick, where other than enabling itin the Ecwid store, if they want to learn more about Taxjar. What’s the best place for them to learn more about you guys?

Lizzie: Yes. So, visit our blog, our blog has over 700 articles all about sales tax, we have different categories that will help you start if you’re looking for 101 content, or more advanced content. It’s blog.taxjar.com, and you’ll find pretty much everything you need, that you can search for it. So we’d love for you to visit it and subscribe, and we’ll keep you updated with everything you need to know relating to sales tax.

Jesse: Perfect, Lizzie, really appreciate you having on the show. This is Jessie and Rich with Ecwid E-commerce Show. Have a good day.