INCENTIVES WATCH: COULD THE U.S. SUPREME COURT’S WYNNE DECISION APPLY TO SALES TAX AS WELL?

U.S. Supreme Court

The full impact of the Wynne decision may not be known for years, but one thing is clear: states are going to be careful going forward in implementing their tax schemes to avoid discrimination against interstate commerce. Last week, tax experts weighed in on the complexities of collecting sales tax in a digital economy at a Bloomberg BNA and Reed Smith event. One issue that the panelists raised is the possibility that Wynne may apply to sales taxes, obligating states to offer a tax credit for sales tax paid in other states as a way to prevent double taxation.

In this interview, Craig Johnson, Executive Director of the Streamlined Sales Tax Governing Board (SSTGB) and one of the panelists at the event, discusses the availability of tax credits for sales taxes paid to other states.

Bloomberg BNA: In your estimation, how common is it for a state to provide a credit for sales tax paid in other states? Are states currently applying the credit consistently?

Johnson: It is very common for one state to provide credit for a sales or use tax paid by a purchaser in another state as long as that tax was first legally due and owing in that other state.  When it comes to giving credit for the state sales tax paid in one state being allowed as a credit against the use tax due in another state, I believe states are pretty good about that and relatively consistent, although there can be some nuances in this area.  When local taxes are involved the states are not as consistent in how these credits may apply.

Bloomberg BNA: You mentioned during the Feb. 2 panel that the Streamlined Sales and Use Tax Agreement (SSUTA) does not require states to give a credit for sales tax paid to other states. Does the SSTGB give states any guidance regarding this issue?

Johnson: We don’t have any specific provisions contained in the SSUTA requiring a credit be applied in any particular manner by our member states.  However, all of the Streamlined member states completed a disclosed practice matrix that helps explain the credits they provide for sales and use tax paid to other states.  We believe that it is very important for our member states to disclose what their practices are with respect to providing these types of credits, and through a cooperative effort with the tax administrators, state legislators, businesses, accountants and attorneys, we were able to develop the matrix.

Bloomberg BNA: You mentioned that the Wynne case may have some bearing on the issue of credits for sales tax. Can you expand on that idea?

Johnson: We have not yet discussed how this decision may or may not apply amongst all of our member states.

Continue the discussion on LinkedIn:  What impact does the Wynne decision have beyond personal income tax?

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