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
States should simplify and be reasonable in changing online sales tax requirements after a pivotal U.S. Supreme Court victory. Otherwise, they risk congressional intervention, an e-commerce industry representative told Bloomberg Tax.
States enforcing new deadlines of July 1 and even Oct. 1 in the wake of a decision involving Wayfair, Inc. will “drive a groundswell of demand to go get a moratorium” from Congress, Steve DelBianco, president and CEO of NetChoice, a Washington-based trade association representing e-commerce businesses and online consumers, said July 26.
“I don’t know how my members could reach full compliance on Oct. 1, even for states like South Dakota, let alone all states,” DelBianco told Bloomberg Tax at the July 26 meeting of the Multistate Tax Commission’s Executive Committee in Boston.
DelBianco joined a group of retail advocates at the MTC meeting to ask that states and remote sellers work together on implementing remote sales taxation after the June 21 South Dakota v. Wayfair ruling.
The House Judiciary Committee heard a littany of online seller concerns during a July 24 hearing on the post-Wayfair world of state sales taxation, and four bills are pending to potentially affect states’ authority over online sellers from giant Amazon.com Inc. to those who sell on Etsy, Inc.
The Wayfair ruling —which tossed out Quill Corp. v. North Dakota, the Supreme Court’s 1992 physical presence threshold for when states could tax remote sales—has many states looking to expand their authority over online sales taxation.
Ken Roberts, chairman of the Idaho State Tax Commission and president of the FTA, said much of the work that states have done on remote sales “has been done in a landscape of a Quill world, and that world has changed.”
Roberts said he “respectfully requests” that Congress not take any action that would interfere with a process of states and industry working together on implementation issues, a process that has “great potential,” he said.
“The last thing we need is for Congress to come in and do something that messes it up for all of us,” he said.
The majority in the 5-4 Wayfair ruling suggested strongly that South Dakota’s law would pass constitutional muster, but stopped short of formally doing so.
The court stopped short of formally declaring South Dakota’s law valid in the absence of Quill, and the South Dakota Supreme Court still has to bless the state’s economic nexus model before it can become effective. It’s expected to do so in mid-August. In the wake of the groundbreaking decision, dozens of states that haven’t already done so are mulling whether to copy South Dakota’s law.
Several states have set effective dates of Oct. 1 for remote sellers—which previously didn’t collect and remit taxes because of the Quill physical presence standard—to get a sales tax license and begin complying with changed requirements. Others, including Utah, which passed a South Dakota-style law June 18, have settled on Jan. 1, 2019, while still others have declared July 1, 2018, as the start date. Sellers say they are most worried that states will impose a retroactive liability on them for failure to collect and remit taxes.
Retroactivity, “unreasonable” deadlines, and lack of simplification are among several things that could drive the industry to ask Congress to impose a moratorium on states, DelBianco said. He said states need to establish a “minimum standard for simplification.”
DelBianco joined George Isaacson, a senior partner at Brann & Isaacson LLP in Lewiston, Maine, and Hamilton Davison, president and executive director of the American Catalog Mailers Association (ACMA) in Providence, R.I., in presenting a proposal to the MTC Executive Committee for states and remote sellers to work together on implementating remote sales taxation after Wayfair.
Isaacson, who represented Wayfair in the U.S. Supreme Court case, said he was speaking as counsel for the ACMA and Netchoice, among several groups that have been involved in much of states’ litigation against online sales tax regimes. He presented a list of 20 “suggested simplification measures” for states to take as they move forward.
Isaacson called for states to move quickly. “Time really is of the essence,” he said, suggesting the MTC meet with other organizations that work on state tax legislation and regulation, including the Streamlined Sales Tax Governing Board Inc. (SSTGB) and the Federation of Tax Administrators (FTA), in August.
John Valentine, chair of the MTC Executive Committee, said the commission would engage in talks with the other organizations, but that tax agency leaders would need buy-in from governors and possibly other elected state officials before they could agree with the e-commerce industry on the next steps to take.
Greg Matson, executive director of the MTC, told Bloomberg Tax that an August meeting hasn’t yet been scheduled.
Included on the list of industry priorities are several uniformity policies and concepts that states have debated for years through the MTC, SSTGB, FTA, and the National Conference of State Legislatures, among others. Topping the list is a single tax rate for remote sales—one that is no greater than a weighted average of collective state and local rates.
Other items include no retroactivity, a small business exception, and various uniform definitions and rules.
Given the urgency, Executive Committee member Nancy Prosser, general counsel of the Texas Comptroller of Public Accounts, asked Davison what compliance date seems reasonable for remote sellers.
“My members would love to see something in the first quarter of next year,” Davison said. “When you give me all the clarity of what I need to do, then I can start marching off. If you don’t give that to me until Jan. 15, I can’t get there until sometime in February,” he told Prosser.
States agreed that time is short.
“We gotta do something sooner than later,” Gene Walborn, director of the Department of Revenue in Montana, one of five states without a statewide sales tax. He called the list a “starting point,” but said that “quite frankly, even if we roll up our sleeves, there’s going to be little agreement on a lot of these.”
Walborn said states and the industry could reach agreement on a few items, and it would be helpful “if we can show Congress we’re knocking off the things we can get done.” But for some, he said, “I don’t think you’re going to get there by Jan. 1. There’s just no way.”
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