Online Sales Tax: Supreme Court’s Wayfair Decision Beginning to Pay off in South Carolina
Tuesday, August 13th, 2019
As state governments around the country adjust to new rules for e-commerce, South Carolina has collected nearly $50 million in taxes from out-of-state online sellers in the past nine months.
The Supreme Court’s June 2018 decision in South Dakota v. Wayfair Inc. cleared the way for states to charge sales and use tax on purchases made by their residents through online businesses with no physical presence in the state.
Prior to the decision, South Carolina relied on honor-system-based collections, with individual taxpayers declaring on their state income tax returns how much they owed. For the 2017 tax year, taxpayers reported $1,884,966. So far for 2018 (extended returns aren’t due until Oct. 15), the total is $1,419,269.
While it was impossible to determine exactly how much tax wasn’t being reported, the S.C. Department of Revenue estimated the amount at $48 million per year.
Starting in September 2018, SCDOR requested remote sellers – those who do business in the Palmetto State without a physical presence here – register for a retail license. The agency told South Carolina CEO that there are 3,232 active remote seller accounts and that those businesses have reported more than $46.6 million in sales tax since Nov. 1, 2018.
The Supreme Court limited which businesses would have to collect sales tax to those with “substantial nexus” in a particular state. It defined substantial nexus as $100,000 worth of transactions or 200 total transactions per year.
Some states, such as North Carolina, have adopted those amounts, while others have differed. South Carolina is focusing on the $100,000 sales threshold and not counting transactions. Georgia is using thresholds of $250,000 in sales and 200 transactions.
Charleston-based Grey Ghost Bakery sells award-winning cookies through a network of retailers as well as online. Owner Katherine Frankstone collects tax for online sales to South Carolina customers but not for out-of-state transactions because they don’t meet those states’ sales thresholds.
“We always did for South Carolina sales,” she said. Every retail business that has a physical presence in the Palmetto State, regardless of size, is supposed to collect South Carolina tax on its online sales.
Earlier this year, the South Carolina General Assembly passed the Marketplace Facilitator Act to reinforce and clarify the rules. It requires marketplace facilitators – businesses such as Amazon.com, Etsy.com and Walmart.com, who allow other vendors to sell products through their platforms – to collect and remit South Carolina taxes on behalf of those vendors.
As South Carolina has gotten further away from the Great Recession, its annual sales tax collections have steadily increased, from $2.333 billion during the 2012 fiscal year to $2.896 billion in FY 2017. That growth of approximately 24% outstrips the state’s 6% percent population growth during the same period.
While it has a dollar amount for remote sellers, SCDOR doesn’t tally total online sales tax collection from all businesses.
“If a South Carolina business has online sales, the figure is not split from their other in-store sales tax information,” said Bonnie Swingle, a department spokeswoman.
South Carolina’s sales tax rate is 6%. Some cities and counties around the state add 1% to that rate.