Seeking: Post-'Wayfair’ Clarity on State Online Sales Taxation

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Tripp Baltz

States, sellers, and tax practitioners are clamoring for clarity now that the dust has settled after the U.S. Supreme Court tossed out its foundational physical-presence standard for online sales tax collection.

For answers, they’re turning to a handful of multistate tax authorities, an alphabet soup of intergovernmental entities—the MTC (Multistate Tax Commission), the NCSL (National Conference of State Legislatures), and the SSTGB (Streamlined Sales Tax Governing Board Inc.) among them—seeking uniformity in sales tax policy going forward in the aftermath of the court’s ruling in South Dakota v. Wayfair South Dakota v. Wayfair , U.S., No. 17-494, 6/22/18 .

Questions focus on how to address marketplace collection, retroactivity, state licensing deadlines, small vendor safe harbors, uniform software service providers, reporting and notice obligations, and other issues. And the hope is that answers will be coming soon.

‘States Acting’

“I appreciate that the MTC has an ordinarily deliberative process,” said Joseph R. Crosby, principal with MultiState Associates, during an MTC teleconference July 6. “But states are already acting, and as legislatures come back in January, they will act whether the MTC or anybody else has work product or not. We need guidance at the times states will be acting.”

The MTC Uniformity Committee teleconference was convened to gather input from state tax administrators, the business community, practitioners, and other stakeholders as to whether there is interest in a potential uniformity project post- Wayfair. By the time the call began, 58 people had phoned in to the meeting, more than double the participants in a typical Uniformity Committee teleconference.

Holly Coon, an Alabama Department of Revenue specialist and chair of the committee, said the MTC—in reacting to Wayfair—doesn’t need to be limited to drafting model rules and laws, but might want to consider alternatives such as suggesting best practices for states to follow.

Building List

Helen Hecht, MTC general counsel, said the group will build a list of top issues to consider when the committee convenes during the MTC’s annual meeting July 23-26 in Boston, as well as identify high-priority issues for the committee to begin addressing before then.

Dan Noble, president of the Streamlined Sales Tax Governing Board’s Executive Committee, has called for an emergency meeting of the board July 19 and 20 in St. Paul in light of the Wayfair ruling. Scott Peterson, vice president of U.S. tax policy and government relations at Avalara, said it would be “helpful” if the MTC would develop some guidance before then for states that don’t have a South Dakota-style statute on economic nexus.

In Wayfair, Justice Anthony Kennedy led a 5-4 majority suggesting 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.

Oct. 1 Target

Several states have laws or rules similar to South Dakota’s, and many of them are telling out-of-state vendors that previously didn’t collect and remit sales taxes to meet an Oct. 1 licensing deadline and begin collecting after that date. The NCSL, by contrast, is recommending states wait until 2019 to begin enforcing their economic nexus laws.

The situation raises the major question as to which states will need legislation to begin such collections and which are free to begin enforcing collection requirements administratively, participants in the MTC call said.

“There are states like Wisconsin that believe they do not need anything, and they have put an October 1 deadline out there to start enforcing,” said Diane L. Yetter of Yetter Tax Consulting. “They feel they don’t need to rely on a legislative session.” North Dakota also announced it will impose an Oct. 1 deadline.

Other Questions

Other issues participants brought to the MTC Uniformity Committee include:

  •  addressing collection and remittance obligations for marketplaces and marketplace facilitators and the implications for marketplace sellers;
  •  ensuring state tax laws embrace principles of the South Dakota law as articulated by Kennedy in the Wayfair ruling: no retroactivity; a small business safe harbor; and streamlined tax structure;
  •  examining whether Wayfair—which focused on sales and use tax collection across state lines—could have ramifications for multistate income tax situations;
  •  implementing registration systems for out-of-state sellers;
  •  pursuing uniformity among certified software providers. The SSTGB is considering how it can offer services and guidance to non-member states;
  •  promoting collaboration and coordination between the various organizations that work on multistate tax issues;
  •  considering whether existing thresholds might have to be adjusted for inflation or geographic differences; and
  •  determining whether local taxing jurisdictions will have collection obligation thresholds that are lower than in states.

With assistance from Christopher Brown in St. Louis.

To contact the reporter on this story: Tripp Baltz in Denver at abaltz@bloomberglaw.com

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

Copyright © 2018 Tax Management Inc. All Rights Reserved.

Request Daily Tax Report: State