State of Wayfair: Massachusetts Looking Back (CORRECTED)

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

States with laws whose effective dates pre-date the landmark Wayfair ruling affecting online sales taxation are making clear that what they are doing isn’t retroactive enforcement, as some online retail groups have alleged.

Massachusetts, Rhode Island, and Hawaii all are saying that they aren’t pursuing retroactive enforcement of their collect-and-remit tax requirement on remote sellers in the wake of the U.S. Supreme Court ruling in South Dakota v. Wayfair.

The Massachusetts “cookie nexus” regulation that was promulgated on Sept. 22, 2017, and applies to vendors making internet sales in Massachusetts was prospective as of its effective date, Oct. 1, 2017. The state didn’t impose collection obligations before the law’s effective date, and the state therefore emphasized to Bloomberg Tax that it isn’t applying its regulation retroactively, though a retail group suing over the law in Virginia court is now making those allegations. Prompted by inquiries from taxpayers, the Massachusetts Department of Revenue issued a technical information release (TIR) this week, which stated that the standards for sales and use tax collection by remote sellers that were announced in the 2017 regulation continue to apply and aren’t affected by the Wayfair decision.

Many states have settled on collection start dates of Oct. 1 into the new year, but unlike Massachusetts and Rhode Island, those laws either are newly enacted or were contingent on the Wayfair decision invalidating the Quill physical presence rule for when states can tax online sales.

Rhode Island’s law requiring out-of-state vendors to either collect and remit or notify buyers took effect Aug. 17, 2017—well before the June 21 Wayfair decision. But it is an elective regime, requiring affected retailers either to (1) register and collect and remit or (2) to comply with notice requirements. The state has therefore emphasized to Bloomberg Tax that its law isn’t imposing retroactive tax liability.

Retail groups have alleged that all three states, among others, are traipsing on the line of unconstitutional retroactivity, urging Congress to get involved and delay state collection efforts. But no state has yet said they were actually pursuing retroactive enforcement. At one point Hawaii said it would go retroactive, but then changed its stance.

‘Cookie Nexus’

The Massachusetts Department of Revenue issued Technical Information Release 18-8 on Sept. 17 stating the department will go with the date its “cookie nexus” regulation, 830 CMR 64H.1.7, took effect. And Massachusetts will also keep its nexus threshold of $500,000 and 100 separate transactions, which was also outlined in the regulation.

The 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 court didn’t rule on the validity of South Dakota’s law in the absence of Quill. South Dakota recently passed a law lifting a legislatively enacted injunction barring the state from enforcing its law, and a state circuit court still has to act on the injunction covering the three companies in the case—Wayfair Inc., Newegg Inc., and Overstock.com Inc.

Meanwhile, dozens of states are passing versions of South Dakota’s law or enforcing existing nexus laws and rules they already have on the books.

New Reporting Requirements?

Dramatic and possibly traumatic.

That’s an assessment of the possible impact on small businesses if new financial reporting requirements are triggered by the Wayfair decision, according to James J. Newhard, a CPA in Paoli, Pa.

Newhard, in a recent article on the Pennsylvania Institute of Certified Public Accountants’ website, said the decision could trigger the requirements for businesses that follow generally accepted accounting principles (GAAP). Accountants may need to modify their reporting under Accounting Standards Codification (ASC) 450, 740, and 606, he said.

“The implications are dramatic, and possibly even traumatic for many small businesses,” Newhard wrote in his article. “Taxes are a significant issue; now add to that what may be needed to reflect accurate financial reporting.”

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