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
A prominent state legislative group has joined a chorus of groups asking Congress to leave states alone in taxing online sales.
In an Aug. 1 directive, the National Conference of State Legislatures calls congressional action on digital taxation “unnecessary.” It is the latest resolution passed by state organizations since the U.S. Supreme Court’s groundbreaking June 21 ruling in South Dakota v. Wayfair, Inc.—which tossed out Quill Corp. v. North Dakota, the court’s 1992 physical presence threshold for when states could tax remote sales.
The June 21 ruling 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 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.
The NCSL directive—agreed to at the NCSL’s annual Legislative Summit in Los Angeles—removes the group’s endorsement of the Remote Transactions Parity Act of 2017 (H.R. 2193) (RTPA)—which seeks to undo Quill—one of several bills pending in Congress that hasn’t advanced since its introduction.
Jason Brewer, executive vice president of communications and state affairs at the Retail Industry Leaders Association, told Bloomberg Tax that the retail industry stands with the decision to remove support of the RTPA.
“States have the tools and abilities to enforce collections on their own, and Congress would only feel compelled to step in if states act foolish, as so far they haven’t,” Brewer said.
Greg Matson, executive director at the Multistate Tax Commission, told Bloomberg Tax that the NCSL and MTC will meet Aug. 3 with a powerhouse of other state-focused groups for a forward-looking discussion about the Wayfair ruling.
The MTC, the Federation of Tax Administrators, the Streamlined Sales and Use Tax Governing Board Inc., and the National Governors Association are set to meet to discuss post-Wayfair issues.
The MTC will also consider simplification measures suggested 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 told Bloomberg Tax that they are waiting to hear from the MTC before finalizing next moves on behalf of the e-retail industry.
Will the Wayfair decision drive more consumers back to brick-and-mortar stores once increased tax collection begins online?
That’s one of many uncertainties reigning in the wake of the decision, Fred Nicely, senior tax counsel at the Council On State Taxation, told lawmakers attending the NCSL Summit. Another key question is whether states will impose new collect-and-remit obligations on remote sellers only when they surpass the compliance-triggering threshold, Nicely said.
“When do you start imposing it? Is it for the entire calendar year? Or is it only for that part of the year where you actually go over?” he asked. “We really think it should be perspective, it should be only in that moment when the taxpayer goes over.”
And while the Supreme Court opinion seemed to stress the value of the Streamlined Sales and Use Tax Agreement (SSUTA), many companies view it as a problem that many big states—including California, Texas, New York, Illinois, Pennsylvania, and Florida—aren’t members.
Justice Anthony Kennedy said in the majority Wayfair opinion that South Dakota’s membership in the SSUTA, a program under which sellers collect tax voluntarily and remit it to the 24 state participants, is one of the reasons the state’s law would likely pass constitutional muster.
Head spinning from all the uncertainties generated by Wayfair? You’re not alone. In San Francisco, the court ruling has the city thinking about pot. Pot revenue, to be specific.
Seeing Wayfair as paving the way for local governments to impose tax collection obligations on sellers in another jurisdiction, San Francisco will seek to grab some green—er, greenbacks, that is—from marijuana sales by out-of-town producers and sellers. The city’s Board of Supervisors approved placing on the fall ballot an initiative for a gross receipts tax of up to 5 percent on recreational pot.
Under a separate provision in the initiative, pot distributors, producers, and sellers located outside San Francisco would be subject to the city’s gross receipts tax, even though Wayfair addressed state sales and use taxation. If approved, the provision could generate $2 million to $4 million for the city, Controller Ben Rosenfield told supervisors.
In Colorado, “everyone’s talking about Wayfair, everywhere you go,” state Rep. Tracy Kraft-Tharp (D) told Bloomberg Tax Aug. 2.
Colorado’s “complicated, convoluted” system means the state could be further out than most from being able to require remote vendors to collect and remit sales and use taxes, she said. Constitutional home rule and Colorado’s Taxpayer Bill of Rights—which limits state and local revenue, and requires voter approval for tax increases—are the chief complexities facing the state.
“The court recommended we be a part of Streamlined, but we don’t have an option to go there,” said Kraft-Tharp, chair of the Sales and Use Tax Simplification Task Force. The task force has issued a request for information from vendors about what a single, electronic sales and use tax collection system would look like.
Kraft-Tharp said she and other task force members are hoping that having such a system, and taking other steps to simplify, would satisfy the principles the court outlined in Wayfair, short of Colorado signing on to the SSUTA.
In contrast with Colorado, Wisconsin is much better prepared to adhere to the principles for tax collection provided in the ruling, the Tax Foundation said Aug. 2 in a report published in collaboration with the state’s Badger Institute, a free-market think tank in Milwaukee.
Wisconsin recently announced that it will issue a remote sales tax rule complying with Wayfair and begin remote sales tax collection Oct. 1. When potential for congressional action on online sales tax faded, Wisconsin lawmakers passed a law requiring the state to apply any potential new revenue to reducing individual income tax rates.
Now the Tax Foundation and the Badger Institute argue that Wayfair gives lawmakers a chance to do more. “Wisconsin is now ripe for tax reform, and revenue from expanded remote sales tax collection should be applied towards its highest valued use: permanent, comprehensive tax reform that broadens tax bases and lowers rates,” they said.
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