Small businesses in Kansas have a distinct competitive disadvantage, and the Legislature should act in this session to make Kansas tax policy consistent with other states.
Last year’s Wayfair decision from the U.S. Supreme Court said that states can mandate that businesses without a physical presence, like a storefront or warehouse, can collect sales taxes on transactions in the state.
The ruling was designed to get states to be able to collect taxes from major online retailers, like Wayfair and Amazon. The decision said only retailers with a “substantial nexus” presence in a state were subject to the ruling. The original law from South Dakota collected sales taxes only from retailers with more than 200 transactions in the state or more than $100,000 in sales, exempting small businesses from the need to collect out-of-state sales tax from purchasers and pay it to states.
In the months following the ruling, most states enacted similar laws, economic nexus thresholds, designed to exempt small businesses from taxes that would be burdensome to collect. For example, a small online seller making crafts and shipping them to buyers all over the country would not need to keep track of collecting and paying sales taxes in all 50 states.
Such an obligation would likely be more of an administrative burden than a financial one, since every state has various tax rates, blackout dates, exemptions and other standards to keep track of. At last count, 43 states have passed small business exceptions to remote seller sales taxes.
In Kansas, the Department of Revenue issued an opinion that they lacked the authority under the state constitution to create a small-seller exception, leaving the Legislature to enact one. To date, it has not.
The Kansas attorney general issued an opinion on the Kansas approach to the Wayfair ruling, noting that the policy that “requires all out-of-state retailers collect and remit is inconsistent with Wayfair, has not been lawfully adopted and is invalid.” Kansas is likely to face legal action if the Legislature does not carve out an exemption.
The one concession Kansas has made to small businesses is membership in a Streamlined Sales Tax organization that gives the state standard regulations with other states. This is a helpful step, but it is not enough.
Kansas businesses are taking the brunt of the decision, since they have to pay sales taxes on furniture, equipment and supplies they purchase from out of state, when competitors from other states do not. Those costs are inevitably passed on to Kansas consumers.
The actual taxes collected from these businesses are invariably small amounts, unlikely to make a big impact in the Kansas budget but likely to have an impact on the bottom line of small-scale retailers.
The Legislature should act to follow the lead of 43 other states and exempt small out-of-state sellers from sales taxes.
