State Tax on internet sales

California is again trying to push a law through to tax internet sales. The one California is pushing doesn’t appear to affect small businesses like ours, but it is one foot in the door to collect more money on out of state sales. The California law appears to attack large companies with affiliates within the state.

There are a few states that already have similar laws. I think New York and a couple eastern states already have some version. Comments anybody.

Randy,

A state can’t do anything about truly out of state businesses. The Supreme Court banned forced collection of sales tax by out of state sellers years ago. The only way it can change is by Congressional action. And that it where the efforts are these days. Quite a few states are pushing for congressional action.

A good summary of the situation is here:

http://www.newrules.org/retail/rules/internet-sales-tax-fairness

Obviously CA is trying to follow the NY model

In fact, most other states are trying to do it. They see it as missing revenue. To me, I say to those states ‘make business in your state more friendly, so company owners don’t have to incorporate elsewhere’. So annoying. It’s the states with the restrictive laws and corporate tax structure who are crying about ‘out of state’ corporations taking their sales tax revenue away.

I live in NY State. For reasons I don’t fully understand, almost all out of state wineries now charge NYS sales tax on my purchases. This is a result of the recent law that made it legal for them to ship. Apparently, it is only legal for them to ship to NYS if they pay taxes. For almost all wineries, this amounts to my local 8% sales tax.

A few oddities:

Some fraction (I would guess about 1/3) of the wineries I buy from charge sales tax on the shipping as well as the wine. They all seem to believe this is required by the law, while the others don’t. You would think one group or the other would be called on this when they pay the tax to NYS.

SQN (probably the most expensive winery I buy from) charges NYS excise tax of $0.04 per bottle! That’s right, on a bottle costing perhaps $200 with $9-15 shipping, they also collect 4 freakin cents! It specifically says I must pay “$0.04 per 750ml bottle of wine”. Being the anal type I am, the first time I bought 375s from them, I only included $0.02 per 375ml. I wasn’t trying to be funny, I really thought that was the right amount. They sent me back a bill for $0.06! When I asked about it, they said forget it. The SQN folks are wonderful people, but that’s a little weird.

The other winery that’s odd this way is Alban. I love their wines, but they charge a significant premium for shipping wine to NYS compared to any other state. They claim it’s because NYS charges them special fees and taxes. When I tell them no other winery does this, they just say all the others are wrong.

OTOH no store out of state charges me sales tax. And this is perfectly legal for me because on my NYS income tax form, I can declare that I haven’t bought any one item over $1000 and they charge me a nominal amount based on my income (on the order of $100 per year). The net effect of this is that when when I get an ad from Daniel, or Chambers St, or Zachys, I have to ad 8% to the price. So it really is penalizing NY retailers.

Correct. They “voluntarily” agree to pay as part of getting the permit. Thanks to Justice Kennedy’s stupid comments in the Granholm case that ignored the precedent of the Quills case preventing such forced collection.

Some fraction (I would guess about 1/3) of the wineries I buy from charge sales tax on the shipping as well as the wine. They all seem to believe this is required by the law, while the others don’t.

I have had 2 wineries do that to me in FL. I researched the law and sent it to them. Both stopped. One explained that it was built into the compliance software and they had to change it. There are a lot of people in CA in the compliance business that don’t bother researching each state’s laws. They just fudge some of it.

SQN (probably the most expensive winery I buy from) charges NYS excise tax of $0.04 per bottle! That’s right, on a bottle costing perhaps $200 with $9-15 shipping, they also collect 4 freakin cents! It specifically says I must pay “$0.04 per 750ml bottle of wine”. Being the anal type I am, the first time I bought 375s from them, I only included $0.02 per 375ml. I wasn’t trying to be funny, I really thought that was the right amount. They sent me back a bill for $0.06! When I asked about it, they said forget it. The SQN folks are wonderful people, but that’s a little weird.

Ours is 45 cents per 750, and is 1/2 of that for a 375, as it is calculated on gallonage. But I am aware of one winery that used to charge 45 cents per bottle regardless. I notified them but they ignored my email. Only a very few wineries collect this from us at all, as most pay it themselves. They take it as the cost of self distribution, since it is normally paid at the distributor, not retail, level. Robert Foley is the only one that I buy from that still charges the customer.

