While it will take time for states to draft new regulations, the new right for them to collect sales tax on Internet sales, regardless of the state from which products are shipped, will likely place new administrative burdens that will create opportunities for larger master fulfillment companies with the resources to manage sales tax payments throughout the U.S.
According to George Delta, writing in the Incentive Federation’s May 18 Washington Update, “For smaller companies, the cost of compliance (investing in technology like Vertex Indirect Tax O Series that assists with collecting and remitting sales and use tax and filing the appropriate forms) would eat into profit margins. It would be very helpful if states or Congress were to exempt small remote sellers from sales and use tax collection.
“In the incentive marketplace,” he explains, “the employer or other customer would prefer a ‘turn key’ incentive program and would not want to be responsible for collecting, reporting and remitting sales or use taxes. The onus on performing these functions is bound to end up falling on incentive firms. Therefore, incentive firms that are not doing so already need to be prepared to add the cost of sales and use tax compliance into their programs. As with traditional retailers, the administrative compliance costs are bound to hurt smaller incentive firms more than larger ones.”
At the same time, the ruling could further consolidate the flow of rewards and recognition through larger master fulfillment companies with the resources to effectively manage tax remittances throughout the country. Now that the U.S. Supreme Court has ruled to level the playing field between brick-and-mortar and online sales with respect to sales tax remittances, corporate users of rewards and recognition will need to ensure their fulfillment companies have the ability to comply with the latest state tax regulations and can expect over time to pay, on average, about 8% more for products, based on various estimates of the average sales tax rate around the U.S.
There is even less clarity where promotional products companies are concerned. On the one hand, it would seem simpler if there were no sales use tax collection obligation without physical presence. On the other hand, and perhaps more importantly, promotional products companies are often required to collect and remit sales and use taxes on behalf of their customers. For these companies, it would be much more useful if Congress and/or the states were able to simplify and harmonize sales and use tax collection and reporting.
If the Supreme Court overturns Quill, the winners are bound to be state governments and large electronic retailers and catalogs. The former will be able to tap into another source of revenue, while the latter will enjoy another advantage over smaller competitors due to their ability to absorb compliance costs more easily. The losers may end up being smaller retailers due to the very same compliance costs. Either way, it would best serve all involved if states were work together to simplify their sales and use tax statutes and perhaps exempt small remote retailers from having to collect such taxes.
For more information, visit the Incentive Federation.
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