Companies that sell on the web are now required to collect sales tax in many states. Is your promo firm following the rules?
This is a guest column by Alyssa Mertes, Quality Logo Products (302967).
In the world of promotional products, things are always changing at a lightning-fast rate. Take your SEO for example. One minute you could be in the top five search results on Google, the next you’re hiding somewhere on page 14. The thing is, though, search engine rankings are only one of the many challenges we face as distributors and suppliers.
Lately, our collective attention has shifted to the 2018 ruling in Wayfair v. South Dakota, a landmark case that has completely changed the rules of sales tax for online companies. Wayfair doesn’t just affect those of us in the promo market. Any e-commerce company, from Amazon to Zappos, is required to collect sales tax as determined by the state to which the items are being delivered.
What does that even mean? How does it affect you? It’s time to boil this all down, and while we’re at it, let’s see if our industry is remitting tax correctly and keeping up with all these changes.
Understanding the Wayfair Case
The Wayfair decision was prompted by officials in South Dakota, who claimed their state was losing upwards of $48 million a year. The genesis of the shortfall was from sales tax that wasn’t being collected from online orders shipping into their state. Other states joined in the case against Wayfair, a home goods e-seller that was well known for not collecting sales taxes from customers on purchases.
On June 21, 2018, the Supreme Court ruled in favor of South Dakota. Previously, companies only had to collect sales tax if they had property or employees in the state to which the order was being shipped. Now, all states were given the option to determine their own laws on collecting sales tax from online orders.
Wayfair & Promo
Our industry has a bit of work to do when it comes to properly displaying sales tax on our respective websites. Consider some sales tax data that our analytics team at Quality Logo collected over the course of two years.
In July of 2017 – prior to the Wayfair ruling – an order was placed on the websites of 37 different distributors, with the shipments going to five different states. The tax amounts were verified and confirmed by Avalara, a software firm that provides tax compliance tools for e-commerce companies. The same product was ordered on every website: a color-changing stadium cup. The orders were shipped to Colorado, Massachusetts, New York, Oklahoma and Vermont.
These were the results:
• Only five distributors showed the correct tax amount.
• 30 distributors showed some kind of tax, but 23 displayed it incorrectly. The other seven listed the amount as “$0.”
• Two distributors didn’t show an amount for tax at all.
Again, this was tested before Wayfair, but the tax amount should still have been displayed correctly. About 62% of the distributors tested weren’t displaying an accurate amount on their websites. Still, that’s not as concerning as the two distributors that didn’t have an amount listed at all.
In January of 2019 – seven months after Wayfair went into effect – an order was placed on the website of 24 different distributors with the shipments going to six different states. The tax amount was determined by the economic thresholds post-Wayfair (see chart). The product ordered was either the color-changing stadium cup or a pair of rubberized sunglasses. The orders were shipped to Connecticut, Indiana, South Carolina, Nevada, Colorado and Maryland.
These were the results:
• 15 distributors didn’t show a tax amount at any stage of the order process.
• The nine that did show sales tax weren’t displaying an accurate amount as determined post-Wayfair.
• Not one distributor showed the correct tax for all six states.
It’s fair to assume that many of these distributors, a few among the largest in the promo industry, have met the thresholds determined by each state. With that in mind, they should have a correct tax amount displayed on their websites. Still, 62.5% of these distributors didn’t have a tax amount listed at any point during the order.
“All states have the option to determine their own laws when it comes to collecting sales tax from online orders.”
In May of 2019 – with Wayfair in effect for almost a year – the same rubberized sunglasses or mood stadium cup were ordered from the same 24 distributors as in January of 2019. The shipments went to the same six states and nothing changed in terms of economic thresholds.
Across the board, distributors were still struggling with showing the sales tax correctly on their websites, with a few exceptions per state. At this point, Wayfair had been in effect for close to a year, but the chart below shows that not much has changed in terms of distributors correctly displaying sales tax on their respective websites.