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By Ryan Prete
The future of marketplace-provider laws requiring Amazon-type platforms to collect tax on its third-party sales hinges on a monumental U.S. Supreme Court case, according to tax professionals.
Liz Malm, director of strategic government relations and economist at the consulting firm MultiState Associates Inc, told Bloomberg Tax that marketplace-provider legislation could spike once the U.S. Supreme Court reaches a decision in South Dakota v. Wayfair. That case will reconsider the 1992 precedent laid down in Quill Corp. v. North Dakotaprohibiting states from imposing tax collection obligations on vendors without a physical presence in-state.
Assuming the court sides with South Dakota, Malm said she would expect marketplace-provider legislation to “be the biggest trend of 2019.”
This year, New York and Hawaii have introduced legislation containing marketplace provider provisions. New Mexico also considered similar proposals, but the bills died in session.
Pennsylvania, Rhode Island, Washington, and Minnesota were the first states to enact marketplace-provider provisions, doing so in 2017.
All but Minnesota have started to see returns from their laws, testing what have been very rough estimates of the tax revenue states could see from these schemes.
Slice Intelligence, a market research firm that tracks digital commerce activity, reported that Amazon.com, Inc. transactions accounted for 43 percent of all revenue from 2016 U.S. online sales—those numbers included third-party marketplace transactions. According to Amazon data, the marketplace behemoth pulled in net sales of nearly $136 billion in 2016, up from $107 billion in 2015.
Pennsylvania is the only state to put out firm estimates about what its marketplace law will bring in: the Department of Revenue estimates it will bring in $8.2 million in revenue for FY 2017-18 and $50.5 million in FY 2018-19.
Andrew Moylan, executive vice president of the National Taxpayers Union Foundation—a group which filed a friend-of-the-court brief in South Dakota v. Wayfair urging the U.S. Supreme Court to uphold Quill—told Bloomberg Tax in an email he “absolutely expects” more states to lobby for marketplace provisions in the coming year.
“More states are going to push for new tax power over all marketplace sales, regardless of the physical presence of the seller,” Moylan said.
Moylan also said the fate of South Dakota v. Wayfair will “significantly impact” the future of marketplace-provider provisions.
“States have for years been aggressively asserting their tax power across borders, and both the arguments and eventual decision in Wayfair will tell them whether that aggression will be validated and encouraged, or if it will be restrained,” Moylan said. “The overwhelming likelihood is that states will use the Court’s proceedings as additional fuel for their insatiable quest to have state tax power that’s as big as the internet itself, federalism and interstate commerce be damned.”
Meanwhile, the first four state marketplace-provider laws are about to take effect or see their first returns.
Below, Bloomberg Tax provides an update on each of those states’ laws.
In Pennsylvania, marketplace providers must choose to collect and remit sales and use tax or comply with notice and reporting requirements. Marketplace providers have until March 1—when the law takes effect—to make an election.
Twenty-nine elections have been filed with the Pennsylvania DOR since the law was passed, according to Jeffrey Johnson, communications director at the Pennsylvania Department of Revenue.
“Of the 29 who filed an election form, seven opted to collect and remit tax, 16 opted to follow the notice and reporting requirements, and six made no election at all,” he told Bloomberg Tax.
Johnson said the department estimates the law will bring in $8.2 million in revenue for FY 2017-18 and $50.5 million in FY 2018-19.
“We are confident in those estimates,” he said.
Marketplace providers who don’t make an election by March 1 must follow the notice and reporting requirement, according to Johnson.
Rhode Island—which enacted a law that included a marketplace provision, an economic nexus threshold of either $100,000 or 200 separate transaction, and a click-through nexus provision—has collected $5.7 million more in revenue from remote sellers for September and October 2017 than in September and October 2016, according to Paul Grimaldi, chief of information and public relations at the Rhode Island Department of Revenue.
The $5.7 million in year-over-year revenue is $1.5 million more than the Rhode Island DOR originally estimated, Grimaldi told Bloomberg Tax in an email.
Grimaldi said the Rhode Island DOR estimates $19.7 million in new net revenue for all of FY 2018.
Like those conducting business in Pennsylvania, in Washington marketplace providers must choose to either collect and remit sales and use tax or notify customers of the uncollected tax.
Washington’s marketplace provider law took effect on Jan. 1, so the first round of collections has yet to be reported, according to Anna Gill, communications manager at the Washington Department of Revenue.
Collections in Washington will being to pour in either monthly, quarterly, or annually, depending on the provider’s estimated income. A marketplace provider choosing to collect and remit and whose annual gross income exceeds $60,000 is required to report collections on a monthly basis, according to Gill.
A provider with a gross income between $12,000 and $60,000 is required to report collections on a quarterly basis, while a gross income under $12,000 requires annual reporting.
Minnesota’s marketplace law—set to take effect on Jan. 1, 2019—recognizes third-party sellers as traditional retailers, therefore requiring online sellers to collect and report sales and use tax revenue to the state’s DOR by the 20th of each month, according to Joe Crosby, a principal with MultiState Associates.
With assistance from Michael J. Bologna in Chicago, Aaron Nicodemus in Boston, and Leslie A. Pappas in Philadelphia
To contact the reporter on this story: Ryan Prete in Washington at email@example.com
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