Says David: ‘The majority of American states have introduced marketplace facilitator legislation which means sales taxes have hit the smallest online traders first, rather than the multinational companies the Wayfair ruling was expected to target. That’s because Amazon, eBay and the like are identified as the seller, not the individual trader using their sites. Because Amazon and eBay’s sales are over every state’s tax threshold, they must impose automatic sales taxes.’
Explains David: ‘Though the Wayfair judgement was aimed at larger companies who achieve over $100,000 in a state, our new study reveals that the major UK multinationals are sitting tight and waiting for states to begin acting against UK sellers. It’s small Brit marketplace sellers that are already fully exposed to the new legislation. eBay, for example, automatically collects the online sales tax on the sellers’ behalf for the affected states; though it says that are no extra charges or fees for this service. Likewise, Amazon also now calculates, collects, remits, and refunds state sales tax on sales sold by third party sellers to states where marketplace legislation has been introduced.’
Until last summer, no US state’s sales tax applied to online sellers who didn’t have an employee or property in that state. That meant e-commerce traders from outside, including, of course, from another country such as the UK, were exempt from local sales taxes. And as there is no nationwide VAT system in the USA, this meant international companies such as UK online retailers paid zero sales taxes in the US. But ParcelHero – a Sunday Times Tech Track 100 shortlisted company - says the status quo was blown wide open when the US Supreme Court issued its much-anticipated ruling.
What the ruling means in practice, says David, is that, for example, South Dakota’s sales tax of 4.5% has added an extra $9 to an $200 item. ‘Add any relevant local sales taxes and the average overall sales tax is around 6.5% in total. That means a $200 item bought from a British online marketplace trader will now cost the buyer around $213. US customers have suddenly found themselves paying considerably more for their UK-sourced items than they had previously – and British traders’ prices have suddenly become a lot less competitive.’
David warns, however, that larger UK companies who sell directly to US consumers are far from being out of the woods. ‘UK multinationals with sales above the average $100,000 state threshold, could soon find themselves pursued aggressively by US states – and there’s no time limit on when these taxes can be demanded – meaning the clock is already ticking. Our report reveals organisations such as Deloitte, Ernst & Young (EY) and US Tax & Financial Services are now warning British companies to prepare for the aggressive application of state sales taxes. They say online retailers based outside the US will ultimately be most affected by the ruling.
‘Wayfair is a trap still waiting to be sprung for larger UK companies. There is no limit to the amount of time in which owed taxes can be pursued before the case must be closed. And, unlike for US federal income taxes, most states impose successor liability laws that will equally apply to any purchasers of the assets of a business that failed to collect sales. That’s a poisonous legacy that will last far into the future.’
Concludes David: ‘Our full study lists the sales tax thresholds of every state that has imposed a distance sales tax; and more details on how US states may pursue overseas companies.’