OTOH no store out of state charges me sales tax. And this is perfectly legal for me because on my NYS income tax form, I can declare that I haven’t bought any one item over $1000 and they charge me a nominal amount based on my income (on the order of $100 per year). The net effect of this is that when when I get an ad from Daniel, or Chambers St, or Zachys, I have to ad 8% to the price. > So it really is penalizing NY retailers> .

No it is not penalizing them. I assume that if they can get you the same bottle for a competitive price, you would buy it from them as opposed to having to ship it from afar. If I buy a wine from NY or CA, it is because I either can’t get it here or the retailer here wants way too much money. Either way, the retailer is suffering because of their inventory and pricing, not the tax.

And even to the extent that you do view the tax as penalizing them, that means that they have an advantage over retailers in other states that they ship to like FLA. So, I have to pay tax to B-21, but not to Dan Posner. It all evens out.

I just attended an online conference with “Ship Compliance,” a software company that seems pretty darn detail-oriented in regards to the rules, laws, and regulations for each of the 50 states. Any of the wineries overcharging using this software Ken? Any inside information would be helpful before we shell out the ducats (after shipping becomes legal in this state).

Peter, how would I know who they use? Do you have a list of their clients?

I’ve been very surprised at some of the things people know on wine boards
I just asked in hopes you had the answer. Ya nevah know (Boston accent implied heheh)

Peter,

ShipCompliant was the one used by one of the wineries I talked to that was charging tax on shipping. When I sent the statutes and regs to the winery, the owner talked to his compliance people and was told the tax was programmed into the software that way and would need to be changed. I don’t know if they fixed the software or the winery just stopped applying the tax to shipping.

From what I understand, the software is pretty good, but it is only as good as the info that is programmed into it.

Thanks Bruce! That’s exactly what I wanted to hear. The software is, in a word, robust. If the taxed shipping issue has already been addressed perhaps any other loose bugs will also be resolved before I need to use the system.

The way that NY and the copycat states are getting at Internet sellers is to treat local “referrals” as an in-state contact. The paradigm is Amazon, where millions of people have click-through links on which they can earn a small commission if Amazon makes a sale. New York says that because some of those people reside in New York, Amazon has a physical presence in New York (and therefore it is not an “out of state seller” under the governing Supreme Court precedent).

I don’t see it as very likely that those laws could affect wine retailing on a broad basis. I suppose retailers using WineAccess or a site like that for their front end could be subject to collection responsibility in the state where the e-tail provider is located (WineAccess is in Pennsylvania, which I believe does not as yet have an “Amazon tax” pending), but I’m not aware of any wine e-tailers using a referral network a la Amazon.

– Matt

Perhaps this would affect the new system that Vinfolio and CellarTracker are working on? If I sell wine through their system, does that make them like Amazon?

Without delving too much into what has been discussed already, as I am far from the most knowledgable on the subject, my experiences in interstate taxes have been:

-NY is one of the worst to deal with, both from a red tape and from a not helpful standpoint, with respect to both licensing and taxation.
-It is difficult to ascertain in which states you should and shouldn’t collect and pay sales tax, but not impossible.
-Most people don’t collect excise tax from customers. In fact, I have never heard of or seen anyone do this prior to Ken’s comments above.
-State autonomy, in this case, is a trainwreck. Interstate commerce relating to alcohol is a clusterfuck squared.

This is very true. The second 1/2 of this is that ShipCompliant doesn’t collect tax. It just tells people what to collect, so you have people trying to keep tabs on what ShipCompliant tells them to do and then trying to keep that information up to date in their ecommerce system.

Candidate for quote of the year!

Ken –

As I understand the Vinfolio system, the owner of the wine is not the referrer to Vinfolio but rather is Vinfolio’s supplier. Under the “Amazon” laws it is having an in-state referrer that is a problem, not having an in-state supplier.

– Matt

It’s been about a year but i have sat through some ShipCompliant software demonstrations and think it is a very good tool. I don’t remember the ability to collect sales tax but it does enable you to generate Sales/Use tax returns based upon the sales information that runs through the software. It also can be programmed down to the street level to ensure you are shipping to a legal address - works for places like Texas that have “moist” counties where part of the county is alcohol allowed and part where alcohol is banned.

I thought it was terrific albeit expensive for a small winery but would have made the reporting process much simpler/easier than me filling out returns for several states - some of which required monthly reporting, some quarterly, some annually.

It is an issue though for wineries going forward.