Interstate Sales-Tax Compliance Is Killing My Business

The Supreme Court has spoken. Now Congress should step in to impose uniform nationwide rules.


A woman shops the Wayfair app on her tablet.
A woman shops the Wayfair app on her tablet. PHOTO: RICHARD B. LEVINE/ZUMA PRESS

American commerce has never stood still, and for more than 200 years the U.S. legal system has struggled to keep up with evolving sales trends. The Supreme Court’s ruling in Gibbons v. Ogden (1824) affirmed the federal government’s power to regulate steamboats crossing state lines. Now, the court’s June decision in South Dakota v. Wayfair has allowed states to tax sales of goods and services delivered to their residents, even when vendors aren’t based there.

In Wayfair’s wake, courts may soon be forced to rule on the regulation of transactions made via blockchain. If automated delivery vehicles are found to establish “nexus”—or physical presence—for their owners, sellers may be forced to remit taxes in states where they deliver goods. There currently are few limits on the sales rules states can impose, allowing legislatures to lay claim to all kinds of interstate commerce. These new layers of taxes and regulation could raise prices for vendors and consumers.

Congress must act to simplify the rules of commerce after the Wayfair decision. Though Justice Anthony Kennedy and Chief Justice John Roberts issued differing opinions on the case, both affirmed the federal government’s power to mandate open commerce. Alexander Hamilton wrote in Federalist No. 11 that unrestrained commerce between the states would “advance the trade of each.” Without a new law to limit state regulation of internet sales, interstate trade will soon be stifled.

As a business owner, my main problem isn’t the money my company pays in state taxes. Rather, it’s the compliance and paperwork we’re forced to undertake to make sure we don’t violate the law unintentionally. My employees and I must figure out what is taxable and what isn’t in all 50 states and countless localities. Is a bolt taxable? In some states that depends on whether the bolt is used to repair office equipment, which is taxable, or to fix manufacturing equipment, which isn’t.

Taxes on services can be equally challenging. Texas taxes different kinds of services at different rates and requires vendors to fill out their own payment permits. For my supply-chain-management company, that means deciding which of three information-technology categories describes our services. To ensure accuracy, my employees and I have to determine whether each customer will use our products for wholesale purposes or whether they are the final user. Texas also allows its 254 counties and more than 1,000 municipalities to impose their own sales levies, which must be calculated individually.

Then come the audits. Our company has been audited as many as five times in a year each year. One audit from Illinois demanded rental-car and hotel receipts in an attempt to apply the nexus standard to services we delivered to a customer. So each time we do a custom installation or on-site maintenance, we need to check with our accountant to determine if we’re establishing nexus.

Congress should step in to untangle this convoluted mess of burdensome state rules. In its place, lawmakers should impose clear nationwide standards for interstate vendors. House Republicans will have an opportunity to do so in their coming plan for “Tax Reform 2.0,” announced last month by the Ways and Means Committee. The current outline doesn’t mention state sales taxes. But encouraging economic growth by simplifying taxes is the stated purpose of the reform and was the key to the success of the first iteration.

Previous attempts to establish fairness in state sales taxes, like Rep. Bob Goodlatte’s 2016 bill, have failed to gain steam. How about reframing sales-tax reform as a way to unleash economic activity and reduce prices for consumers?

The Council on State Taxation, an association of corporate taxpayers, issued a dense report in April that takes 66 pages to summarize the nation’s sales-tax regime. Among the best practices identified by the council are exemptions for small businesses, which are critical to boost startup activity, and centralized remittance to one state-revenue authority, which reduces accounting costs.

Making provisions like these into uniform rules for interstate vendors would help companies like mine expand our operations and reduce excessive record-keeping and pricey meetings with lawyers and accountants. If Congress chooses to enact sales-tax reform, interstate commerce will expand and everyone will win.

Mr. Steinmetz is the CEO of Baltimore-based Barcoding Inc.

Appeared in the August 9, 2018, print edition.

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