Remote Seller Taxation: A Job For Tax Automation

Aftershocks from the South Dakota v. Wayfair Supreme Court decision continue to rattle online merchants, as three states (California, Louisiana and South Carolina) are now trying to collect eCommerce sales tax retroactively, as far back as five years. To date 43 states and Washington, D.C. have moved to collect sales tax from remote sellers, and it’s just the beginning.

If you ever wonder what causes internet billionaires to lose sleep … this’ll do it.

The new jumble of state-level and municipal taxation has further obscured already confusing Internet sales tax compliance. Add to this the pressure to end taxation of Consumer Packaged Goods (CPG) with quasi-medical uses (menstrual products, diapers), and it’s the perfect storm of regulatory and transactional change online buyers and sellers have long dreaded.

As this new tax puzzle unsettles eCommerce, solutions providers in the space are hustling with systems upgrades and enhanced capabilities that promise to simplify a messy situation.

Taxation With Representation

First, some context, for which we turn to Alaska. Statewide advocacy group the Alaska Municipal League formed the Alaska Intergovernmental Remote Seller Sales Tax Agreement, seeking a standardized remote sales tax in a place where, ironically, there is no state sales tax. It’s one of the early post-Wayfair moves to get a scalable solution in place fast and not leave tax money on the table. Still, there are over 100 municipalities in Alaska which illustrates the complexity of the issue. Multiply that by around 43 and the dizzying math begins to emerge.

Similarly, Illinois is eying close to $400 million in new annual sales tax revenue on ecommerce items shipped into the state. A plan backed by the Illinois Retail Merchants Association places the burden on sales tax collection on the marketplaces, which will then settle up with the state Department of Revenue. Models built on public-private collaboration are favored by many of the states, as it’s seen as greatly streamlining tax collections and remittance under the law.

Automation vendors are stepping up based on the widespread consensus that the new rules are too complex for most companies to handle without help. “What businesses really need to know is that static solutions that have worked for them in the past, like spreadsheets with sales by state or sales tax rates applied per product, won’t work anymore,” said Liz Armbruester, senior vice president of global compliance operations at tax solutions firm Avalara. “There is too much risk to not use a dynamic tool to better manage all this complexity.”

Implementation

The matter of shoppers using remote sellers to avoid paying sales tax where they live — and how long the states would tolerate it — has been slowly coming to a head. Along with debates like net neutrality, sales tax remittance on internet sales has loomed since the rise of eCommerce.

With the debate now all but over, the real work has begun. It’s all somewhat fragmented and ad hoc at the moment, as city councils coast to coast think of clever ways to leverage the new regulations. Some states are making sweeping moves, like Ohio just did by eliminating sales taxes on feminine hygiene products. Adult diapers are another product category being affected. While some places are modifying the preexisting Streamlined Sales and Use Tax Agreement (SSUTA), that 1999 pact is likely to give way to a slew of new state and local regulations.

Many early soundings indicate that states and cities are disappointed with the amount of remote taxes being generated — they simply believed it was going to be a greater revenue source. That’s where automation is being increasingly used to optimize for state and local regulations so that eCommerce remains unrestrained, while more tax money ends up in the communities where it’s actually being spent, and these goods and services consumed.