State of Wayfair: Illinois ‘Amorphous,’ Attempting to Streamline

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By Tripp Baltz

Illinois is moving confidently toward an Oct. 1 start date for remote sellers to collect tax, senior revenue officials said, even though the state is operating beyond the umbrella of the streamlined sales tax process.

Connie Beard, director of the Illinois Department of Revenue, acknowledged Sept. 20 that her state is often viewed as one of the most “amorphous” states with regard to its remote sellers’ sales and use tax regime.

At the same time, Beard said Illinois had made great strides toward simplification and clarity, issuing a set of user-friendly emergency rules and a detailed “frequently asked questions” document. Together, the documents explain Illinois’ approach to collections in the aftermath of the U.S. Supreme Court’s June 21 South Dakota v. Wayfair ruling—which canned Quill Corp. v. North Dakota, the Supreme Court’s 1992 physical presence threshold for when states could tax remote sales. Illinois’ approach reflects features of South Dakota’s law, including the latter state’s economic nexus thresholds of $100,000 or 200 transactions a year.

Not Likely to Join

Beard said Illinois wouldn’t likely join the Streamlined Sales and Use Tax Agreement (SSUTA), but has recently published a 19-page “Remote Seller Use Tax Matrix,” which answers questions about the tax treatment of hundreds of products. In addition, the department holds monthly meetings with other non-agreement states, including California, New York, Texas, Pennsylvania, and Florida.

“We are working very hard as a group to try and raise issues, address them, and be as consistent as possible,” she said.

Mark Dyckman, general counsel for the department, said he doesn’t believe Illinois runs any risks by declining to join Streamlined. The Supreme Court’s comments on South Dakota’s adoption of the SSUTA were in dicta, or nonbinding language, Dykman said, suggesting formal participation isn’t necessary to comply with the legal standards established under Wayfair.

‘A Real Stretch’

Any challenge to Illinois’ new tax regime, particularly after the publication of the tax matrix, would be “a real stretch,” he said.

Many states are looking to expand their ability to require remote sellers to collect and remit sales and use taxes following the groundbreaking Wayfair ruling. In addition to tossing Quill, the majority in the 5-4 ruling suggested strongly that South Dakota’s economic nexus law would pass constitutional muster: South Dakota set thresholds of $100,000 in annual sales or 200 in annual transactions. Remote sellers above those thresholds must collect and remit taxes to the state.

The court didn’t rule on the validity of South Dakota’s law in the absence of Quill, but the ruling has spurred dozens of states to pass versions of South Dakota’s law or enforce their existing nexus laws and rules.

State Groups Will Meet in St. Louis

After over a month of postponements, a group of many of the state tax world’s biggest players is set to meet Oct. 4 to discuss the policy implications of Wayfair.

Greg Matson, executive director at the Multistate Tax Commission, relayed the details to Bloomberg Tax late Sept. 21.

“The meeting,” as Matson called it, will happen during the Streamlined Sales Tax Governing Board Inc.'s (SSTGB) annual session, which runs from Oct. 2-4 in St. Louis. The meeting—which is being spearheaded by the National Conference of State Legislatures—is reserved for “interested participants from industry and the states,” according to Matson.

Matson told Bloomberg Tax in an email that he anticipates having a few legislators from the SSTGB attend, along with National Governor’s Association staff, MTC staff, Federation of Tax Administrators staff, and possibly other state participants.

The state group meeting will follow up on dialogue from a MTC Executive Committee meeting that occurred in Boston in late July. During the July meeting, post-Wayfair simplification measures were passed along to state groups by George Isaacson, a senior partner at Brann & Isaacson LLP in Lewiston, Maine, who represented e-retailers before the high court in Wayfair; Steve DelBianco, president and CEO of NetChoice, a Washington-based trade association representing e-commerce businesses and online consumers; and Hamilton Davison, president and executive director of the American Catalog Mailers Association in Providence, R.I.

DelBianco and Isaacson both previously told Bloomberg Tax they are waiting to hear from the MTC before finalizing next moves on behalf of the e-retail industry.

Streamlining New Mexico

To join or not to join the SSUTA? That is the question New Mexico legislators are pondering.

Ways to streamline the state’s system of sales and use taxes was one of the questions considered during an informational presentation before an interim legislative tax policy committee in Santa Fe Sept. 21.

The presentation, given by Helen Hecht, general counsel of the MTC, and Richard Cram, director of the MTC’s National Nexus Program, covered the pros and cons of the agreement as New Mexico weighs how to move forward with tax collection on remote sales.

New Mexico, for example, should look at whether to stay a state that taxes based on origin, or transition to a destination-based tax, Hecht said.

Sourcing issues bring up discrimination concerns states have to sift through, Cram said. States also have to consider how local taxes play into that system, he said, adding that New Mexico could use the Wayfair decision to make changes that benefit local governments. Several legislators asked how sourcing changes would apply to New Mexico’s tax on services.

Even if New Mexico doesn’t join the agreement, it could implement some of its provisions, Jim O’Neill, consultant for the New Mexico Municipal League, told lawmakers. Business are familiar with how to operate in the two dozen member states, he said. “There are reasons to look like a Streamlined state,” O’Neill said.

‘Bit of a Stretch’ in Nebraska

Nebraska lawmakers could have a South Dakota-style remote sales tax bill waiting for them on their desks when they return in January for the 2019 legislative session.

Sen. John McCollister (R) told Bloomberg Tax he has begun drafting a bill with South Dakota-style thresholds— covering remote vendors with at least $100,000 in sales in Nebraska or at least 200 transactions per year. If remote sales taxation moves forward in Nebraska, state revenue could be boosted by as much as $40 million, according to estimates from the DOR.

McCollister said he believes the bill is needed despite recent assurances from the state DOR that the state can require some remote sellers to collect and remit the tax under the current tax code.

“I think what the Department of Revenue has done with its recent guidance is a bit of a stretch,” he said. “Just about everyone I’ve talked to on this matter agrees that we need to makes some changes to our current laws to make sure we can do this.”

The Legislature considered but took no final action on two bills during the 2018 session, one introduced by McCollister that would have given the state clear authority to require remote sellers to collect the tax.

McCollister also tried but failed in an effort to force a special session this summer on the issue. The body’s inaction means that the state “will not be able to collect tax on remote sales during the holiday season, the most lucrative time of the year,” he said.

The lawmaker’s bill also likely will address the issue of marketplace providers such as Inc., Etsy Inc., and eBay Inc., which handle marketing, payment processing, and delivery for third-party sellers. The bill would clarify that such providers would have the obligation to collect and remit on behalf of third-party sellers.

McCollister said he expects little opposition to the bill. “There was some hesitation last session because we were still waiting on the Supreme Court to act, but there wasn’t much opposition to the idea in itself,” he said. “Now that the court has acted, I think the Legislature is ready to go.”

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