Supreme Court’s Wayfair Ruling Devastating to Online Merchants

The American Catalog Mailers Association (ACMA) recently conducted a follow-up poll to see how e-commerce, catalog, direct and other remote merchants have fared since the Supreme Court’s June 2018 decision in South Dakota v. Wayfair, Inc., which overturned the old Quill v. North Dakota remote sales tax collection physical presence standard. The first poll was completed a year ago. To say the new results blew us away would be both an understatement and a case of “I told you so.”

Our survey asked respondents (all remote merchants) to compare how they’ve managed their businesses before and after the Wayfair ruling. Questions asked for both comparison percentages and costs of sales tax collection software (including consulting services to implement the software). We also asked for assorted “war stories” in dealing with at least two dozen tax-hungry states, virtually all of whom have proven to be very difficult to deal with in this poorly conceived environment.

I could end this story right here by quoting the most upsetting comment we received: “We will very likely close up our 100-year-old business because of this.” Unforunately, there’s plenty more where that came from. As this was an anonymous survey, we don’t have names to attach to this or the other businesses reporting these problems. However, I’d like to defer to the following stats and individual sagas to tell the rest of this story, starting with the most notable figures reported:

• Remote merchants have had to pay up to $275,000 as an initial investment for sales tax collection software, including consulting services to implement the software.
• Companies have paid up to $500,000 for recurring expenses of sales tax collection.
• Eighty-five percent of respondents said these expenses were not budgeted for.
• States giving merchants the most stringent or “unreasonable” compliance requirements or demands: California, Colorado, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, New York, North Carolina, Ohio, South Carolina, Texas, Virginia, Washington.
• Eighty-nine percent say they're concerned about future audits by multiple taxing jurisdictions.
• Fifty-six percent said their sales decreased as a direct result of the SCOTUS Wayfair decision.

Oddly enough, those citing sales declines are the least of our worries because this is expected to be temporary as consumers get used to the new sales taxes. The real issue behind the decrease is there has been no communication from the states at all on this matter. One could almost make a case that this was designed to reduce sales given it's only the merchants doing the educating, with predictable customer pushback that sometimes occurs.

And don’t get me started about mailed-in orders, which represent 10 percent of industrywide remote sales but more than a third for some companies. The genius proponents who helped push SCOTUS to rule in their favor don’t seem to care about elderly customers who still fill out mail order forms and haven’t a clue how to tax their purchases. NO solution exists currently for these people.

While figures like having to cough up a half-million dollars for recurring expenses from unbudgeted coffers is striking enough, the comments or “war stories” we received were often far more shocking. Beyond the story of the 100-year-old business above, here are a few others:

• “Based on our delay in getting the software implemented, we now owe about $500,000 on past-due taxes that we weren't able to collect and still owe. Implementing the software fully took about a year.”
• “Top-tier software vendors and tax consultants are overwhelmed by incorrect setups, registration, and monthly vs. quarterly filing. Even the experts are getting it wrong in many cases, and we have to clean it up. Uncertain tax positions on ambiguous product exemptions is high risk. Customers are confused, and we're now at a disadvantage vs. our smaller competitors who don't trip the threshold for economic nexus.”
• “No states (even South Dakota) provide what the Supreme Court said that South Dakota provides to relieve the burden on remote sellers. [I’ve been told] that states will work with companies, but the lower-level employees answering questions tend to be curt and rude, amplifying fears that states will be ruthless in their enforcement once it begins.”
• “We raised our prices to account for the tax as many customers are mail-in and our internal systems aren't set up to reflect the addition of a tax to products for refunding. We can’t make exceptions for blackout dates and price tiers for different items. So even in the states where we are remitting tax, we may not be doing it correctly.”
• “Most states themselves were not ready to take on this additional volume.”
• “Almost every state in which we were required to start collecting took a while to process our ‘registration,’ which forced us to file for back taxes, increasing our expense.”
• “Depending on the state, we may also be responsible for collecting local options taxes as well. This would cripple a small business such as ours as we simply don't have the resources to comply with this.”
• “We're just ignoring state letters at this point, figuring we will slip through the cracks and be up-to-speed by the time they catch up to us.”
• “The whole process has been one big war story. “

Pretty bleak, huh? The ACMA has been beating back on this matter since the early 2010s, and we haven’t given up. If we can get sufficient funding for test case litigation against a few states, we could have a fighting chance in bringing some sanity to this. Otherwise, our industry faces a dubious future as departments of revenue seem wholly unconcerned about your problems — except when we get litigious with them. Hopefully, the industry determines we need to approach this from a position of strength, but that is not yet clear.

Hamilton Davison has been the president and executive director of the American Catalog Mailers Association (ACMA) since its founding in April 2007.