Sales Tax Slice: You Spent How Much on Shoes?! State and Local Governments are Demanding More Transparency Regarding Use Tax Liability

Sales Tax Slice: You Spent How Much on Shoes?! State and Local Governments are Demanding More Transparency Regarding Use Tax Liability

In recent years, states and local regimes have begun to require more transparency in the reporting of taxable transactions in an attempt to capture more use tax liability. In particular, notification and reporting regimes have become an increasingly popular method for states to try to collect use tax liability from their residents. On the local side, some city governments are also getting creative in their attempts to get purchasers to open up about their use tax liability.

In Colorado, for instance, a notification and reporting regime was upheld last year by the Tenth Circuit in Direct Marketing Association v. Brohl requiring sellers that make over $100,000 in sales to give notice to Colorado purchasers that their purchases are taxable and to send reports to the state showing the total amount paid by the purchaser that year for online purchases. The parties involved in Direct Marketing Association v. Brohl settled their claims on Feb. 22, 2017, as reported by Tripp Baltz in Bloomberg BNA’s Daily Tax Report (subscription required); as a result of this settlement, Colorado will not enforce its notification and reporting statutes until July 1, 2017, and will not impose penalties for noncompliance with the law prior to that date. Other states that currently have some type of reporting or notification laws in place include Kentucky, Louisiana, Oklahoma, South Dakota and Vermont.

Several states have advanced bills imposing notification and reporting requirements on out-of-state sellers during the most recent legislative session, perhaps as a result of the Supreme Court declining to hear the Direct Marketing Association’s appeal in December 2016. States with pending notification and reporting requirement bills include Arkansas, Georgia, Kansas, Hawaii, Nebraska and Utah.

Additionally, Alabama is considering a bill that differs from other standard notification and reporting bills. S.B. 86 would allow the Alabama Department of Revenue to adopt regulations that require sellers to report retail sales made to Alabama purchasers and to provide customer notifications that sales tax is due when a seller does not collect tax, according to Chris Marr in Bloomberg BNA’s Weekly State Tax Report (subscription required).

Pennsylvania is also considering a bill that varies from other notification and reporting regimes. H.B. 542 requires notification to consumers that they may owe use tax but does not require sellers to report the total amount of a consumer’s purchases in a year to the state.

While reporting and notification requirements may have been intended to coerce retailers to collect and remit taxes even in states where they do not have a physical presence, some retailers have decided to comply with the notification and reporting requirements instead of collecting and remitting the taxes, as reported by Bloomberg BNA’s Tripp Baltz.

All these notification and reporting regimes may lead some online shoppers to wonder about the privacy of their purchases. However, consumers may be relieved to know that these rules only require sellers to report the total dollar amount of sales made to each purchaser and not to enumerate the items sold. That being said, one local government is starting to require prominent purchasers to publicly pledge to pay use tax on their online purchases. The City Council of Holladay, Utah, recently unanimously approved a resolution whereby council members will take a pledge to report and pay use taxes on their purchases, according to The Salt Lake Tribune.

Whether these new notification and reporting requirements will be found constitutional and whether they will compel sellers to collect and remit taxes is an open question.  However, it seems certain that tax professionals will be watching these developments closely as they unfold.

Continue the discussion on LinkedIn: Should states require sellers to make disclosures about taxpayers’ purchases?


For more information about state tax issues, sign up for a  freetrial on Bloomberg BNA’s Premier State Tax Library.

By Emilie Burnette