By Del Bartels
PIERRE — The South Dakota Department of Revenue recently asked the state’s citizens to report online retailers who aren’t collecting sales taxes, and to make sure that citizens themselves are paying the tax on goods they buy if the seller doesn’t collect it for them.
By state law, if a business does not collect the sales tax when a purchase is made online, South Dakotans still owe use tax to the state. The same is true if a South Dakotan buys something, a car for instance, out of state. In both cases it is up to the citizens themselves to pay the use tax on the item.
Until November, South Dakota could not collect on remote seller sales tax. In 2016, the state legislature passed a law aimed at challenging a longstanding Supreme Court precedent that banned states from collecting sales taxes from remote sellers. That 2016 law sparked a lawsuit that eventually caused the court to overturn its decades-old decision. In September, the Legislature met in special session to update the 2016 law.
Officials with the Department of Revenue faced the state Legislature’s Interim Joint Committee on Appropriations Dec. 3 with an update and to answer questions concerning Online Sales Tax enrollees.
Andy Gerlach is the secretary of the S.D. Dept. of Revenue. Doug Schinkel, director of business tax, gave the presentation. Information was supplemented by Wade LaRoche, public affairs manager, and Morgan Gruebele, policy analyst.
On Nov.1, the state began requiring remote sellers who meet certain criteria to be licensed and remit applicable taxes. South Dakota’s remote seller law applies to businesses without a physical presence in South Dakota that in the previous or current calendar year either earned a gross revenue from sales into South Dakota that exceeds $100,000 or the business made sales for delivery into South Dakota in 200 or more separate transactions.
Schinkel said, as of Dec. 3, there were 1,060 active licenses issued to online companies.
"These are companies that have come forward. But we know there are others out there, not forthcoming, and we need to find them," Schinkel said. To do that, he said he is anticipating the need for more staff.
"Yeah, there is going to be a need," Schinkel told the Appropriations Committee.
"The S.D. Dept. of Revenue staff continues to look for areas of under-reporting of sales tax and use tax. Then our job is to contact them," Schinkel said.
He was also asked about enforcement. "It is up to our department to be very reasonable, to educate businesses. The new out-of-state businesses are delving into a whole new realm. We are working with ‘educate first, enforce second.’ They do not need to pay, this year, sales taxes until they meet the threshold. We don’t have much choice but to take their word for it when they meet the threshold. It comes down to reasonableness. I don’t want to penalize any business trying to work with us."
The Appropriations Committee asked about increased revenue estimates once remote sellers begin remitting sales taxes. Schinkel told the committee that the department wouldn’t have enough data to give accurate estimates for a few months.
The committee was also concerned about the state keeping individual taxpayers’ personal data secure. Schinkel said the state’s Legislative Research Council will need to receive proprioritory information in order to make revenue projections. "The taxpayers need to know we hold private information as private and confidential. It would require statutory changes concerning confidentiality for staff to make estimates. We will not provide individual taxpayer information to anyone," Schinkel said.
"South Dakota sales tax is reported by state fiscal year (July 1-June 30) as the total sales and use tax paid to the state. This includes all in-state and out-of-state businesses paying South Dakota sales and use tax," LaRoche reported. Total S.D. sales taxes for Fiscal Year 2018 were $995,997,148, for FY2017 — $958,531,929, for FY2016 — $869,421,055. "It was estimated that South Dakota has $50 million in sales tax revenue losses due to our inability to tax remote sellers. The $50 million estimate is both state and municipal sales taxes ($30 million state and $20 million city). This estimate is based on the 2009 E-commerce study conducted at the University of Tennessee by Professors Donald Bruce, William F. Fox, and LeAnn Luna."
In late November, on Cyber Monday, a South Dakota Department of Revenue news release reminded consumers to make sure their online purchases include state and municipal sales taxes. The release said in part; "If consumers make a purchase from a remote seller and feel they are not charged the correct amount of sales tax, they should email the Department of Revenue at firstname.lastname@example.org or call toll free at 1-800-829-9188. When contacting the department, provide specifics such as the business’s website."
South Dakota consumers can easily see if they were charged South Dakota sales tax by an out-of-state seller.
"Sales made on the internet typically include an invoice, either electronic or paper, listing the sale made and any applicable charges, i.e. shipping, handling, taxes, etc. Similar to what a customer receives when making a purchase at a store," LaRoche said. Consumers can easily see if the charged sales tax was correct. "The S.D. state sales tax rate is 4.5 percent. Cities may impose a municipal sales tax that is in addition to the state sales tax. To verify the sales tax you will pay you can use our Tax Rate Finder available on our website. You will need to enter the address the purchase will be delivered to and the rate finder will provide the applicable sales tax for that address," LaRoche said.
The Department of Revenue offers an online option for South Dakotans to file and pay use tax with a credit card or ACH debit transaction. This feature, which requires no account registration, is at http://dor.sd.gov, then click the online use tax payment button under e-services. For more information on South Dakota’s remote seller law, visit http://sd.gov/remoteseller.
LaRoche and Gruebele information included that not all e-commerce sellers will meet the legal criteria to be required to pay South Dakota sales tax. Buyers are welcome to provide the revenue office with the name, website and purchase information of a seller that does not charge South Dakota sales tax. The Revenue Office will follow up with the seller and assist them to become compliant with South Dakota law if applicable to their business. Buyers can pay the South Dakota use tax electronically or by mail. Visit the website or call the Taxpayer Assistance Center at 1-800-829-9188 to make a payment.