State of Wayfair: Some Retail Groups Still Believe in Congress

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

Some parties aren’t giving up on congressional action on online sales taxation.

The American Catalog Mailers Association (ACMA), in a letter to congressional leadership, urged lawmakers to introduce and enact legislation before the end of the year “that allows small businesses to fully and accurately comply” with the U.S. Supreme Court’s decision in South Dakota v. Wayfair.

The Oct. 23 letter asks that the legislation establish a “realistic and orderly” phase-in date of April 1, 2019, and prohibit retroactive enforcement.

Since the Wayfair ruling, three federal proposals concerning online sales tax have been introduced in Congress. All three have aimed to either curb or reverse the high court’s ruling:

None of the bills has received congressional consideration.

The U.S. Supreme Court’s June 21 South Dakota v. Wayfair ruling canned Quill Corp. v. North Dakota, the Supreme Court’s 1992 physical presence threshold for when states could tax remote sales. The majority in the 5-4 ruling suggested strongly that South Dakota’s law requiring remote sellers to collect sales tax if they had more than $100,000 in in-state sales or 200 transactions would pass constitutional muster.

Since the Wayfair ruling, dozens of states have passed versions of South Dakota’s law or are enforcing existing nexus laws and rules they already have on the books. Many states are also rushing to impose duties on marketplace facilitators such as Amazon.com Inc., eBay Inc., and Etsy Inc. that host sellers on their sales platforms. Such laws or regulations require facilitators to collect and remit taxes on behalf of their third-party sellers.

Software Lawsuit Filed

Avalara Inc. is facing a federal patent infringement complaint from PTP OneClick LLC.

Avalara is one of the largest providers of sales and use tax software. The company held an initial public offering on June 15, just six days before the high court’s Wayfair ruling.

PTP OneClick LLC filed the complaint Oct. 22 with the U.S. District Court for the Eastern District of Wisconsin, Green Bay Division. In it, owner Pavlos Pavlou asked the court to permanently prohibit Avalara from “commercially manufacturing, using, offering to sell, or selling the Avalara Products” in the U.S. as long as Pavlou’s patent is valid.

According to the complaint, Pavlou met with Avalara executives in 2011 to discuss a potential business partnership. At that time, “Avalara’s products did not allow a user to accurately or comprehensively calculate multi-level local sales and use tax or prepare or file returns for the same.”

Avalara didn’t immediately respond to requests for comment.

Avoiding New Burdens

As Wayfair implementation rolls forward, states are taking care to avoid creating new burdens with respect to collection and remittance of sales tax.

A case in point are marketplace statutes that are moving forward in many states. In most cases, such laws make it clear that marketplace platforms like Amazon.com Inc., Etsy Inc., and eBay Inc. are responsible for collecting and remitting taxes on remote sales by third-party sellers offering goods and services on those platforms when economic nexus thresholds are met.

Smaller sellers remain liable for collecting and remitting tax on sales conducted on their own websites under economic nexus statutes. For many such sellers, the most sales are conducted on the major marketplace websites; their own “mom-and-pop” sales are a tiny fraction of overall sales.

One question that has arisen is the extent to which marketplace facilitators—which includes the major online marketplace platforms when they market and process payment and delivery of a product—must provide sales and transaction information to third-party vendors. This question was kicked around during an Oct. 24 meeting of the Multistate Tax Commission’s Wayfair Implementation and Marketplace Facilitator Work Group.

Richard Cram, director of the MTC’s National Nexus Program, surveyed work group members about the information obligation of marketplaces. A majority of those who responded said they opposed language requiring marketplaces to provide third-party sellers with that information, saying it would place an unnecessary burden on marketplaces.

“Surely, a third-party seller can determine this without imposing unnecessary reporting burdens on marketplaces,” Rob Plattner, an attorney for Amazon, said in a written response provided to the work group. “More than that, a third-party seller can easily determine from its books and records on which platforms it made all of its sales.”

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