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By Tripp Baltz
So far, six states are considering bills to provide for collection of sales and use taxes on electronic commerce and other remote transactions, with the number likely to rise as high as 20 before the end of 2017.
That was the prediction given by speakers on a discussion panel on remote sales taxation Jan. 14 at the National Conference of State Legislatures’ Task Force on State and Local Taxation in Scottsdale, Ariz.
“So far at least we have six states—Wyoming, Mississippi, Nebraska, Tennessee, Utah, and New Mexico,” said Joe Crosby, principal with MultiState Associates in Washington, D.C. States are beginning to say, ‘We can actually collect these taxes.’ So far this year I have already testified in three states, and that will not be the end of it.”
Max Behlke, director of budget and tax policy for the NCSL in Washington, told Bloomberg BNA the number of states that will consider a bill concerning sales and use tax collection on remote sales in 2017 could be “as high as 20 or more” by the end of the year. “Online sales tax is the number one question I get,” he said. “I get two or three calls a day on this from state legislators.”
Behlke said states are asking about an online sales tax measure passed in 2016 in South Dakota, which has put the state in the middle of a court battle with out-of-state retailers over the U.S. Supreme Court’s 1992 Quill Corp. v. North Dakota decision upholding the physical presence standard for when states may impose sales and use taxes.
States also are inquiring about a regulation that took effect in 2016 in Alabama that has prompted many out-of-state retailers to begin remitting taxes, enabling the state to collect some $70 million in revenue, he said.
“The question states ask is, what are they doing, can we do that? Ho much can we get out of this?” Behlke said. “It could mean tens of billions of dollars for the states.” The NCSL Jan. 15 identified remote sales tax collection authority as its top state-federal priority in 2017.
Crosby said there were 46 bills addressing remote sales tax collection in 16 states in 2016. The 2017 measure in Wyoming, which the state House approved on a third reading Jan. 17, has the support of the state retailers’ association, the state taxpayers association and the state chamber of commerce, he said.
The Wyoming proposal virtually mirrors the South Dakota law—an economic nexus regime that requires remote retailers with annual in-state sales exceeding $100,000 or 200 separate transactions to collect and remit sales tax. South Dakota’s law has come under fire in litigation.
In Quill, the Supreme Court affirmed earlier court rulings establishing that states can only require a seller to collect and remit sales and use taxes if the seller has a physical presence in the state. The nearly 25-year-old decision has been relied upon by the retail industry as exempting them from the obligation to remit taxes when they don’t have nexus, and they have filed challenges to state attempts to force collection as a violation of the commerce clause.
In December 2016, the U.S. Supreme Court refused to take up an appeal of a ruling by the U.S. Court of Appeals for the Tenth Circuit upholding a 2010 Colorado reporting and notice law designed to spur out-of-state retailers to collect and remit sales and use taxes. The court also denied Colorado’s cross-petition seeking to have Quill overturned.
Several states will consider enacting a Colorado-style bill in 2017, in addition to those considering a measure challenging Quill, Crosby said. “A number of states will consider it, if for nothing else because the Supreme Court let the Tenth Circuit decision stand,” he said. However, he said, unlike measures directly challenging Quill, a reporting requirement “doesn’t provide parity at the point of sale” between online retailers and so-called “brick-and-mortar” retailers.
The impact on in-state retailers is another reason states have a policy interest in pursuing ways to collect taxes on remote sales, Behlke said. “They’re losing jobs,” he said, citing recent cuts announced by Sears Holding Corp. and Macy’s Inc. “The Limited just closed every single one of its brick-and-mortar stores.”
Some states may consider a bill challenging Quill in addition to a reporting bill, Behlke said. One such state is Utah, the state Tax Commission told Bloomberg BNA in December. A bill (S.B. 83) sponsored by Utah Sen. Wayne Harper (R), a member of the SALT task force, was sent to state agencies for fiscal analysis in advance of the state’s legislative session, which begins Jan. 23.
During the NCSL discussion, Utah Sen. Curtis Bramble (R), immediate past president of the NCSL, said the measure to challenge Quill will be revenue-neutral and will establish economic nexus for bigger out-of-state retailers. It will have a “fallback” establishing click-through affiliate nexus as well, should the state lose a court challenge to the economic nexus basis.
“If someone wants to sue us, knock yourself out,” Bramble said. “If you win on economic nexus, you’re going to lose on affiliate nexus.” Opponents of the Utah remote sales tax collection bills, including Americans for Prosperity, have wrongly tried to characterize them as tax increases.
South Dakota Sen. Deb Peters (R), president-elect of the NCSL, said retailers are beginning to collect and remit taxes. One of the four companies the state sued after passing its law started remitting and was dropped from the case, she said. Amazon announced Jan. 10 it would start remitting taxes in the state.
“They see it’s not that hard, it’s not that bad,” she said. “They’re actually complying with the law” even though the law is snarled up in court. “It’s not filling a big hole, but the whole point is putting parity at the point of sale.”
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