Please, Your Honors, Don’t Put Me Out of Business
When I practiced as an appellate lawyer, I never imagined that my stake in a case before the Supreme Court would be not as an attorney but as a businesswoman. But on Tuesday the high court hears oral argument in a case that will determine whether millions of small online retailers—like me—must collect sales tax in every state where their customers live and buy.
The case, South Dakota v. Wayfair, asks the court to uphold the Mount Rushmore State’s sales-tax law, which the state admits violates existing precedent. That 1992 precedent, Quill Corp. v. North Dakota, established that a retailer must have a physical presence in a state to be required to collect a tax.
Twenty-five years after Quill, the online world has changed significantly in ways that make the Quill standard more appropriate than ever.
Today’s behemoth retailers like Amazon, Walmart and Target are integrated bricks-and-clicks operations with a physical presence in many states and the infrastructure to track and pay state and local sales taxes. This is one reason why state tax collections hit a record high in 2017. But for small retailers like me, collecting state taxes is a much stiffer burden.
I practiced in a large law firm until I had three small children and needed to be at home. I discovered eBay in 2000 and began selling items from around my house as a hobby. Like millions of online sellers, I found within a few years that my hobby had become a new career and livelihood. My store today uses eBay’s platform to sell consignment items.
Despite my relative success, I am still a small-business owner, working out of Dallas, with nothing like the footprint of a big-box store. If the Supreme Court rules against us, many small-scale online retailers will have to decide if staying in business is worth the struggle or even possible.
Consider that 45 states currently assess sales tax, each with different percentages and taxable categories. With my nexus in Texas, I pay taxes on in-state sales, a quarterly chore that eats up a total of one business day a year. If I had to do the same for 44 other states, the task of tracking my state sales taxes would consume 45 business days a year. Software may help, but given the complexity of state tax codes, I would have to spend significant time reviewing my compliance with each state’s requirements.
Even if this tax-collecting hassle could be automated, small online retailers still fear being subject to the tax police in every state. No software can eliminate my need to respond personally to each and every audit.
In Texas I am subject to the laws passed by my representatives in Austin. If the state tax agency mistreats me, I have recourse through my legislators. If forced into a lawsuit, I can drive to the Dallas County courthouse and represent myself. But I don’t have the time or budget to defend myself from tax authorities in other states. For another state, my business could be a piñata full of cash.
The Small Business Administration has defined small businesses as those with less than $32.4 million in gross sales. So I am also dismayed by proposed federal legislation that would set much lower caps for “small business exemptions” from internet sales tax—in some cases as low as $1 million in gross sales—as well as some state laws that set the threshold as low as a paltry $10,000. Some years I hit up against the $1 million level as a single owner-operator with a few part-time helpers. Net profits are just a fraction of gross sales. If I gross $1 million in sales a year, that does not mean I have the ability to navigate what Amazon’s many lawyers and accountants can.
The Supreme Court should bear in mind that the world of e-commerce has shifted toward the integration of bricks and clicks. Trying to level the playing field between the big online players that have pervasive physical presence and small online operators like me would swamp the latter.
I hope the justices will rule in a way that does not harm the vibrant industry of small online business, which provides an economic safety net for so many of us and a fantastic engine of growth for this country.
The three children who made me turn to eBay have become teenagers to look out for, I have an aging mother to help, and, like millions of other Americans in small business, I try to balance the demands of family and work. Quill correctly decided that I don’t belong in Pierre, S.D., defending a tax audit.
Ms. Wood is founder and owner of WConsignment.