State Group Advises Lengthy Pause Before Collecting Online Sales Tax

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By Ryan Prete

A leading states’ rights advocacy group is recommending states wait until 2019 to implement economic nexus laws for sales tax collection.

“States should ensure that they are fully prepared” before beginning to enforce their sales tax laws on remote sellers” and should consider waiting until Jan. 1, 2019, “to begin sales tax collection requirements on remote sellers,” the National Conference of State Legislatures (NCSL) said in a list of considerations.

Economic nexus models impose sales tax collection duties on retailers that rise above a specified sales threshold.

The NCSL’s list was released just days after the U.S. Supreme Court in South Dakota v. Wayfair threw out its divisive 1992 ruling in Quill Corp. v. North Dakota.Quill, which states like the petitioning South Dakota for years have tried to strike through lawsuits and regulation, prohibited states from imposing sales tax collection obligations on vendors lacking an in-state physical presence.

The June 29 recommendations also came just two days before July 1, when Hawaii, Oklahoma, and Kentucky were set to have economic nexus models take effect.

Officials from the three states didn’t immediately respond to requests for comment.

Overwhelmed Staff, Confused Vendors

Max Behlke, director of budget and tax for the NCSL, told Bloomberg Tax that states shouldn’t jump at the first chance to implement economic nexus laws.

“Waiting even 30 to 60 days before implementing instead of rushing into enactment will give a state’s department of revenue and vendors selling into the state time to adjust and prepare,” Behlke said.

Belke said he is concerned that states that hurry to implement economic nexus models could find revenue staff overwhelmed and could face a flood of inquires from confused vendors. He also said he’s talked to two of three states that had laws take effect July 1, stating that they “Didn’t seem ready to implement their laws.”

Practitioners expect many states will copy the economic nexus model championed by South Dakota.

The majority in Wayfair 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.

Other ‘Considerations’ for States

The NCSL also recommended that states issue guidance to businesses setting forth dates when vendors can be expected to begin collecting and remitting sales tax.

“In issuing such guidance, States should provide as much advance notice as practicable and consider requiring registration and collection” by the first day of a calendar quarter, the NCSL wrote.

As of July 2, Alabama, Arizona, Louisiana, Minnesota, Mississippi, Nevada, South Carolina, Rhode Island, and Texas had released or planned to soon release guidance to sellers.

The NCSL also said states should join the Streamlined Sales and Use Tax Agreement (SSUTA)—in which sellers collect tax voluntarily and remit it to the 24 state participants, which cover the filing costs and other fees—and that they should avoid pursuing retroactive back taxes, two aspects of South Dakota’s regime noted by Justice Anthony Kennedy, who wrote the Wayfair opinion, in suggesting the law may pass constitutional muster.

During the NCSL Task Force on State and Local Taxation meeting in Lake Tahoe, Nev., e-retailers urged states to not implement changes during the “holiday season,” when they’re short on resources and staff.

New Hampshire Strikes Back

Not every state is content with the Wayfair ruling.

Lawmakers in New Hampshire, one of four states without a sales tax, is creating a joint legislative task force to review potential legislation dealing with implications of the Wayfair decision.

“I’m very proud of the team of legislators we’ve assembled, all of whom bring a wealth of expertise on policy areas relative to this court decision. We are confident that their work over the coming weeks, reviewing legislation and hearing from stakeholders, will produce a recommendation on legislation that the House and Senate can swiftly on, should a special session be approved by the governor and executive council,” said Speaker Gene Chandler (R) in a July 2 press release emailed to Bloomberg Tax.

Chandler said that New Hampshire’s community thrives because of the state’s absent sales tax.

“To ask our retailers to collect taxes for thousands of other jurisdictions would be a huge burden on them, and we want to identify ways to protect and defend them from the implications of this court decision,” he said.

The announced plans to create a task force came days after Gov. Chris Sununu (R) announced June 28 that he would call the legislature into a special session 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, Chandler said the state was “frustrated” with the motives of the NCSL.

State Implementation Dates

Most states with South Dakota “copycat” laws are either moving ahead or already consider them to be in place. Alongside Hawaii, Oklahoma, and Kentucky, Connecticut and Illinois are also set to have economic nexus laws take effect before 2019.

Those that were contingent on Wayfair will have to wait for the South Dakota Supreme Court to issue an opinion on remand, which is expected in August. Below are specifics of those regimes, including effective dates:

  •  Alabama (Jan. 1, 2016), $250,000 in in-state sales
  •  Connecticut (Dec. 1, 2018), 200 transactions or $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 Supreme Court’s 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 Brenna Goth in Phoenix

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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