Retailers Needn’t Stress Post-'Wayfair': Tax Software Officials

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By Ryan Prete

Sales tax software compliance officials are telling remote retailers to relax.

“The first thing I tell merchants when they call is to calm down,” David Campbell, CEO of TaxCloud, a tax software company, told Bloomberg Tax. “It’s understandable to be confused—this is definitely a daunting change—but all the necessary tools are already out there, readily available to sellers.”

Campbell’s advice is a result of the U.S. Supreme Court’s June 21 ruling in South Dakota v. Wayfair that threw out its divisive 1992 rule in Quill Corp. v. North Dakota.Quill, which states like the petitioning South Dakota for years have tried to “kill” through lawsuits and regulation, prohibited states from imposing sales tax collection obligations on vendors lacking an in-state physical presence.

Campbell said sellers shouldn’t be overly concerned because no state has been overtly aggressive toward vendors since the ruling. He added that it’s crucial for states to release guidance to assist vendors.

TaxCloud will be ready to handle any new economic nexus model that goes into effect July 1, according to Campbell, who said the company can begin assisting sellers with a new state’s model simply by flipping a switch.

Four states—Connecticut, Hawaii, Kentucky, and Oklahoma—are set to have their economic nexus laws go live July 1.

Many states have provided updates of when they plan to enforce collection obligations and provide guidance to sellers. New Hampshire became the first state without a sales tax to respond to the Wayfair ruling. (Bloomberg Tax provides a roundup below).

The 5-4 majority in Wayfair, led by Justice Anthony Kennedy, suggested strongly that South Dakota’s law would pass constitutional muster; the state’s model imposes the tax collection threshold at 200 separate transactions or $100,000 in in-state sales. But the court stopped short of formally declaring that South Dakota’s law, which dozens of states have mimicked already, was valid in the absence of Quill. The court just made clear that Quill was no longer part of any commerce clause test for when states may impose taxes.

Accordingly, the South Dakota Supreme Court still has to bless the state’s economic nexus model before it can become effective. Still, many project that states will flock to copy South Dakota’s model.

‘Sometime This Fall’

Scott Peterson, vice president of U.S. tax policy and government relations for Avalara, another tax software company, reverberated the need for unflustered sellers.

“Our message to sellers is to take a deep breath, call your accountant, and understand that there’s still plenty of time to register,” Peterson told Bloomberg Tax. “I have people calling me assuming they have to collect nationwide because they do $1 million in total sales, and I tell them to relax, and understand each state’s threshold, because this certainly might not be the case.”

In speaking with a handful of state departments of revenue, Peterson said it’s clear the agencies have sellers in mind.

“The DORs want to give sellers enough time to adjust, so that they aren’t blindsided,” he said. “Many say they expect to implement collection duties on the first of the month sometime this fall.”

A major player in the Wayfair case—Overstock.com Inc.—announced in a June 25 news release that it had “started the process to collect sales tax on purchases made by consumers from the more than 12,000 unique U.S. tax jurisdictions following” the high court ruling.

New State Updates

States have been quick to provide information, including guidance to sellers and collection enforcement schedules, in the days following the Wayfair decision.

