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BUSINESS Saturday, August 3, 2019 East Oregonian A7 Oregon suffering sales tax headaches Oregon senators push bill to shield small businesses from sales tax rules By KATE DAVIDSON Oregon Public Broadcasting PORTLAND — You don’t start a business called Made in Oregon because you want — or expect — to collect sales tax. After all, Oregon has no sales tax. It’s a feature of the state as iconic as the Pendleton blankets the company sells. So when Made in Ore- gon opened its first store at the Portland airport in 1975, its founders could little have imagined the company would one day collect sales tax. Not for Oregon, but for online sales in least 11 other states. That day is now. “It is a headache,” said Dave Stainsby, who directs e-commerce for Made in Oregon. One year ago, the U.S. Supreme Court issued a decision that turned the conventional world of sales tax collection on its head. Now, U.S. senators from Oregon and New Hamp- shire want to undo some of those changes. Democratic Sens. Ron Wyden and Jeff Merkley are co-sponsoring legislation, introduced Wednesday, that would prevent small businesses in one state — like Oregon — from being required to collect sales tax on behalf of another state — like Virginia — if the businesses have no physical presence there. “This is a huge red tape burden on Oregon small businesses,” Merkley said. “We need to respect the work of small businesses and not burden them in this way.” The bill would also freeze the implementation of a whole new crop of sales tax laws until 2021. To understand all of this, you have to understand the recent sea change in sales tax collection across the country. The old world order It used to be that com- panies were only required to collect sales tax in states where they had a substantial physical presence — think storefronts, warehouses or even employees. That con- nection to a state is called “nexus.” Over time, states tried to chip away at that physi- cal presence standard. The internet was the bull in the china shop, and online shopping was stomp- ing on traditional revenue streams. The pivotal moment came on June 21, 2018, when the Supreme Court issued its ruling in South Dakota v. Wayfair Inc. At stake was a law requiring out-of-state businesses to collect South Dakota sales tax if they sold enough goods or services into the state — either 200 separate sales or $100,000 worth. In the Wayfair decision, the Supreme Court over- OPB Photo/Kate Davidson Dave Stainsby stands in Made in Oregon’s warehouse in Portland. Stainsby says sales tax collection has changed “night and day.” OPB Photo/Kate Davidson Inventory at the Made in Oregon warehouse in Portland. The company is now collecting sales tax for online sales in at least 11 other states. “This is a huge red tape burden on Oregon small businesses. We need to respect the work of small businesses and not burden them in this way.” Jeff Merkley , Oregon Senator turned precedent — a big deal — and broadened what counts as nexus. It said a business’s connection to a state could be economic in nature, not just physical. Justice Anthony Ken- nedy wrote for the major- ity, “Each year, the physi- cal presence rule becomes further removed from eco- nomic reality and results in significant revenue losses to the States.” That opened the floodgates. The new world order Forty-two states now have laws or administrative positions requiring out-of- state companies to collect their sales tax, according to Diane Yetter, founder of the Sales Tax Institute. “It has been a crazy year since the Wayfair decision was decided,” she said. Washington is one of those states. With no income tax, it’s highly dependent on sales tax to fund education, infrastruc- ture and health care. Wash- ington was already trying to boost that revenue before the Wayfair ruling. Now it requires out-of-state busi- nesses with $100,000 in Washington retail sales to collect sales tax. “Every state is trying to figure out how to serve their people,” said state Rep. Gael Tarleton, D-Se- attle, who chairs the House Finance Committee. “You can’t do it on hope and a plan. You have to have funding and it has to be sta- ble. And that’s why Wayfair was a really important part of the puzzle.” Many states adopted South Dakota’s thresholds to determine which busi- nesses must collect tax: $100,000 in sales or 200 separate transactions. It doesn’t matter if the remote seller is from a state like Oregon, with no sales tax of its own. If you’re an Oregon company selling enough in New Jersey, New Jersey can be the sales tax boss of you. “Night and day dif- ference,” is how Made in Oregon’s Dave Stainsby described the wave of tax law changes. Noncompliance could mean fines, but compliance also has a price. Chief Justice John Rob- erts noted in his Wayfair dissent that there are more than 10,000 taxing jurisdic- tions in the United States. That’s because territo- ries, counties and cities can impose their own sales tax rates and rules. “The Court,” Roberts wrote, “breezily disregards the costs that its decision will impose on retailers. Correctly calculating and remitting sales taxes on all e-commerce sales will likely prove baffling for many retailers.” Effect on businesses, big(ger) and small Stainsby said Made in Oregon will spend more than $36,000 this year on managing sales tax, includ- ing its use of a software tool called Avalara, which auto- mates sales tax compliance. It was either that, Stainsby said, or hire another full- time employee. Made in Oregon is not a small company. Stainsby said it brings in more than $10 million a year in gross revenue. But even some of the smallest online com- panies are paying for soft- ware to monitor their sales, in case they trigger eco- nomic nexus in the future. Remember, that’s 200 trans- actions in some states. Lindsey Brady has been running her one-woman business, Toasted Maple, from her garage in The Dalles. It smells faintly like campfire from the laser-en- graved wooden tokens she makes for clients like Red Bull and Lululemon. The tokens are a marketing tool, a kind of company currency that can be exchanged for free drinks or even used as business cards. Until recently, Toasted Maple was Brady’s “7 to 11 p.m. side hustle.” It’s been too small to collect sales tax for direct sales outside of Oregon. But now Brady is full time, moving into a new office and pre- paring to scale up. She’s using the software TaxJar to navigate the minutiae of tax law as business grows. “It’s pretty convoluted right now. It’s not like there’s a federal, across-the- board of: ‘This is what we’re doing.’ And I hope that’s what they work towards to make it easier for sellers,” Brady said. “But we’re not there yet.” Diane Yetter of the Sales Tax Institute thinks, in a few years, companies will simply get used to these new compliance costs. “You have payroll pro- viders that help you manage and file your payroll taxes. You have an accountant that maybe helps do your income tax. And sales tax is just another one of those things that you have to pay for,” she said. Enter the senators Merkley isn’t particu- larly worried about com- panies the size of Made in Oregon, but he is concerned about small businesses. Democrats Merkley, Wyden and New Hamp- shire Sens. Jeanne Shaheen and Maggie Hassan want to exempt small businesses from the new wave of sales tax laws. Their legislation would prevent remote sell- ers that generate less than $10 million in sales from collecting sales tax for other states. “The Amazons of the world, or the sizable busi- nesses, they have the infra- structure to be able to do this, and that’s not such a burden. But to a small busi- ness it’s an enormous bur- den,” Merkley said. It’s not clear how many small businesses sell enough to actually be subject to the post-Wayfair laws. Merkley thinks the bar is too low. Overall, the bill would press the pause button, pro- hibiting states from requir- ing out-of-state companies to collect sales tax for sales made before 2021. It’s no coincidence that Oregon and New Hamp- shire are two states with- out a general sales tax. Not collecting sales tax — ever — is an advantage Merkley wants businesses in Oregon to keep. A musical coda There’s a bit player in this sales tax drama that no one’s talking about: the Oregon wholesaler. If you’re looking for Ed Kraus, you might find him hunched over a small press, punching out pads for pic- colos. He combines a back- ground in mechanical engi- neering with a degree in clarinet performance. “That and a couple dol- lars will get you a cup of coffee,” he quipped. Kraus Music Products, his three-person shop in Clackamas County, makes tiny parts for musical instrument manufacturers and repair shops. “We’re a very big fish in a ridiculously small pond,” he said. As a wholesaler, Kraus does not collect retail sales tax. That’s paid by the final consumer — the person who buys the piccolo. But Kraus is only protected if the businesses he sells to have valid resale certifi- cates. If not, he could be on the hook to collect sales tax in states where he reaches the necessary economic threshold, or nexus. Kraus said he’s spending hours on the phone every day, trying to verify the documentation of his sev- eral thousand customers. “Now, if I don’t have all my ducks in a row and all the paperwork correct, the state can come after me for the tax mistakes of my cus- tomers,” he said. “So I have to be extra careful about this.” Those are hours Kraus said he should be spend- ing on production. He’s not optimistic. “The compliance cost for having to answer to the laws of all 50 states will put this company out of business,” he said. For Kraus, the issue is bigger than sales tax — it’s the redefinition of “nexus” itself. It’s a question of states’ abilities to reach across traditional tax lines to penalize his company. He wants Congress to step in and set limits. BRIEFS Three local hotels clean up with housekeeping awards PORTLAND — Top honors for cleanliness were recently awarded to 181 Oregon hotels, including three local properties. Presented by AAA, the Clean- liness in Best of Housekeeping Awards were presented to Hol- iday Inn Express and Oxford Suites, both of Pendleton, and Holiday Inn Express & Suites in Hermiston. Travelers want a clean room when they’re staying at a hotel, said Marie Dodds in a press release. AAA’s new Inspector’s Best of Housekeeping award rec- ognizes hotels that go above and beyond, earning the highest pos- sible cleanliness and condition scores, she said. Properties receiving the award, Dodds said, significantly surpass expectations, as measured during a comprehensive, on-site inspec- tion. During visits, AAA inspec- tors look for evidence of dirt, dust, pests, equipment perfor- mance and more. For more information, contact Dodds at marie.dodds@aaaore- gon.com, 503-222-6729 or visit www.aaa.com. BEO Bancorp provides quarterly updates HEPPNER — BEO Ban- corp and its subsidiary, Bank of Eastern Oregon, announced net income for the second quarter of 2019 was down, but attributed that to the acquisition and startup costs of Washington branches, a new loan production office in Herm- iston and expansion of its Pendle- ton and Island City loan produc- tion offices. “While the (second quarter 2019) results are down from last year, year-to-date results are up 7.1% when compared to this time last year,” said Jeff Bailey, presi- dent and CEO. BEO also reported total assets were $469.9 million, up 17.4% year over year. Net loans of $383.9 million were up 16.5% from the same period in 2018, while depos- its were at $421.9 million, up 18.5% year over year. Sharehold- ers’ equity increased by $3.127 million or 9.4% from June 2018. Chief financial officer Mark Lemmon said while the world economy continues to show signs of weakness, the U.S. economic recovery is the longest on record. “Unemployment is at record lows and most domestic eco- nomic numbers point to continued strength,” Lemmon said. In addition, Lemmon said the bank’s book value per share was $30.83 compared with $28.07 on June 30, 2018, an increase of 9.8%. Gary Propheter, chief opera- tions officer, said BEO’s expan- sion into Washington and its loan production offices have yielded strong growth in deposits and loans. Bank officials, he said, are pleased with the reception they are receiving in their newest locations. The ag sector in the Pacific Northwest, Bailey said, seems to be doing pretty well. With harvest just beginning across the trade area, Bailey said early results are encouraging for their small grain producers. In addition, he said grass conditions in the mountains are good for summer feed and cat- tle prices are stable. “All of these factors bode well for our local economy, but there are the ongoing concerns about the impact of tariffs and the global economic factors that could pose additional challenges,” Bailey said. Based in Heppner, BEO oper- ates 18 branches and seven loan production offices across Eastern Oregon and eastern Washington. For more information, visit www.beobank.com.
