Montana retailers who sell products over the Internet in Washington will be required to collect a sales tax for the state by October, the first of many announcements from the 46 sales-tax states expected in the months to come.
Since the U.S. Supreme Court’s decision on Wayfair earlier this year, area retailers have scrambled to understand the ruling, which now requires them to collect a sales tax from distant customers and remit them to individual states, even though Montana has no sales tax.
“The states that have a sales tax will jump on this wagon and require out-of-state retailers to pay a sales tax,” Dave Merrien, an income tax specialist with the Montana Department of Revenue, said Friday. “The state (Montana) is actively trying to ask other states to think about a threshold to which payment would be required and that would be consistent with the Wayfair decision.”
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. The Washington Department of Revenue became one of the first to announce a so-called threshold earlier this month.
“Washington has established a threshold of $100,000 in gross retail sales or 200 transactions to Washington consumers in the current or previous year,” the state said in a press release. “Any out-of-state business that does not have a physical presence in Washington, but meets either of these thresholds, will be required to register and begin collecting Washington sales tax.”
Area businesses asked about the Washington announcement on Friday said they weren’t aware of it. That begs the question of whose responsibility it is to track the various thresholds set by the nation’s sales-tax jurisdictions.
“It’s up to individual retailers to keep track of that and meet the requirements of each one of the states where they have customers,” Merrien said. “It’s not our statute, so we have no bearing on that at all. My guess is, it’s going to be a little rocky for a year.”
Despite pushback from Montana’s congressional delegation, along with state officials, the law is likely set in stone for the time being. Still, Sen. Jon Tester said Montana businesses shouldn’t be forced to “shore up the finances of other states.”
While Tester and a handful of lawmakers from non-stales-tax states are looking to overturn the Supreme Court’s decision, area businesses are stuck with the rule for now, and abiding by it may not come cheap.
“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, CEO of Big Sky Fulfillment in Missoula. “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.”
Rocky though the transition may be, Merrien said he expects to see new products that help retailers track the various thresholds set by different states.
“Very quickly, you’re going to see products out there to help retailers keep track of that,” Merrien said. “The federal government is also active, but I wouldn’t be too excited about what they can do about it. I think we’re far from having a federal system that allows us to have one payment that can be distributed later, like they have in Canada.”
Montana businesses that have annual retail sales between $10,000 and $100,000 – and have less than 200 transactions in Washington – must comply with the state’s current Marketplace Fairness law.
The Marketplace Fairness law has been in effect since Jan. 1 and requires out-of-state businesses without a physical presence to make a choice to either collect a sales tax or follow tax notification and reporting requirements.
The other 46 taxing states are expected to set similar rules.
“That’s going to be a challenge for 2018,” Merrien said. “We can say what we want, but it’s out of our jurisdiction. It’s something we’ll have to negotiate with other states and see if something comes as a standard.”