  •  In New Hampshire, a state without a sales tax: Gov. Chris Sununu (R) announced June 28 that he will call a special session of the legislature to enact “legislation that will protect our businesses from improper attempts by other states to force our businesses to collect sales and use taxes.”
  •  Sununu said the state “will erect every possible and constitutionally permissible legal and procedural hurdle to prevent other states from forcing our businesses to collect sales and use taxes.”
  •  New Hampshire also responded to the National Conference of State Legislatures’ (NCSL) support of South Dakota by withdrawing from the state group. In a June 28 news release, House Speaker Gene G. Chandler (R) said the state was “frustrated” with the motives of the NCSL.”
  •  “New Hampshire is very proud to have no sales tax. Our retail business community thrives as a result of our no sales tax environment. To ask our retailers to collect taxes for dozens of other states is a huge burden on them, and will likely jeopardize their ability to do business online with out-of-state customers. We are certainly disappointed in the Court’s decision, but we are more frustrated that NCSL has championed legislation in congress to force a remote sales tax, and cheered the recent court decision,” Chandler said.
  •  “Effective today, the New Hampshire House will no longer pay any dues or fees to NCSL or any other organization that supports or promotes a national remote sales tax policy. It’s unconscionable that New Hampshire business will have to participate in fueling the growth of government in other states,” Chandler said.
  •  In South Carolina: Although certain observers say changes to the state’s sales tax provisions were possible in 2019 as a result of Wayfair, they and the state Department of Revenue say that current statutes are sufficient to tax remote sellers and online retailers now.
  •  Bonnie Swingle, a spokeswoman for the state DOR, told Bloomberg Tax June 28 that it is the department’s position that South Carolina sales tax statutes have always been construed to the fullest extent permitted under the U.S. Constitution. “Therefore, because the Supreme Court has held in Wayfair that there is no physical presence requirement under the Constitution, the current sales tax statutes apply to remote sellers and online retailers,” she said.
  •   In Alabama: Guidance is expected July 2-3, according to Joe W. Garrett Jr., deputy commissioner for the Alabama DOR.
  •  In Arizona: “The Arizona Department of Revenue is continuing to analyze the Supreme Court decision and will proceed with any public guidance after it has completed its review of the ruling’s implications for Arizona. No time frame on when the analysis will be completed,” DOR spokesman Ed Greenberg told Bloomberg Tax.
  •   In Louisiana: Kimberly L. Robinson, Secretary of Revenue, told Bloomberg Tax that the state had a special session end on June 24.
  •   “But we were in a special session a few weeks ago, and we enacted a provision of law that mimics South Dakota’s law, and our law was contingent upon the Supreme Court finding South Dakota’s law constitutional,” Robinson said. “Technically, that was the question before the court. They somewhat decided that, but not fully, so we know that Quill is overturned and that South Dakota’s law meets part of the Commerce Clause test.”
  •  Robinson said Louisiana will be looking to the lower court’s remand as a “roadmap.”
  •  “We will make sure that we issue notice about the voluntary compliance piece to let those retailers know they can register and start complying, and we will provide any additional guidance as to how the commission will move forward.”
  •   In Minnesota: Guidance will be published by the DOR within 30 days of the Wayfair decision.
  •   In Mississippi: The DOR is “reviewing the Wayfair ruling by the U.S. Supreme Court to determine the impact of the decision for Mississippi.”
  •   In Nevada: Bill Anderson, executive director of the state’s Department of Taxation, said officials are “actively assessing the potential impacts on taxable sales activity in Nevada, as well as any policy changes that might be necessary for implementation.”
  •   In Rhode Island: The state issued new guidance on registration options.
  •  In Texas: Comptroller Glenn Hegar said early 2019 is a target date for amendments to the state’s online sales tax rules.
  •  “The Comptroller’s office also expects the Texas Legislature to play an important role in addressing key issues when they return in January 2019,” a July 27 news release said. “The agency anticipates that the state and local governments will see tax collections increase, but the amount depends on the implementation and resolution of several significant issues raised by the Supreme Court’s ruling.

Retailer Reaction

Some e-retailers have also reacted to the high court ruling.

  •  A major player in the Wayfair case—Overstock.com Inc.—announced in a June 25 news release that it had “started the process to collect sales tax on purchases made by consumers from the more than 12,000 unique U.S. tax jurisdictions following” the high court ruling.
  •  Shortly after the ruling, e-retailer giant Ebay Inc. released a statement urging “Congress to step in and provide clear tax rules, with a strong small business exemption, to help small businesses take advantage of the Internet to grow and create local jobs.”
  •  “The Court was very clear about the importance of protecting small businesses from unfair burdens,” the company said. “If state tax authorities attempt to subject remote small businesses to audits and lawsuits, there will be increased litigation across the country to protect small business from unfair burdens.”

State Thresholds and Enforcement Dates

Twenty states have enacted economic nexus models, but enforcement dates vary.

  •  Alabama (Jan. 1, 2016), $250,000 in in-state sales
  •   Connecticut (July 1, 2018), 200 transactions and $250,000 in in-state sales
  •   Georgia (Jan. 1, 2019), 200 transactions or $250,000 in in-state sales
  •  Hawaii (July 1, 2018) 200 transactions or $100,000 in in-state sales
  •   Illinois (Oct. 1, 2018) 200 transactions or $100,000 in in-state sales
  •  Indiana (July 1, 2017) 200 transactions or $100,000 in in-state sales
  •  Iowa (Jan. 1, 2019) 200 transactions or $100,000 in in-state sales
  •  Kentucky (July 1, 2018) 200 transactions or $100,000 in in-state sales
  •  Louisiana (contingent on Wayfair ruling) 200 transactions or $100,000 in in-state sales
  •  Maine (Oct. 1, 2017) 200 transactions or $100,000 in in-state sales
  •  Minnesota (contingent on Wayfair ruling) 100 transactions or $100,000 in in-state sales in at least 10 transactions
  •  Mississippi (Dec. 1, 2017) $250,000 in in-state sales
  •  North Dakota (contingent on Wayfair ruling) 200 transactions or $100,000 in in-state sales
  •  Oklahoma (July 1, 2018) $10,000 in in-state sales
  •  Pennsylvania (March 1, 2018) $10,000 in in-state sales
  •  Rhode Island (Aug. 17, 2017) 200 transactions or $100,000 in in-state sales
  •  South Dakota (contingent on state’s Supreme Court approval, following high court Wayfair decision) 200 transactions or $100,000 in in-state sales
  •  Tennessee (Currently on hold due to litigation) $500,000 in in-state sales
  •  Vermont (contingent on Wayfair ruling , July 1, 2017) 200 transactions or $100,000 in in-state sales
  •  Washington (July 1, 2017) $10,000 in in-state sales
  •  Wyoming (July 1, 2017) 200 transactions or $100,000 in in-state sales

With assistance from Andrew M. Ballard in Raleigh, N.C.; Karn Dhingra in Houston; and Aaron Nicodemus in Boston

To contact the reporter on this story: Ryan Prete in Washington at rprete@bloombergtax.com

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

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