Sales Tax Slice: School Funding in a Post-Wayfair World

As the first set of deadlines imposing remote seller tax collection draws near, lawmakers are offering competing visions for how revenue gains should be distributed. Education advocates among them are hoping earnings will be used to relieve schools facing budgetary crises.

Michigan, whose Treasury Department announced its tax imposition via administrative requirement earlier this month, is projecting a $200 million windfall. According the Institute on Taxation and Economic Policy, the governor has proposed dedicating this entire sum to infrastructure improvement. However, the state’s current distribution formula allots 72.8 percent of sales tax collections to its school aid fund. Revenue allocations is ultimately at the discretion of the state legislature, which sets them squarely in this debate.

In contrast, Virginia has yet to issue specific guidance on its post-Wayfair intentions. According to an issue brief released by the state’s Division of Legislative Services (DLS), next steps must be determined by the state legislature, which is not due in session until January. Nonetheless, a bi-partisan effort to reserve any resulting funds for educational purposes has already emerged. Competing with the cause, though, is a 2013 law that pledged nearly 98 percent of revenue generated from such a bill to the state’s transportation fund. To this end, the DLS issue brief  pointed out that the 2013 bill was drafted “with specific reference to the federal government[] enacting legislation,” thereby eliminating the possibility of the pledge being triggered by judicial decision.

Iowa has taken a markedly different approach in its quest to raise education funds. The state has not signaled any plans to rely on revenue from its remote seller provision, which is slated to take effect on Jan. 1, 2019. Instead, legislators are seeking to extend Iowa’s temporary $0.01 state-wide sales tax increase next session. Instituted in 2008, the increase has served the dual purpose of servicing school infrastructure while reducing dependence on property taxes, and all revenue generated from the tax flow directly into the state’s education fund.

These examples make it clear that the U.S. Supreme Court’s Wayfair decision carries implications that extend far beyond nexus. Whether education will in fact benefit from state attempts to capture more revenue, however, is not so clear.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: How would you like to see your state spend new revenue resulting from the elimination of Quill’s physical presence standard?

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