Selling Stuff Online? The North Dakota Tax Commissioner Is Watching

Over at Watchdog today I have a story about a Bismarck man who, after selling about an item a week online for six years on BisManOnline.com, got a letter from the Tax Commissioner’s office accusing him of not remitting sales tax collections to the state.

What’s interesting about the incident – aside from the fact that the Tax Commissioner’s office is trolling online classifieds looking for sales tax scofflaws – is that the line between being a private citizen just selling off old junk or collectibles, or being a retailer who must remit sales taxes to the state, is kind of blurry.

Click over the read about how Mike Wolf managed to get himself in the crosshairs of the Tax Commissioner’s office. According to the Public Information Office for the tax department failing to follow the sales tax laws is a Class A Misdemeanor, but they say they mostly focus on bringing people into compliance.

But the issue is the compliance question. The circumstances which trigger the need to remit sales taxes can seem a little…arbitrary. Tax Commissioner Ryan Rauschenberger can’t discuss Wolf’s case directly, but did respond to a hypothetical for me:

Tax Commissioner Ryan Rauschenberger says the need to remit sales taxes to the state may hinge on the intent of sellers when they purchased the items being sold. Rauschenberger wouldn’t address Wolf’s case specifically, but did answer a hypothetical question about whether a Star Wars enthusiast selling off a collection might be violating the law.

“If you obtained your sizable Star Wars memorabilia collection as a casual collector/hobbyist and you decide to sell a majority of the items in your collection, you would not be considered a retailer,” he said. “If you obtained your sizable Star Wars memorabilia collection with the intention of reselling the items, you would be considered a retailer. Similarly, if you obtain the items by trading (aka: bartered for them) with intention to sell or re-trade for items to sell, you are considered a retailer and the trade-transaction is subject to sales tax.”

He added that a “large volume of transactions by a seller may trigger follow up by the department.”

The problem is, how do you prove the intent? Do you have to own your Boba Fett action figure for a certain amount of time before you can sell it without needing to collect and remit the sales tax? It seems like a major gray area, all the more so because a lot of commerce is happening on websites like BisMan, eBay, and Craigslist. In fact, BisMan specifically claims they have been involved in over $1.5 billion worth of consumer-to-consumer transactions.

But then, it’s not unusual for people to skirt paying the sales tax. Technically if you purchase something online and the retailer doesn’t collect a sales tax you’re supposed to remit the tax to the state on your own. But who does that?

The answer is pretty much nobody, which is why some North Dakota leaders are joining with leaders in other states to create federal legislation – most notably the Marketplace Fairness Act – which would require that online retailers collect the sales tax and remit it to the state.

Meanwhile, sales tax collections in the state are way down. So far in the 2015-2017 biennium sales tax collections are down more than $75 million, or 24 percent.