Missoula businesses fear Sup Court’s sales tax decision could slow growth, cost money
Over the past year, Big Sky Fulfillment has grown to distribute 15,000 customer orders per month from a nondescript warehouse in Missoula.
The inventory, stored here for nearly two dozen companies, includes a tummy pillow for pregnant women, mace for home defense, mail-order quilting kits, and a subscription box for low-carb diets.
But like all Montana companies that do business over the Internet, Big Sky Fulfillment is caught in a reset. Rather than focusing on the growth of the businesses it serves, it’s working instead to interpret the ramifications of the U.S Supreme Court’s decision on sales taxes.
“We’ve grown this business threefold just in the last year, with half of our customers from Montana,” said Truxton Rolfe, Big Sky’s lead accounts manager. “We’re trying to allow our customers to concentrate on their product and their customers. Adding this burden for them on top of everything else they do as a small business – they’re not going to be able to do it.”
Last month, the Supreme Court voted 5-4 to overturn more than two decades of legal precedent that, until now, limited a state’s ability to tax businesses outside its borders.
In simple terms, online retailers like Big Sky and the 23 companies it serves will now be required to collect a sales tax from customers and remit them to individual states, even though Montana has no sales tax.
“It’ll add about $6,000 per company to collect this tax and keep track of it, just on the software side of things,” said Patrick Claytor, Big Sky’s CEO. “The accounting side of things will be a lot more of a burden. It’ll add a lot of overhead for us to do business, just to be the tax collector for the other states.”
Montana is one of five states without a sales tax, making the High Court’s decision particularly troublesome. State voters rejected a statewide sales tax by a 2-1 margin in 1971 and 1993.
Given that history, state leaders were quick to condemn the Supreme Court’s decision, including Gov. Steve Bullock and all three members of Montana’s congressional delegation. In early July, Sen. Jon Tester introduced legislation to reverse the court’s decision.
His bill – Stop Taxing Our Potential – was cosponsored by lawmakers from states without a sales tax, including New Hampshire and Oregon. Tester believes it can win the support it needs to pass, so long as consumers pressure lawmakers from taxing states.
“We’ve got a bill to roll it back to the point it was before the Supreme Court’s decision,” Tester said. “All the non-sales-tax states want this to happen, so we’ve got bipartisan support because of that. The problem is, you’ve still got a lot of state governments that are suffering for money, and a lot of local governments that are suffering for money, and they see this as a cash cow.”
Tester met with Claytor and Rolfe last week, along with other Missoula companies that do business online. Collecting taxes on behalf of the nation’s 13,000 taxing jurisdictions will limit their growth, Tester said, adding red tape where it’s not necessary.
“If (Claytor) doesn’t collect the right tax for that sales tax, he’s liable,” Tester said. “It just takes the Internet from a marketing standpoint for Montana companies and puts them at a disadvantage. This just restricts the opportunity for people to create jobs.”
Claytor, a 2008 computer science graduate, launched Big Sky Fulfillment in 2015. The firm stores merchandise for other companies, and packs and sends the orders to customers.
Last August, Big Sky claimed five customers, though that has since grown to 23, including 12 from Montana. This holiday season, Claytor anticipates fulfilling as many as 25,000 orders.
But Claytor fears the court’s decision will slow online sales growth, impacting small Montana companies that have no brick-and-mortar presence. Upstart brands that sell exclusively online could have a difficult time finding customers, he added.
“It’s going to take the resources we could use to help expand the services of other Montana companies,” said Claytor. “It would slow the growth of any small business in Montana, and the Internet is where these businesses are growing right now.”