Cross-Border Sales Tax a Growing Issue for Companies: Panelists

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By Ryan Prete

“High-growth” companies are increasingly fumbling with sales tax compliance across the board, according to a tax services representative.

“States rely considerably on sales tax revenue and are going after large companies at a considerable rate,” Chuck Marcouiller, director of sales and use tax learning at Avalara Inc., said during a Nov. 30 webinar co-sponsored by the tax software company and Bloomberg Tax. “State auditors exist for one reason, to collect revenue owed to them, and auditors will always prefer to pursue revenue owed to them outside of their respected state.”

Marcouiller said the five most common activities presenting a sales tax risk for large companies are:

  •  domestic and global expansion;
  •  expanded marketing and sales strategies and “click-through” nexus;
  •  bringing new products and services to market, such as “streaming” and legal services;
  •  increasing sales in other states; and
  •  gaining a high public profile.

Marcouiller explained that auditors target “on the rise” companies to ensure that compliance is maintained during a period of rapid revenue growth.

Duplicating Digital Tax Models

Ernst Hunter, a tax law editor at Bloomberg Tax, said during the webinar that he also expects more states will enact “economic nexus” regimes that impose sales tax collection obligations on remote retailers with annual in-state sales exceeding a specific revenue threshold and/or amount of separate in-state transactions.

“I expect that we will continue to see this model emerge in other states. This isn’t going away anytime soon,” Hunter said.

Nearly 20 states, through administrative rule or statute, pursued economic nexus models during 2017, riding the growing wave of interest in capturing lost revenue from untaxed remote sales—and ultimately nullifying the U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota,—which prohibits states from imposing sales and use tax collection obligations on vendors without a physical presence in-state.

Multiple “kill Quill” challenges arising out of economic nexus regimes are weaving through several states, including Alabama, Indiana, Tennessee and Wyoming. South Dakota is furthest along among the states embroiled in litigation—South Dakota Attorney General Marty Jackley (R) filed a petition for review with the U.S. Supreme Court in early October, appealing a state Supreme Court ruling that found the state’s economic nexus law, S.B. 106 (codified as S.D. Codified Laws Chapter 10-64), unconstitutional. The case is in the briefing stage ( South Dakota v. Wayfair, Inc., U.S., No. 17-494, friend-of-the-court briefs filed 11/2/17 .

“This is really the easiest way for states to tie in a company. It’s simply just counting revenue,” Marcouiller said.

Marcouiller and Hunter both said they also expect more states to follow Washington, Minnesota, and Rhode Island—which this year enacted laws requiring marketplace providers such as Amazon.com Inc. to collect tax on third-party marketplace transactions.

To contact the reporter on this story: Ryan Prete in Washington at rprete@bloombergtax.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bloombergtax.com

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