Multistate Tax Group Agenda: Who Should Report Online Sales

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By Tripp Baltz

Should online marketplaces such as eBay and Craigslist be required to comply with state notice and reporting requirements placed on remote sellers that don’t collect and remit state sales and use taxes?

A Multistate Tax Commission work group is studying that question and others as it considers changes to the MTC’s proposed model sales and use tax notice and reporting law.

Another issue, for example, is whether reporting requirements—which a growing number of states are adopting or considering—should apply to remote sales of downloaded digital goods and software, or sales of short-term rentals like those provided by Airbnb.

The work group, whose purpose is to adopt a model similar to Colorado’s reporting and notice law, which is set to take effect July 1, identified its list of issues at a May 10 meeting.

Reporting and Notice

Under Colorado’s law, out-of-state sellers that don’t collect and remit sales and use taxes have to notify purchasers at the time of a transaction that tax isn’t being collected and may be due to the state, and to provide an annual report to the state Department of Revenue showing the total dollar amount of a consumer’s purchases along with other information, including shipping and billing addresses.

Covered vendors also must supply an annual report to consumers about their purchases.

The statute, approved by the state General Assembly in 2010 but immediately challenged by online vendors, was found to be constitutional by the U.S. Court of Appeals for the Tenth Circuit in February 2016. The U.S. Supreme Court’s decision not to review an appeal filed by the Data & Marketing Association (formerly the Direct Marketing Association) and a cross-appeal by the state cleared the way for the law to take effect.

In light of those decisions, the MTC’s Uniformity Committee—which had set aside work on its model law while the various legal challenges were pending—decided at its March committee meetings in San Diego to consider the model again.

Online Marketplaces

Phil Horwitz, director of tax policy in the Colorado DOR and chair of the work group, said Colorado had recently considered how its law treats online marketplaces such as eBay, Craiglist, and Amazon, where numerous vendors list products for sale. Amazon collects and remits taxes in Colorado and therefore isn’t governed by the bill.

“It’s not clear the vendor can supply the transactional notice, because they are not in charge of the presentation of the product” when they sell via an online marketplace, he said. Similarly, “the marketplace may not be able to supply the end of the year report to the consumer or the department.”

Work group members agreed it makes sense at the outset in marketplace sales situations that the “transactional” notice is best provided by the marketplace, and the annual reporting should be handled by the vendor. “You’ve made a very convincing case,” Michael Mazerov, senior fellow with the State Fiscal Project of the Center on Budget and Policy Priorities, told Horwitz during the May 10 teleconference.

Other Topics

Horwitz said other issues for the work group to consider include these questions:

  •  Should reporting and notice laws include out-of-state sellers of downloaded digital goods and software? If so, would such laws be an overreach on such sellers without due process nexus?
  •  Where should a seller file reports if it has incomplete or conflicting information about the consumer’s location?
  •  Should the scope of the model law be expanded to include short-term rental properties like those marketed on Airbnb Inc.?

Horwitz also said there is a question about who the reporting entity should be when sales are done by a controlled group of corporations. “Can you have a single reporter, who is it, and can it be anybody?” he said. “My inclination is, it probably doesn’t matter, but we probably don’t want multiple reports from multiple corporations.”

Bills requiring reporting, notice or both have been passed or introduced in at least 10 states this year, according to the National Conference of State Legislatures. The Pennsylvania House May 9 approved and forwarded to the Senate a bill (H.B. 542) requiring out-of-state sellers to notify shoppers of their obligation to pay taxes on sales.

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

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

For More Information

More information on the work group is at http://src.bna.com/oL2.

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