Online Tire Sales: Mandatory Sales Tax Collection Would Even the Odds
Selling tires online to consumers remains a hot topic in our industry, especially if tire manufacturers are doing the selling.
In the case of Goodyear Tire & Rubber Co. and Michelin North America Inc., dealers have to sign up to be part of the program; Goodyear says all of its company-owned stores are on board.
Some dealers remain opposed to the idea, so they are not considered preferred online dealers. Some are begrudgingly participating in the program. And others have embraced it wholeheartedly.
Other tire manufacturers are sure to follow suit. Even one of the largest mass merchandisers in the U.S., Sears, Roebuck and Co., is selling tires online through its Sears Auto Centers.
If you are not selling tires online in some way, you should be. If you believe tire manufacturers are competing against you by selling online, then do it yourself.
Only 5% to 6% of the 236 million replacement shipments in the U.S. last year were sold online, with Tire Rack Inc. and Discount Tire Direct Inc. accounting for the vast majority of that. If Amazon.com Inc. ever starts buying tires directly from the manufacturer, look out. That percentage would probably reach double digits.
I doubt the percentage will ever top 15% of the market because the need for installation helps protect our industry from excessive online sales growth. Still, even reaching double digits could be considered a watershed event.
The most important issue is really not who sells tires online, but whether or not they have to collect sales tax. That remains a problem, and something you should be aware of if and when you sell online.
Here is the rule: You have to collect sales tax on internet tire sales from customers in those states where your business has a physical presence.
Roy Littlefield IV, director of government affairs for the Tire Industry Association (TIA), says the “physical presence rule” is based on a 1992 United States Supreme Court decision, Quill Corp. v. North Dakota, “that addressed the obligations of mail order businesses to collect sales tax on out-of-state sales. The decision has been extended to include online retailers.”
Any control over the following qualifies your business as having a physical presence in a state: 1) a warehouse, 2) a store, 3) an office, or 4) a sales representative.
If Amazon.com ever starts buying tires directly from the manufacturer, look out.
If you do not have a physical presence in the state, you are not required to collect sales tax for an internet-based sale to someone in that state, according to the ruling. But each state can pass legislation to overrule that decision, so if you have a physical presence in more than one state, you should be aware of each state’s internet sales tax rules.
“Collection of sales tax on internet sales has been a matter of ongoing debate both within individual states and at the federal level,” says Littlefield.
There is no state sales tax in Alaska, Delaware, New Hampshire, Montana and Oregon, so collecting sales tax in those five states is a non-issue under current law.
In 34 of the remaining 45 states, plus the District of Columbia, collecting sales tax may be required regardless of physical presence. Often referred to as the “Amazon laws,” they apply to large online sellers.
Those states are Vermont, Alabama, Georgia, Maryland, New York, Texas, Arizona, Illinois, Massachusetts, North Carolina, Utah, California, Iowa, Michigan, North Dakota, Virginia, Colorado, Indiana, Minnesota, Ohio, Washington, Connecticut, Kansas, Nebraska, Pennsylvania, West Virginia, Kentucky, Nevada, South Carolina, Wisconsin, Florida, Louisiana, New Jersey and Tennessee.
That brings us to the federal Marketplace Fairness Act, which was first proposed in 2013, and failed again in 2015.
“As in previous versions, the 2015 Act would allow states to require sellers not physically located in their state to collect taxes on online and catalog sales made to people in their state,” says Littlefield. “Sellers that make $1 million or less in annual sales and have no physical presence in the state would be exempt from this requirement.”
States would have to meet certain criteria to simplify their sales tax laws and make sales tax collection easier before they could require sellers to collect the tax.
TIA supported the Marketplace Fairness Act, but Littlefield says it failed because Republicans in the House of Representatives see this as a tax increase. Fortunately, Republicans in the Senate and some Democrats “have seen it as a way for local businesses to be able to compete with large online competitors who are evading the taxes in many cases.”
I hope there will be a Marketplace Fairness Act of 2017. ■
If you have any questions or comments, please email me at email@example.com.
To read more of Bob Ulrich's editorials, see: