State of Wayfair: Lower South Dakota Court Gets Case

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

The Wayfair case is back in court.

The South Dakota Supreme Court Aug. 9 sent the groundbreaking case back to the state Circuit Court, which may now conduct additional legal proceedings. One possibility is that the court will dissolve the injunction it put in place barring South Dakota from enforcing its economic nexus thresholds for remote sellers to collect and remit taxes on transactions.

South Dakota—ironically enough—is prevented from collecting taxes under its law, given the injunction. It’s watching as other states pass laws—some of which are near perfect copycats—enabling them to begin collecting tax on sales as early as July 1.

The June 21 South Dakota v. Wayfair ruling—which tossed out Quill Corp. v. North Dakota, the Supreme 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 court still has to bless the state’s model before it can become effective. No court date has been set, Wade LaRoche, spokesman for the Department of Revenue, told Bloomberg Tax Aug. 9.

Meanwhile, the state’s lawyers continue to negotiate with the companies in the case—Wayfair Inc., Newegg Inc., and Overstock.com Inc.—which could clear the injunction, answer implementation questions, and allow South Dakota to start eyeing new tax revenue.

California Dreamin’ About Marketplaces

Bloomberg Tax has obtained a proposal from California Gov. Jerry Brown’s (D) administration under which online marketplace facilitators like Amazon.com Inc. and eBay Inc. would be required to collect and remit use tax on sales from out-of-state sellers.

The draft legislation would include a $500,000 economic nexus threshold—which would match thresholds in Tennessee, Ohio, and Massachusetts as the highest in place so far—in addition to language requiring marketplace facilitators to collect and remit.

California’s draft proposal could be introduced in the Legislature this month and passed before lawmakers adjourn for the year Aug. 31. It doesn’t include an effective date, but says it wouldn’t apply retroactively.

Arkansas Advancing

Arkansas took a step closer to remote seller legislation Aug. 7 when a task force approved a proposal implementing South Dakota economic nexus thresholds, with no retroactivity.

Adoption of the South Dakota model would yield an estimated $24.4 million annually, according to the proposal summary, which would dedicate all new revenue to reducing taxes.

The task force, which is charged with finding ways to pay for Gov. Asa Hutchinson’s (R) proposed cut to the state’s top marginal tax rate—to 6 percent from 6.9 percent—will have a chance to review the draft “and make any tweaks they see fit” at the upcoming Aug. 22-23 hearings, Matthew C. Boch, member of Dover Dixon Horne PLLC, told Bloomberg Tax.

Streamlined Convening

The Streamlined Sales Tax Governing Board Inc. will meet Aug. 10 to discuss a number of changes in the wake of Wayfair.

The meeting follows the Multistate Tax Commission’s July 23-26 annual meeting in Boston during which Craig Johnson, executive director of the SSTGB, said it was in states’ "best interest” to join the Streamlined Sales and Use Tax Agreement (SSUTA).

SSUTA membership was cited in the Wayfair ruling by Justice Anthony Kennedy as one of three guidelines that would suggest a state’s economic nexus law could pass constitutional muster.

The MTC, SSTGB, and Federation of Tax Administrators are expected to meet with the National Conference of State Legislatures and the National Governor’s Association in the coming days to discuss policy implications of the Wayfair ruling.

The group was scheduled to meet Aug. 3, but the event was postponed, and a new date hasn’t yet been set, according to Greg Matson, executive director at the MTC.

July 1 in Maine

Maine has joined a handful of states telling remote sellers they will have to remit taxes from sales that occurred after July 1, 2018.

The Pine Tree State in 2017 passed a remote seller law with South Dakota-style economic nexus thresholds requiring the collection and remittance of the state’s 5.5 percent sales tax. Maine believes the Wayfair ruling means its law is now in effect, the state said in an Aug. 9 tax alert.

The alert warns remote sellers that if they didn’t register to begin collecting and remitting sales taxes on or after July 1, but meet one or both of the nexus thresholds, they could be on the hook for uncollected or unremitted taxes

It’s all So Confuzzling ...

Confused by the Wayfair ruling? Not sure what to do next? What if you’re a remote seller, and you’re not sure how to get licensed?

The state that started it all, South Dakota, has released a short tutorial on the licensing process. Check out this YouTube site set up by the S.D. Department of Revenue. The department also has a dedicated remote seller webpage.

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