The U.S. Supreme Court is mulling over the contention that the current standard requiring online retailers to collect state sales tax only if they have a physical presence in said state should be abolished.
South Dakota Attorney General Marty Jackley presented his argument April 12 in front of the high court saying “times have changed” in the retail business. Sales taxes are not collected by out-of-state sellers by internet retailers such as Amazon and Wayfair. That savings, often combined with free shipping from the company, is driving many customers to the internet instead of Main Street. Many “bricks and mortar” retailers are seeing a downward trend in their sales.
The state of Kansas and several other states have filed an amicus brief in the North Dakota case. The Supreme Court is expected to issue its ruling in June.
Although it’s a federal case, the Kansas legislature “continues to work on state legislation to try to capture the sales tax on the internet,” according to Goodland senator Rick Billinger. He was in Hays Saturday, along with Reps. Eber Phelps of Hays and Ken Rahjes of Agra for a legislative coffee presented by the Hays Area Chamber of Commerce.
There are challenges to collecting the sales tax for online purchases.
“Kansas can say we’re going to collect our 6% for the state, but, for example, Hays has a local sales tax. Some counties also have a local sales tax,” Billinger pointed out. There are also special taxing districts. “Every county has something different. In Sherman County, our total combined tax is over 9% and figuring out who is to be paid what, is difficult.”
Amazon does have a physical presence in Kansas with two warehouses and a sort center in Johnson and Wyandotte counties, so the state sales tax is collected.
Billinger favors an across-the-board internet sales tax but says the federal court must first “fix the hodge-podge.”
In Kansas, the majority of online sales are made with Amazon, Walmart and Best Buy, according to the Department of Revenue, Rahjes said. They all have a physical presence in Kansas and are collecting the state sales tax, mostly.
“Not all the supply partners of these companies have a Kansas presence, so you may buy something from Amazon and not be charged our state sales tax,” explained Rahjes.
“As this nationwide explosion to capture sales tax revenue gets closer, then the unintended consequences come in,” he added in agreement with Billinger.
“Part of the argument against this is the burden it will put on small retailers. There’s not going to be a handy card to look at saying this is how much the tax is.”
Some of the internet giants are offering to figure it out for businesses, for a fee.
“So are you willing to pay more in order to make it fair for the businesses on the bricks in downtown Hays?,” Rahjes asked the audience.
In talking to the small “mom and pop” businesses in his 110th District, Rahjes said he is an advocate of the internet sales tax, “trying to keep it as advantageous as possible for Main Street.”
It won’t be simple, but he’s predicting it will happen.
There are, however, many sales tax exemptions in Kansas, “millions and millions and millions of dollars’ worth,” said Rep. Phelps.
“We’ve really shrunk that population in our state that collects the sales tax. I think that adds momentum to the support for taxing internet sales that are out of state and selling in our community.”
He has also talked with local businesses about implementation of an internet sales tax.
“I was talking with Goodwin’s Sporting Goods in Hays about people who come in to try on the latest Nike tennis shoe and ask questions about it. Then they go and order the shoes online, probably saving a few dollars. But in the meantime, you have a local store that has the overhead right here in our community.”
The 8.75% sales tax in Hays is split three ways:
The city’s general fund comes primarily from the local 1.75% sales tax, not property tax. Hays is the only city in Kansas to finance its general fund with sales tax.