State of Wayfair: State at Core of it All Eyes Special Session

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By Tripp Baltz

South Dakota lawmakers may have to shelve any plans for end-of-summer fishing trips to return to the state capital for a special legislative session to address the U.S. Supreme Court’s ruling in South Dakota v. Wayfair.

A senior aide to Gov. Dennis Daugaard (R) July 26 confirmed the administration may call the Legislature into special session to take up bills further defining the state’s authority to impose sales or use taxes on remote sellers.

“At this point, the governor is merely alerting legislators to the possibility of a special session,” Tony Venhuizen, Daugaard’s chief of staff, told Bloomberg Tax. “The Department of Revenue is working through implementation issues, and if legislative action is necessary, the governor wants legislators to be prepared for a special session.”

South Dakota, a rock star among state taxing authorities for pushing the e-commerce tax issue all the way to the U.S. Supreme Court, is also working through a few final legal hurdles relating to its 2016 online sales tax statute that bases a seller’s taxability on the amount of sales it does within the state (i.e., econommic nexus).

The June 21 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 by copying the South Dakota model. 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.

However, 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. In the wake of the groundbreaking decision, dozens of states that haven’t already done so are mulling whether to copy South Dakota’s law.

MTC Reporting Model Not Dead Yet

Post-Wayfair, many observers said the ruling signaled the demise of state reporting and notice laws modeled after a 2010 law in Colorado. That law requires noncollecting retailers to report sales data to the state and notify buyers they might owe taxes.

Read that again: “Noncollecting retailers.” And that’s why many are wondering: Will there be any left after Wayfair? Or enough to make these regimes worth pursuing?

Some states have laws that give retailers a choice: Collect and remit, or report and notify. So, agan, is report and notify dead if basically everybody has to collect and remit?

These questions laced the discussion during the Multistate Tax Commission’s Executive Committee meeting in Boston July 26. The MTC has been working on a model reporting and notice law since the Colorado Supreme Court affirmed the state’s law in 2016.

The model was on the Executive Committee agenda for approval, but Wayfair has committee members joining the crowd of people wondering if it’s needed anymore.

Such a model might still have some utility for marketplace facilitators, said Brian Hamer, MTC counsel. The Executive Committee opted to send it back to the Uniformity Committee for possible amendments in light of Wayfair.

Post-Session New Hampshire Politics

Political winds are buffeting New Hampshire Gov. Chris Sununu (R) after the legislature’s surprise scuttling of his anti-Wayfair bill.

After the ruling, Sununu’s legal counsel drew up a bill designed to shield the state’s businesses and residents from having to collect sales and use taxes owed to other states (New Hamphsire is one of states that doesn’t have a statewide sales and use tax). And lawmakers came to Concord July 25 to consider it in a one-day special session.

The Senate quickly approved it, but a House amendment gutted it. By a 13-vote margin, the House approved a version that stripped away all of the original provisions except for the creation of a study committee.

Democrat Molly Kelly, a former state senator challenging Sununu for governor, is asking why he wasn’t there in person to shepherd the bill through.

“Sununu was raising money in ritzy Aspen, Colorado yesterday and in days leading up to the critical vote,” Kelly said in an email. The governor’s spokesman confirmed to a New Hampshire television station that Sununu was returning from a meeting of the Republican Governors Association in Colorado and didn’t attend the special session.

The uprising against the bill was led by Republicans in the conservative New Hampshire House Freedom Caucus, but they had plenty of help from Democrats. Of the 164 representatives who voted to strip out most of the bill’s provisions, 84 were Democrats and 78 were Republicans, according to the roll call of the vote.

Minnesota Moving Forward

Remote sellers and marketplace providers doing business in Minnesota must begin collecting sales or use tax on behalf of the state no later than Oct. 1, the Department of Revenue announced in a guidance statement late July 25.

Wayfair resuscitated Minnesota sales and use tax requirements enacted in 1989 “to require remote sellers with no physical presence, such as online and mail-order companies, to collect and remit the applicable sales or use tax on sales delivered to locations within their state,” the department said.

The guidance said some sellers may qualify for a “small seller exemption.” Requirements are triggered only when a seller shoots past 100 or more transactions or 10 or more totaling more than $100,000.

The department also noted that the Wayfair ruling activated its marketplace providers provisions, requiring the collection of tax on all retail sales into Minnesota facilitated by marketplaces like Inc., eBay Inc., and Etsy Inc. However, remote sellers need not collect tax when a marketplace provider is collecting and remitting. Minnesota is one of only a small number of states with such provisions, which many believe will be the next frontier for states.

Remote sellers needing further clarity about their obligations should consult a new frequently asked questions portion of the department’s sales and use tax website.

Minnesota Broadband Grants

And when the revenue starts coming in, Minnesota should use its Wayfair windfall to pay for “border-to-border broadband internet access,” a leading candidate for governor said July 25.

Erin Murphy, a candidate for governor from the Minnesota Democratic-Farmer-Labor Party, said she would use up to $100 million per year from online sales tax collections to fund Minnesota’s Broadband Development Grant Program through 2026. The program uses public and private investments to link homeowners, farmers, businesses and schools to high-speed internet service. She noted that 550,000 households don’t have access to high-speed service.

Minnesota could channel $100 million per year from the Wayfair revenue stream and still have dollars to spare. Murphy pointed to research by the U.S. Government Accountability Office estimating that Minnesota’s collections would range between $132 million and $206 million per year.

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