Online Taxes, Partnership Audits on Multistate Group Agenda

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By Tripp Baltz

States’ efforts to compel collection of taxes on e-commerce and other remote sales—especially from marketplace providers such as Amazon.com Inc., eBay Inc. and Etsy, Inc.—will be a prime focus of a task force of state legislators this week in Jackson Hole, Wyo.

The National Conference of State Legislatures’ Executive Committee Task Force on State and Local Taxation also will discuss short-term lodging taxation on platforms such as Airbnb Inc., taxation of digital goods, and a proposal for model uniform legislation to assist reporting federal tax adjustments to the states in response to the new federal partnership audit regime.

The June 15 and 16 meeting comes after many state legislatures have adjourned for the year. Almost half the states this year mulled legislation concerning taxation of remote sales—including measures establishing economic or affiliate nexus for out-of-state vendors and legislation imposing notice and reporting and obligations on noncollecting sellers.

Minnesota, Massachusetts

State lawmakers have been closely watching developments in two states, Max Behlke, director of budget and tax for the NCSL, told Bloomberg BNA June 9:

  •  Minnesota, which May 30 became the first state to enact a law imposing tax collection duties on e-commerce marketplace providers, and
  •  Massachusetts, where the Department of Revenue has been sued over a novel approach to defining the taxaibility of remote sellers, saying cookies on a consumer’s computer or phone, or apps on a smartphone, establish an in-state physical presence

Remote sellers often cite the U.S Supreme Court’s 1992 decision in Quill Corp. v. North Dakota as exempting them from the requirement to collect and remit state sales and use taxes. In that ruling, the court held that a state may not compel tax collection by vendors unless they have a physical presence in the state.

Recent state legislative attempts to establish economic nexus—triggered when an out-of-state seller meets an annual sales threshold in a state market—are direct challenges to the Quill standard. Online sellers have sued North Dakota and other states for passing laws challenging Quill.

Federal Solution

Behlke said the task force update on remote sales, scheduled for June 15, will reference that states generally still support a congressional solution to the difficulties associated with compelling out-of-state vendors to collect and remit sales and use taxes. Three bills have been introduced in Congress this session, though there has been no action on any of them.

But even without a federal solution, states are moving forward anyway, he said. “Having a federal framework is in everybody’s best interest, but our members are not exactly beating down the door to enact federal bills.”

In addition to the Massachusetts measure, economic nexus bills were approved in Indiana, North Dakota, Tennessee, and Wyoming, and are still pending in Kansas, Mississippi, Nebraska, and Washington, according to NCSL data. Affiliate nexus bills—which impose tax collection and remittance requirements on remote vendors with commission or other contractual relationships with state residents—were considered but defeated in four states.

Reporting, Notice

Reporting and notice requirements were approved in Alabama, but defeated in five states this session. Such bills are often patterned after a 2010 bill approved in Colorado that requires noncollecting retailers to report sales information to the state and provide notice to consumers that taxes may be due on their purchases. The Colorado law was upheld as constitutional in February 2016 by the U.S. Court of Appeals for the Tenth Circuit in DMA v. Brohl.

“When states take a look at what other states are doing and how much they are collecting, and then when they see courts are saying these laws are legal, all of a sudden something like a reporting bill becomes a lot more palatable,” Behlke said.

The update on uniformity model legislation regarding partnership audits will come from the Council On State Taxation, the Tax Executives Institute, the American Bar Association Committee on State and Local Taxation, the Institute for Professionals in Taxation, and the American Institute of CPAs. The session will summarize the details of the model, which the groups have been developing to address state tax reporting requirements when an amended federal return has been filed, as well as when a change is made after an IRS audit adjustment.

Liz Malm of MultiState Associates will lead the session on short-term lodging taxation, while Ellen Berenholz of Comcast, Deborah Bierbaum of AT&T, and Stacey Sprinkle of Verizon will participate in a discussion on taxation of digital goods. Sessions on federal tax reform, broadening state tax bases, and state sales tax administration are also on the agenda.

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

The agenda for the NCSL SALT task force meeting is at http://www.ncsl.org/documents/taskforces/Jackson_Hole_SALT_Agenda.pdf

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