State of Wayfair: Florida Argues for Sales Tax Retroactivity

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

Retroactivity is among the issues keeping remote sellers up at night ever since the U.S. Supreme Court’s landmark sales tax decision involving Wayfair, Inc.

The fear is that states, looking to capitalize on a June 21 opinion that removed a major obstacle to when they can tax online sales, will impose sales tax collect-and-remit obligations on out-of-state vendors before the time a state’s new or change law took effect.

How will sellers come up with the money?

While many states are avoiding the retroactivity issue and issuing statements intended to assuage those fears, Florida is taking a different tack.

The Florida attorney general recently asserted that state attorneys can apply the result in South Dakota v. Wayfair Inc. retroactively to defend against refund claims or otherwise win litigation challenging taxes assessed in prior years.

The Supreme Court’s June 21 Wayfair ruling—which tossed out Quill Corp. v. North Dakota, the court’s 1992 physical presence threshold for when states could tax remote sales—has many states looking to expand their authority over online sales taxation. The majority in the 5-4 ruling suggested strongly that South Dakota’s law would pass constitutional muster; the statute imposes a tax collection threshold at 200 transactions or $100,000 in in-state sales.

The court stopped short of formally declaring South Dakota’s law valid in the absence of Quill, and the South Dakota Supreme Court still has to bless the state’s economic nexus model before it can become effective. It’s expected to do so very soon, if the state doesn’t reach a settlement with companies in the case—Wayfair, Newegg Inc., and Overstock.com Inc.—first.

In the wake of the groundbreaking decision, dozens of states that haven’t already done so are mulling whether to copy South Dakota’s law.

In Florida, “Wayfair controls the outcome of this matter, and there is no reason that case should not be applied retrospectively as well as prospectively,” according to an Aug. 9 state court filing signed by Attorney General Pamela Bondi (R) and a senior assistant attorney general, William H. Stafford III.

The filing comes in a case involving a refund of tobacco excise taxes, and in which the tobacco distributor is arguing it never had a physical presence in the state.

Where Oh Where to Pay?

Remote sellers want to know: Can I choose the states where I will collect and remit sales taxes, post-Wayfair?

The Streamlined Sales Tax Governing Board (SSTGB) will tackle that question, among others, during a teleconference meeting scheduled for Sept. 10. It will consider an amendment proposed by Wisconsin and Wyoming to the Streamlined Sales and Use Tax Agreement (SSUTA) to allow sellers to select in which states they want to register by using the agreement’s central registration system.

The proposal speaks to the fundamental purpose of the SSUTA, which is to simplify and modernize the sales and use tax administration systems in member states to reduce the burden of tax compliance on remote sellers, according to the proposed amendment.

The Wayfair majority, authored by retiring Justice Anthony Kennedy, cited membership in the SSUTA as one of three factors that could help a state’s economic nexus law to pass constitutional muster.

The SSTGB will also discuss an approved recommendation to allow nonmember states to use its Central Registration System, which allows sellers to register to collect sales tax in all 24 member states at once.

Michigan’s Glass Nearly Half-Full

On Aug. 13 the Michigan Treasury Department “re-announced” its Aug. 1 guidance to adopt South Dakota’s economic nexus standard and require remote sellers to remit sales tax “after Sept. 30, 2018.” The state also released new projections for revenue, showing that it expects to reap a substantial amount.

The state estimates that Michigan will see revenue increase by $203 million in fiscal year 2019, $236 million in 2020, and $248 million in 2021.

Michigan had previously projected that if all remote sellers into Michigan were to collect and remit the state’s 6 percent sales tax, the state would see revenue increase by $468 million annually. That means Michigan expects to collect about 43 percent of potential revenue.

“This is an important step forward in the fair administration of our tax system,” Michigan Treasurer Nick Khouri said in an Aug. 13 statement.

Louisiana: Copy South Dakota

Louisiana’s sales tax collection regime for remote sellers also will mimic South Dakota’s, Kimberly Robinson, the Pelican State’s revenue secretary told Bloomberg Tax.

The Louisiana Sales and Use Tax Commission for Remote Sellers met in Baton Rouge on Aug. 9 to issue its official guidance to remote vendors.

The commission decided the state won’t officially adopt the Streamlined Sales and Use Tax Agreement, Robinson said. The commission also decided the state won’t retroactively collect sales taxes from remote vendors.

Louisiana plans to start collecting sales taxes from remote vendors starting Jan. 1, 2019.

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