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Daily Tax Report: State

Small Retailers Face More Marketplace Taxes This Holiday Season

Dec. 23, 2019, 9:45 AM

Small retailers are seeing the biggest impact to date from state sales taxes on online transactions during this holiday season.

More than 40 states tax out-of-state sellers once they exceed a certain number of online sales. 33 states plus Washington, D.C., collect taxes from retailers that don’t meet sales thresholds by charging online marketplaces like Amazon.com Inc. or Etsy Inc. with collecting taxes on behalf of their sellers.

The holiday season can be especially busy for small retailers that rely end-of-the-year gift sales. These sales can be substantial: more than 142 million U.S. consumers bought products online between Thanksgiving and Cyber Monday this year, according to the National Retail Federation. Close to 150 million consumers are estimated to make holiday purchases on Super Saturday, the last Saturday before Christmas.

Tax responsibilities tied to those sales will be noticeable this year: 28 states have added taxes on out-of-state sellers since last holiday season due to last year’s Wayfair decision, according to the Institute on Taxation and Economic Policy.

For small retailers, especially those on online marketplaces, “the landscape has substantially changed,” said Jared Walczak, director of state tax policy at the Tax Foundation.

The U.S. Supreme Court’s ruling in South Dakota v. Wayfair prompted many states to mirror South Dakota’s tax on out-of-state businesses that exceed $100,000 in sales or over 200 in-state transactions. The ruling suggested similar laws would pass constitutional muster, and states began taxing retailers beyond those with a brick-and-mortar presence.

‘Pain in the Bum’

For Tahmi DeSchepper, who sells woven-metal jewelry through Amazon and Etsy as well as on her personal website, the new rules are a welcome change.

“It was very very unclear as to whom needed to file, what the thresholds were,” she said. “Both Amazon and Etsy take care of all of that now.”

Selling online has become a popular business for crafts sellers like DeSchepper. When she sold her jewelry in person, it required having 13 different licenses across different states.

“Keeping track of all that, and filing all that was just a giant pain in the bum,” she said.

Depending on where items were sold, a seller could wind up remitting as many as three separate forms per state for county, city and state taxes.

“That would be just absolutely unworkable if you were trying to sell without” an online platform like Amazon, she said. “There’s just no way that an individual could possibly deal with” the amount of paperwork.

Big Retailers, Shoppers Less Affected

The post-Wayfair taxes haven’t been as much of a challenge for retail giants, who were already used to paying state sales tax, said a spokesperson at the Retail Industry Leaders Association, a trade group for large retailers.

Many large retailers with online customers have already been paying taxes across multiple states, as remote warehouses and shipping centers give them the physical presence states have traditionally used to justify taxing a business.

Last year more than 89 million people shopped both online and in stores, a 40% increase from 2017, said David French, senior vice president of government relations at the National Retail Federation,
“We don’t anticipate the Wayfair decision is going to have a significant impact on shoppers’ behavior,” French said.

For shoppers it doesn’t matter whether they’re buying in a brick-and-mortar store or online—many consumer do both, French said.

Amazon’s marketplace has helped DeSchepper alleviate some stress from the chaotic holiday season: She has peers who have been putting in 17 hour days so gifts arrive on time.

“You have to individually make, package, and ship orders pretty much on demand to make sure all those last minute shoppers can still get their gifts before Christmas,” DeSchepper said.

To contact the reporter on this story: Sam McQuillan in Washington at smcquillan@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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