State of Wayfair: Huddle on High Court Ruling on Hold

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 Ryan Prete

A huddle between many of the state tax world’s biggest players on the policy implications of the U.S. Supreme Court’s pivotal Wayfair ruling has been postponed.

Greg Matson, executive director at the Multistate Tax Commission, told Bloomberg Tax Aug. 6 that the discussion, which will involve the MTC, the Federation of Tax Administrators, the Streamlined Sales and use Tax Governing Board Inc., the National Conference of State Legislatures (NCSL), and the National Governor’s Association, has been postponed from its original Aug. 3 date.

Max Behlke, director of budget and tax for the NCSL, told Bloomberg Tax that a meeting is still in the works to discuss implementation issues following the high court’s decision in South Dakota v. Wayfair—which tossed out Quill Corp. v. North Dakota, the court’s 1992 physical presence threshold for when states could tax remote sales.

The June 21 ruling 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 in mid-August.

Hawaii Not Going Retroactive

Hawaii won’t impose its general excise tax (GET) on sales until after the sales threshold is met, the Department of Taxation told Bloomberg tax in an Aug. 6 email.

“To avoid any constitutional concerns, the Department will NOT retroactively administer Act 41. Accordingly, taxpayers who lacked physical presence in Hawaii prior to July 1, 2018, but who met the $100,000 or 200-transaction threshold in 2017 or 2018, will not be required to remit General Excise Tax for the period from January 1, 2018 to June 30, 2018,” said Deborah Kwan, chief communications officer at the Hawaii DOT.

The Council On State Taxation COST had sent a letter Aug. 2 to Linda Chu Takayama, director of Hawaii’s DOT, saying the department should follow the approach to the GET put forth by South Dakota and analyzed by the Supreme Court. Hawaii should remove all retroactive application from its guidance, according to the Washington, D.C.-based group.

“This avoids any retroactive application of the tax on sellers that likely either did not factor the GET in their sales price or did not separately charge the GET to customers prior to reaching the threshold,” COST officials wrote in the letter. “In Wayfair, the Court specifically recognized South Dakota’s prohibition against retroactive application of its remote seller collection law as one of its features ‘designed to prevent discrimination against or undue burdens upon interstate commerce.’”

COST’s letter of concern came less than a month after Hawaii reversed an earlier plan to retroactively administer its new online sales tax regime. The revised announcement came after a letter from COST strongly arguing against any potential retroactive application in the state.

Little Rock Calls for Special Session

Little Rock, Ark., city officials are calling upon Gov. Asa Hutchinson (R) to consider a special session for remote sales tax legislation.

The city’s Board of Directors will vote Aug. 7 on a resolution encouraging the governor to consider a special legislative session to make changes to state law to facilitate collection of online sales taxes, Little Rock City Attorney Tom Carpenter told Bloomberg Tax Aug. 6.

Bloomberg Tax obtained the resolution following recently disclosed guidance by the state’s Department of Finance and Administration on its website advising remote sellers to start collecting state sales and use tax in the wake of the Wayfair ruling. The current Arkansas threshold for online sales taxation turns on physical presence within the state, according to DFA regulations.

However, “right now the Arkansas use tax definition of a vendor does not really say the extent to which that vendor needs to have a presence in Arkansas one way or another,” Matthew C. Boch, member of Dover Dixon Horne PLLC, previously told Bloomberg Tax.

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