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
A group of major players in the state tax world greeted with skepticism an online industry’s group’s plea for Congress to step in and impose order in the wake of the U.S. Supreme Court’s Wayfair ruling.
A federal bill imposing standards of uniformity and simplicity on the states is needed to ensure that remote sellers can cope with their new collection obligations and that the states don’t ignore the limits on state authority set up by the court, said Steve DelBianco, president and CEO of NetChoice, an e-commerce lobbying group.
The discussion took place Oct. 4 in St. Louis at an informal gathering of tax stakeholders organized by the National Conference of State Legislatures. Also at the meeting were officials from the Streamlined Sales Tax Governing Board Inc. (SSTGB), the Multistate Tax Commission, the National Governor’s Association, and the Federal Tax Administrators.
NetChoice has proposed 20 tax simplifications, a ban on retroactive taxes, a delay before collection obligations can be imposed, a small-business exemption, and incentives to get states to join the Streamlined Sales and Use Tax Agreement (SSUTA).
But the current Congress has no appetite to try and cut back on states’ authority to require remote sellers to collect sales tax, Neal Osten, director of the NCSL’s Washington office, said.
“From Congress’ point of view, this is a settled matter,” Osten said. “The courts have ruled, and Congress is not going to act.”
To pass a federal bill, states that have been struggling to gain authority to tax remote sales would need to be convinced to walk away from the fight just after winning it, Utah Sen. Curt Bramble (R), a former NCSL president, said. That would be a “very tough sell,” he said.
But Bramble also suggested that the list of 20 tax simplifications could be used as a starting point in the search for common ground between groups concerned about the implications of the South Dakota v. Wayfair ruling and those who are eager for the states to begin implementing it.
“We need to know what are the simplifications that you can’t live without,” he told DelBianco. “And we need to know what would be deal breakers for those on the other side of this.”
The discussion is set to resume at the November meeting of NCSL’s Task Force on State and Local Taxation.
Earlier on Oct. 4, George Isaacson of Brann & Isaacson, counsel for Wayfair and the other large e-commerce companies in the groundbreaking ruling, told members of the SSTGB that many state’s systems for collecting taxes on remote sales are still too byzantine.
Isaacson and DelBianco urged the board to support their efforts to have Congress mandate membership in the SSUTA as a condition of having the authority to compel remote vendors to collect and remit taxes.
“There’s a number of states who have requirements that are very different” from the SSUTA “and are vulnerable to challenge,” Isaacson said. Other states have adopted a “triumphalist” attitude, saying “we won, you lost, therefore you guys go home,” he said. “If states say ‘We’re going to do whatever we want,’ then it means we really are opponents” post-Wayfair, he said.
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 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.
The court didn’t rule on the validity of South Dakota’s law in the absence of Quill, but that hasn’t stopped dozens of states from passing versions of the statute or enforcing existing nexus laws and rules.
West Virginia has jumped on board with the first-of-the-year states.
The West Virginia State Tax Department posted a notice Oct. 3 saying it will begin enforcing South Dakota-style economic nexus thresholds on Jan. 1, 2019. That means sellers in other states with more than $100,000 in annual sales or more than 200 transactions into West Virginia are required to collect and remit the state’s 6 percent sales and use tax.
West Virginia is a member of the SSUTA and the State Tax Commissioner administers, collects, and enforces municipal sales and use taxes. The state is a member of the SSUTA, doesn’t apply requirements retroactively, and has a small business exemption, so it appears to be in line with the guidance in Wayfair as to how states can assert authority over online and other remote sales without imposing a constitutional undue burden.
Taxation thresholds are among the issues likely to be litigated in the wake of Wayfair, tax attorneys on an American Bar Association panel said Oct. 4.
States that set particularly low annual sales limits could be the subject of lawsuits, they told participants.
Most states have imposed the same nexus threshold level as South Dakota, but variations exist.
Although there doesn’t seem to be any immediate congressional or high court action post-Wayfair, the possibility of a future response provides an incentive for “both sides to keep things reasonable in order for states and taxpayers to work out a system without having anything pre-empted,” Lila Disque, deputy general counsel for the Multistate Tax Commission, said at the meeting.
One way to spur action is for a state to “push an outrageously low threshold,” said Jennifer Weidler Karpchuk, a tax attorney with Chamberlain Hrdlicka in Philadelphia. “I would say that Pennsylvania is outrageously low,” she said.
Pennsylvania has set a $10,000 notice or collection requirement on remote sellers.
The Illinois Department of Revenue has retooled its website to provide easier access to the tax forms, regulations, rates, and research in greatest demand by taxpayers—including guidance under the new use tax regime for remote sellers.
The updated website, launched Oct. 4, features encrypted security, wider accessibility, and a new drop-down menu system. It includes a new resources webpage for remote sellers featuring information bulletins, emergency rules, FAQs, and the state’s remote seller taxability matrix.
In addition, the website is mobile-friendly, ensuring taxpayers and tax practitioners can access revenue forms and information from their mobile phones and other devices.
“With this website redesign, we make it easier for the public to navigate our information, no matter what device is utilized,” Connie Beard, the department’s director, said.
Arkansas’ effort to pass remote seller legislation is expected to receive the support needed to become reality in the upcoming 2019 legislative session, multiple Arkansas lawmakers told Bloomberg Tax.
“That’s one I don’t think will have any trouble getting through,” Rep. Bob Johnson (D), a tax reform task force member, said Oct. 3 about the remote seller legislation. The task force issued draft legislation Sept. 21 that would implement South Dakota’s economic nexus thresholds, with no retroactivity.
“We had several pretty close votes,” Johnson said, referring to a 2017 bill that failed in the House, which would have established an economic nexus for sales tax collection.
Johnson said a number of lawmakers told him they didn’t vote because the court case was pending. “I understand that—no reason to pass a law that’s going to court.”
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