State of Wayfair: More States Asking Amazon, eBay to Collect Tax

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 Michael J. Bologna

States are lining up to boost sales and use tax collections from marketplace providers like Amazon.com Inc., eBay Inc., and Etsy Inc.

After the U.S. Supreme Court’s groundbreaking ruling in South Dakota v. Wayfair, which eliminated a major roadblock for when states can tax tax online sales, states are considering laws imposing tax collection duties for retail sales facilitated by marketplace platforms, said Max Behlke, director of budget and tax at the National Conference of State Legislatures (NCSL).

While Amazon and others have been collecting and remitting taxes on their own transactions, marketplace provider laws require them to also collect tax on the sales they facilitate for millions of small vendors using their platforms.

Speaking during an NCSL conference in Los Angeles July 31, Behlke said lawmakers from several states told him they would be considering such laws over the next year.

Alabama, Arizona, Connecticut, Iowa, Massachusetts, Minnesota, Oklahoma, Pennsylvania, Rhode Island, and Washington have already enacted these laws. Additional states are in the process of either enacting such requirements or imposing them administratively.

Behlke stressed that the laws are becoming increasingly important because of the rapid evolution of commerce and the digital economy, which makes it difficult for tax departments to define or determine what’s taxable.

“One word of caution as you go forward, if you decide to go this route, is to know what you’re defining as a marketplace because you could have the scope much broader than you wanted to,” Behlke said.

He added that it’s not a matter of whether these marketplaces have a tax liability. The question, he said, is the “degree of liability that they have.”

“And that’s what the focus should be on,” he said.

Alabama Issues Regs

Alabama is keeping its $250,000 threshold for out-of-state seller tax obligations and giving online marketplace sellers an extra three months to begin collecting sales tax, under a set of proposed regulations.

The state published a notice July 31 of the revenue department’s trio of new and amended regulations. The proposals cover tax collection duties for out-of-state sellers, collection and/or reporting duties for marketplace facilitators, and revisions to Alabama’s Simplified Sellers Remittance Program.

The proposals line up with previous revenue department guidance and legislation enacted earlier this year to impose tax duties on online marketplace facilitators. They also reinforce the notion that tax collection duties won’t be imposed retroactively prior to Oct. 1, 2018, for most out-of-state sellers and Jan. 1, 2019, for sales occurring through online marketplaces.

The proposed regulations also give marketplace facilitators the option to either collect and remit taxes on behalf of their sellers or instead to follow reporting and notification requirements modeled after a 2010 Colorado law.

Marketplace facilitators based out of state have the option to collect and remit taxes through the state’s Simplified Sellers Use Tax Remittance Program, which lets out-of-state sellers pay a flat 8 percent rate to the state of Alabama. The state then splits the tax revenue with the appropriate cities and counties.

The revenue department has scheduled public hearings on the proposed regulations for Sept. 11.

Georgia Wants to Toss Reporting

The author of Georgia’s online sales tax law aims to remove the Colorado-style reporting and notification requirements during the 2019 legislative session.

Rep. Jay Powell (R), chair of the Georgia House Ways and Means Committee, said the reporting/notification requirements were included only as a backup, in case the U.S. Supreme Court found the collection requirements unconstitutional.

While many states earlier this year were considering sales tax legislation that would require either collection by out-of-state sellers or a reporting/notification policy, Georgia took the hybrid approach of enacting both in a single bill. The Georgia Legislature passed the bill three months before the court’s ruling in Wayfair.

Because the Wayfair decision overturned Quill Corp. v. North Dakota, the high court’s 1992 physical presence threshold for when states could tax remote sales, Georgia doesn’t need the reporting requirements. The Legislature is “probably going to go in and strip that out,” Powell told Bloomberg Tax July 31.

In its current form, the Georgia law calls for collection—as well as reporting/notification—to take effect for all transactions on or after Jan. 1, 2019. It sets a threshold of $250,000 of annual sales into Georgia. Sellers below that level are exempt. Lowering the threshold to match South Dakota’s $100,000 figure is also an option.

“I’m not sure that we’ll do that, but it’s a possibility,” Powell said.

The majority in the 5-4 Wayfair ruling suggested strongly that South Dakota’s economic nexus law would pass constitutional muster.

The court stopped short of formally declaring South Dakota’s law as valid in the absence of Quill, and the South Dakota Supreme Court still has to bless the state’s model before it can become effective—it’s expected to do so in mid-August if the parties don’t settle first.

Georgia’s revenue department is “doing its due diligence” on the proper way to craft regulations to implement the new requirements, Powell said. He said he told the state’s revenue commissioner he plans to repeal the reporting requirements during the 2019 session.

But the session is scheduled to begin in January 2019 after the requirements are due to take effect, so it isn’t clear whether the department might have to prepare reporting/notification regulations anyway.

Powell also stressed that he would oppose any efforts to retroactively enforce tax collection duties on out-of-sellers. He called any retroactive application “overreaching on the part of the state.”

N.Y. Sales Tax Revenue Climbs

The impact of the Wayfair decision on local sales tax revenue in New York is uncertain, but local revenue is already soaring this year, according to an Aug. 1 report from state Comptroller Thomas P. DiNapoli (D).

The report said local sales tax revenue climbed 6 percent in the first half of 2018, the largest half-year increase since 2010. Local sales tax revenue grew by 3.3 percent in the first half of 2017.

DiNapoli attributed the increase to low unemployment, increased consumer confidence, rising inflation, and higher gas prices.

“It is unclear what impact the Supreme Court’s decision will have in New York,” the report said.

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