Sales Tax Slice: Remote Seller Nexus—Should States or Congress “Make the Sausage?”

On Thursday, the Multistate Tax Commission talked with stakeholders about a draft of their model statute for remote seller sales and use tax nexus. By the end of the call the group’s current model statute draft was still on the table, but the MTC decided that it would also try to massage California’s legislation and regulations—Ca. Rev. and Tax. Code § 6203 and Cal. Code Regs. tit. 18, § 1684—to see if that language worked better.

“It’s always like making sausage, but I think we’re making progress,” said Roxanne Bland, counsel for the MTC.  Bland said that as states make suggestions, the MTC has been trying to make sure that the model statute addresses what it should address, but not capture transactions or parties that it should not.

For example, someone raised the question of whether the model statute should extend to services, Bland said. It probably could, but she said the MTC will likely stick with language that includes tangible personal property and not services.

“By all means, modify the statute to fit your criteria,” Bland said, about how states tweak the model statute to meet their needs. “These things aren’t written in stone.”

The ultimate effect of remote seller sales and use tax nexus legislation is that remote sellers would have an obligation to collect tax. But it’s more complicated from a legal standpoint, said Fred Nicely, senior tax counsel at COST. The statutory language used to impose sales tax is not the same as the language to impose use tax.

They are grappling with very complicated issues, Nicely said. And at the same time, he thinks the real answer for remote seller nexus should come through federal legislation.

“This [model statute] is probably not the best way for states to handle their resources right now,” Nicely said. He said states should focus their resources on a federal remote sales and use tax nexus provision.

The probability of such a thing passing this year stands at about 50-50, Nicely said, but momentum has been building. One of his biggest concerns has to do with how the legislation would be enforced.  Uniformity is also a big key–such as uniform filing requirements and uniform exemption certificates.

While Congress takes its time figuring out if or how it will act, the MTC’s model statute discussions will continue next week. Catch up on the proposals here.

Continue the discussion on Bloomberg BNA’s State Tax group: Do you think a model statute or federal legislation would be more effective in determining remote seller sales and use tax nexus?

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