internet tax-law
Effect of SCOTUS sales tax decision on origin-tax states
<p>I have only read news stories about the <em>SD v Wayfair</em> decision, and I have 2 related questions. </p>

<p>According to <a href="https://web.archive.org/web/20170613040136/http://quickbooks.intuit.com:80/r/taxes/understanding-the-differences-between-origin-and-destination-based-sales-taxes/" rel="nofollow noreferrer">Intuit</a>, there are 12 states that attempt to charge sales tax on all transactions completed by businesses operating in the state, regardless of where the customer is; this is called origin-based sales tax. It is the opposite of destination-based sales tax laws that attempt to collect the tax for the state in which the customer resides.</p>

<p>First, how did <em>Quill v ND</em> apply to origin-based sales tax states? It seems by definition that an entity located in Ohio, for example, had nexus in Ohio and would collect Ohio sales tax on transactions with Ohio residents. But was it also required to collect Ohio sales tax from customers residing in other states?</p>

<p>Second, how will <em>SD v Wayfair</em> apply to origin-based sales tax states for (a) customers residing in that state (say, Ohio) and (b) customers residing in other states?</p>

<p>I hope that all made sense. Thanks!</p>

<p>P.S. What is it about the Dakotas and sales tax cases?</p>

<p>I don't think Intuit's description of the situation is quite accurate. As I understand it, the origin vs. destination-based distinction is primarily applicable to in-state sales. So it isn't as much about whether a sales is taxed at all -- the answer is usually going to be the same throughout any state -- as it is about what <em>rate</em> to impose: the high sales tax of the urban center where my store is located, or the low rate in some small village where a customer might be ordering from.</p>

<p>To work through this, keep in mind a few important points of law:</p>

<ul>
<li>Although it's collected by the seller, <em>a sales tax is a tax on the customer</em>. It is no more a tax on the seller than individual income taxes are a tax on the employer who withholds them and remits to the IRS. The seller and the employer may take on administrative burdens, but they are not being taxed.</li>
<li><em>Quill</em> said that State A cannot impose sales tax collection obligations on a remote seller making sales from State B into State A. It did not limit State A's ability to impose collection obligations on retailers who are also inside State A.</li>
<li><em>Quill</em> came out of the same principles that keep a state from imposing taxes on individuals outside their borders. State A generally cannot impose an income tax on a resident of State B working in State B, nor can it impose a sales tax.</li>
</ul>

<p>So in a destination-based state, under <em>Quill</em>, there were basically three possible sales tax scenarios for a sale, depending on where the customer was. Assume a store in New York City:</p>

<ol>
<li>For a customer who makes a purchase in the store or has a delivery shipped elsewhere in the city, the store collects state and local sales taxes at the New York City rate.</li>
<li>For a customer who orders a package for delivery to Buffalo, the store collects state and local sales taxes at the Buffalo rate.</li>
<li>For a customer who orders a package from California, the store collects nothing. New York could not reach into California to impose its sales tax on the customer, and California could not reach into New York to force the store to collect California sales tax.</li>
</ol>

<p>For a store in Ohio, there were only two scenarios. Assuming a store in Cleveland: </p>

<ol>
<li>For a customer who walks into the store or has a delivery shipped anywhere in Ohio, the store collects state and local sales taxes at the Cleveland rate.</li>
<li>For a customer who orders a package from California, the store collected nothing. Ohio could not reach into California to impose its sales tax on the customer, and California could not reach into Ohio to force the store to collect California sales tax.</li>
</ol>

<p>So the short answer to your first question is that <em>Quill</em> didn't really apply to origin-based taxes, at least to the extent they were imposed within the state. Sales into other states were not taxed at all.</p>

<p>Under <em>Wayfair</em>, the second part of that changes.</p>

<ol>
<li>For a customer who walks into the store or has a delivery shipped anywhere in Ohio, the store collects state and local sales taxes at the Cleveland rate.</li>
<li>For a customer who orders a package from California, California may now be able to require the store to collect and remit California sales tax.</li>
</ol>

<p>I haven't read <em>Wayfair</em> all the way through yet, but I imagine that there would be some limitations on California's taxing authority in this situation. And practically speaking, most states already limit their collection obligations for remote sellers pretty seriously. So if the Cleveland store was tiny or never sold anything else into California, it probably wouldn't need to collect anything.</p>
