South Carolina Has Enjoyed a Windfall in State Tax Collections Post-Wayfair

By reducing registration and revenue thresholds for out-of-state sellers and market facilitators, South Carolina has collected $46.8 million in extra revenue.

Most states have been reluctant to publicize the sales tax collection windfall they have experienced as a result of SCOTUS’s landmark decision in Wayfair a little more than a year ago.

However, South Carolina has been more forthcoming. Top officials at the state Department of Revenue told me that the state collected $46.8 million in extra revenue from 3,089 registered remote sellers from Nov. 1 through June 30. The bulk of this increase comes from online companies. That’s because remote sellers, or companies that don’t have a physical presence but do business in the state, have been required for nearly a year to collect sales and remit taxes on the products they sell to South Carolina customers.

Keep in mind that the almost $47 million in state tax collections is on top of what they would have otherwise collected. “Regular” collections during that same period shot up by $89 million.

The not-so-small bonanza is the result of the U.S. Supreme Court decision in June of last year that reversed a long-standing ruling from 1992 allowing companies not to collect sales taxes if they didn’t have a physical presence in a state.

The state’s new policy began Nov. 1 to benefit from shoppers across South Carolina and elsewhere who have increasingly gone online to look for items that promise lower prices and shop-at-home convenience, especially since many online sellers didn’t charge sales taxes under the nearly 30-year-old Supreme Court ruling in Quill.

The policy requires any business that delivers more than $100,000 in goods and services to South Carolina customers to be licensed. The registration fee is $50.

Earlier this year, South Carolina lawmakers went one step further in a new law that spelled out that all retailers online and in storefronts must pay sales taxes on their transactions. The new legislation, called the “Marketplace Facilitator Act,” aims to level the playing field between brick-and-mortar stores and internet businesses. It also clarifies and reinforces sales tax collection requirements for anyone who facilitates retail sales.  The new law can be found at https://dor.sc.gov/resources-site/lawandpolicy/Advisory%20Opinions/IL19-14.pdf

The law states: “With the changing economy and ever-expanding role of the internet in the retail market, the longstanding requirement in the sales and use tax law that a retailer remit the tax on retail sales of tangible personal property owned by another person must apply to all retailers, including both internet retailers and brick-and-mortar retailers.”

Just as an on-the-ground store can sell products from multiple entities and must collect sales taxes so must an online shop selling products from different providers, according to the law. It also applies to marketplaces such as a catalog, website, television or radio broadcast.

Anyone who collects or processes payments from a purchaser, either directly or indirectly through an arrangement with a third party is considered a “marketplace facilitator” responsible for remitting sales taxes to the state.

Hartley Powell, director of the state Department of Revenue told me that the new law “provides helpful clarification and modernization of South Carolina’s sales and use tax laws as they related to online retail sales and e-commerce. “It ensures that all online retailers collect and remit sales and use tax on all sales, just like brick-and-mortar stores.”

Guidance

South Carolina, like a few other states such as Hawaii and Kansas, have gotten much more aggressive and gone well beyond the South Dakota law reviewed by the Supreme Court in Wayfair. They are getting away from a “number of transactions” threshold, reducing the amount of revenue that needs to be generated in their states from sales from out-of-state online sellers-sometimes eliminating any revenue minimum at all. Also, the requirements for out-of-state sellers and market facilitators to register with the states have been significantly reduced, placing many more businesses at risk of being audited.

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Mark Friedlich

All stories by: Mark Friedlich

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