No Online Sales Tax Collection Until States Simplify: E-Retailers

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Tripp Baltz

Membership in an agreement designed to make it easier for companies to remit sales and use taxes to other states should be a pre-condition of states’ ability to require the collection of such taxes, representatives of the e-commerce industry said.

George Issacson of Brann & Isaacson, counsel for the companies in the U.S Supreme Court’s ruling in South Dakota v. Wayfair, and Steve DelBianco of NetChoice, a trade organization of e-commerce companies that has backed many lawsuits like the one in Wayfair, urged for the mandate Oct. 4. That was during a meeting of the Streamlined Sales Tax Governing Board, which oversees the 24-member Streamlined Sales and Use Tax Agreement (SSUTA) designed to ease the administration of remote sales tax collection.

But the Wayfair ruling didn’t require states to be members of the agreement, board members responded, expressing reservations about turning to Congress yet again to help resolve issues about remote sales tax collection in the wake of the U.S. top court ruling—which states had been pushing for since the 1990s.

Back to Congress?

“I don’t know if you’ll ever get this group to agree to go back to Congress again,” said Diane Hardt, administrator of the division of income, sales, and excise tax in the Wisconsin Department of Revenue. The Main Street Fairness Act of 2011 would have incorporated the SSUTA, but Congress failed to act on it along with several other measures over the past 20 years addressing the authority of states to collect sales and use taxes.

“I don’t know whether Congress is the right away to go,” said Bruce Johnson of Taxometry, a former governing board member and chair of the Utah State Tax Commission.

The June 21 Wayfair ruling tossed out Quill Corp. v. North Dakota, the Supreme Court’s 1992 physical presence threshold for when states could tax remote sales, and spurred many states to pass or enforce existing laws similar to the South Dakota law that was at heart of the decision. While the majority in the 5-4 ruling didn’t rule directly on the validity of South Dakota’s law, it suggested the law—which requires remote sellers to collect sales and use tax if they have more than $100,000 in in-state sale or 200 separate transactions—would pass constitutional muster.

‘The Only Way’

DelBianco said during the Oct. 4 meeting that if the governing board would welcome a congressional mandate of the Streamlined agreement, he would lobby for the inclusion of such language in Rep. Jim Sensenbrenner’s (R-Wis.) Online Sales Simplicity and Small Business Relief Act (H.R. 6824), and work during the lame-duck session to get the bill passed before any “chaos” in the political landscape “puts at risk the gains you’ve made.”

Sensenbrenner told Bloomberg Tax Sept. 20 that he is “very confident” that the bill, which is one of several pending in Congress that would affect states’ authority to tax online sales, will be considered in the House before the end of the year. If he’s right, it would be the first time such a bill would receive consideration in either chamber since 2013.

“If Streamlined becomes the only way, states have a tremendous dollar incentive to get on board,” DelBianco said. It would be a “major” accomplishment for simplification if Congress would pass an act “that codified the SSUTA and made it the only way a state could reach beyond its borders” to impose tax collect-and-remit requirements, he said.

However, the idea that federal legislation would include a requirement that states adopt the SSUTA “in order to impose tax on remote sellers” rankled some board members.

“How can we read that in any other way other than you would like to have the Streamlined Governing Board overturn the basic premise and tenet of Wayfair, which is that we do have jurisdiction over remote sales?” said Oklahoma Tax Commissioner Clark Jolley. “It’s shifting the default of what the Supreme Court has said, which we have been fighting for 20 years to get to.”

Guidance Included

The Wayfair opinion included “dicta,” or guidance, saying South Dakota’s law has several elements that prevent it from running afoul of the commerce clause: (1) it has a small business exemption, meaning the collect-and-remit obligation is triggered only when a vendor exceeds a certain threshold; (2) it doesn’t apply retroactively; and (3) South Dakota is a member of the SSUTA.

Post-Wayfair, “our members feel we’re in a very good position. We have physical presence removed. We have the dicta language about Streamlined,” Craig Johnson, executive director of the board, said during the Oct. 4 meeting. “We’re in a very good spot.”

He said that although the board wants more of the 46 sales tax states to sign on to the agreement, “we don’t want to force states to join.”

More Simplification

Isaacson and DelBianco also presented a list of suggested simplification measures to the board that, in many cases, amplify or go beyond the SSUTA. They first introduced the 20 measures to the Multistate Tax Commission’s Executive Committee during the MTC’s annual meeting in July in Boston. Representatives of the MTC, the SSTGB, the Federation of Tax Administrators, and the National Governors’ Association held a separate meeting on the measures Oct. 4.

The list includes proposals for uniform definitions, singular returns and electronic remittance forms, and vendor discounts reflecting the true costs of sales tax collection and remittance. But topping the list was a proposal for a single tax rate for remote sales—no greater than a weighted average of state and local rates—a sort of “Holy Grail” that has proven elusive to the state tax administrators, tax practitioners and private interests that have worked on the SSUTA for so long.

“I do think you need to realize how much history has gone into each one of the things here,” Hardt said. “We’ve spent days, months, years on some of these things. I don’t think we’ll ever get more states to join if we do more on that first one.”

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