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 Oregon 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.

Dave Stainsby stands in Made in Oregon's warehouse in Portland, Ore., Wednesday, July 24, 2019. Stainsby says sales tax collection has changed "night and day."

Dave Stainsby stands in Made in Oregon’s warehouse in Portland, Ore., Wednesday, July 24, 2019. Stainsby says sales tax collection has changed “night and day.”

Kate Davidson/OPB

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 Hampshire 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 companies were only required to collect sales tax in states where they had a substantial physical presence — think storefronts, warehouses or even employees. That connection to a state is called “nexus.”

Over time, states tried to chip away at that physical presence standard. The internet was the bull in the china shop, and online shopping was stomping 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 overturned 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 Kennedy wrote for the majority, “Each year, the physical presence rule becomes further removed from economic 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, infrastructure and health care. Washington was already trying to boost that revenue before the Wayfair ruling. Now it requires out-of-state businesses 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-Seattle, 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 stable. And that’s why Wayfair was a really important part of the puzzle.”

Many states adopted South Dakota’s thresholds to determine which businesses 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 difference,” 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.

Inventory at the Made in Oregon warehouse in Portland, Ore., July 24, 2019. The company is now collecting sales tax for online sales in at least 11 other states.

Inventory at the Made in Oregon warehouse in Portland, Ore., July 24, 2019. The company is now collecting sales tax for online sales in at least 11 other states.

Kate Davidson/OPB

Chief Justice John Roberts noted in his Wayfair dissent that there are more than 10,000 taxing jurisdictions in the United States. That’s because territories, 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, including its use of a software tool called Avalara, which automates 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 companies are paying for software to monitor their sales, in case they trigger economic nexus in the future. Remember, that’s 200 transactions 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-engraved 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.

Lindsey Brady holds one of the wooden tokens she makes at Toasted Maple, her business in The Dalles, Ore., July 18, 2019. As the owner of a growing small business, she wants to get sales tax right from the start.

Lindsey Brady holds one of the wooden tokens she makes at Toasted Maple, her business in The Dalles, Ore., July 18, 2019. As the owner of a growing small business, she wants to get sales tax right from the start.

Kate Davidson/OPB

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 preparing 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 providers 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

Sen. Jeff Merkley isn’t particularly worried about companies the size of Made in Oregon, but he is concerned about small businesses.

Democrats Merkley, Wyden and New Hampshire Sens. Jeanne Shaheen and Maggie Hassan want to exempt small businesses from the new wave of sales tax laws. Their legislation would prevent remote sellers that generate less than $10 million in sales from collecting sales tax for other states.

“The Amazons of the world, or the sizable businesses, they have the infrastructure to be able to do this, and that’s not such a burden. But to a small business it’s an enormous burden,” Merkley said.

An example of the laser-engraved wooden tokens Toasted Maple makes for clients like Lululemon from its workspace in The Dalles, Ore., July 18, 2019. Owner Lindsey Brady is paying for software to stay compliant on other states' sales tax rules.

An example of the laser-engraved wooden tokens Toasted Maple makes for clients like Lululemon from its workspace in The Dalles, Ore., July 18, 2019. Owner Lindsey Brady is paying for software to stay compliant on other states’ sales tax rules.

Kate Davidson/OPB

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, prohibiting states from requiring out-of-state companies to collect sales tax for sales made before 2021.

It’s no coincidence that Oregon and New Hampshire are two states without 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 piccolos. He combines a background in mechanical engineering with a degree in clarinet performance.

“That and a couple dollars 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.

Ed Kraus looks through inventory at Kraus Music Products, his company in Clackamas County, Ore., July 19, 2019. As a wholesaler, he doesn't collect retail sales tax, but he's still affected by the sea-change in tax laws.

Ed Kraus looks through inventory at Kraus Music Products, his company in Clackamas County, Ore., July 19, 2019. As a wholesaler, he doesn’t collect retail sales tax, but he’s still affected by the sea-change in tax laws.

Kate Davidson/OPB

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 certificates. 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 several 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 customers,” he said. “So I have to be extra careful about this.”

Those are hours Kraus said he should be spending 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.