Federal Shift on Digital Taxes Would Moot Reporting, Notice Laws

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By Tripp Baltz

States’ reporting and notice laws would become moot if the U.S. Supreme Court overturns its physical presence standard for collection of taxes from out-of-state sellers, members of a Multistate Tax Commission work group said.

The MTC Uniformity Committee’s Use Tax Information Reporting Work Group has put in a lot of time fashioning a reporting and notice statutory model that would no longer be necessary should the Supreme Court overturn its 1992 decision in Quill Corp. v. North Dakota, Phil Horwitz, chair of the group and director of tax policy analysis in the Colorado Department of Revenue, said Jan. 31. The Quill ruling prohibits states from imposing sales tax collection obligations on vendors without a physical presence in-state.

“If Quill is overturned, this largely becomes moot,” Horwitz said, referring to the MTC’s draft model law. The work group met Jan. 31 to put the finishing touches on its draft model statute, tailored after a 2010 Colorado law, which it will present to the Uniformity Committee for consideration at the commission’s Spring Committee Meetings in Bloomington, Minn.

Review Granted

The U.S. Supreme Court granted Jan. 12 a petition to review the South Dakota v. Wayfair case and consider the continuing viability of Quill’s physical presence rule. If the high court determines that remote retailers are required to collect and remit taxes on remote sales, reporting and notice laws like Colorado’s regime might be obviated.

The Colorado law, which was affirmed constitutional by the U.S. Court of Appeals for the Tenth Circuit in February 2016, requires sellers that don’t collect and remit Colorado sales and use taxes to (1) notify buyers at the time of transaction that tax isn’t being collected but may be due, (2) provide consumers an annual report of their purchases, and (3) send an annual report showing total dollar amount of each buyer’s purchases.

Several states already have followed Colorado’s statutory lead, including Louisiana, Pennsylvania, Rhode Island, Vermont, and Washington.

‘Less Urgency’

Members of the MTC work group said they are “so far along” with the model, they should push ahead and present it to the Uniformity Committee in April.

“I think there is less of a sense of urgency since cert has been granted,” Horwitz said. “Although I think it would be helpful for us to finish our work here and put it on the Uniformity Committee’s calendar.”

MTC General Counsel Helen Hecht said even with the Supreme Court granting review, there still may be state legislatures interested in considering a reporting and notice law.

To contact the reporter on this story: Tripp Baltz in Denver at abaltz@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

For More Information

More information on the MTC Use Tax work group is at http://src.bna.com/v6j.

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