State of Wayfair: Wait Until Next Year, California

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

California isn’t catching the wave.

The Golden State won’t be joining others enacting or enforcing requirements that remote sellers collect and remit sales and use taxes in light of the groundbreaking Wayfair ruling by the U.S. Supreme Court, at least for now.

Lawmakers adjourned for the year at the end of August without taking up a post-Wayfair bill, and Gov. Jerry Brown (D) isn’t going to push the issue before his term ends in January. “It is something for the next governor and the next administration,” H.D. Palmer, spokesman for Brown’s Department of Finance, told Bloomberg Tax.

A draft bill from the Department of Finance, obtained by Bloomberg Tax in August, would have required marketplace facilitators like Amazon.com and eBay Inc. to collect and remit use tax from out-of-state sellers. It also would have set a $500,000 threshold for tax collection—significantly higher than the threshold in the South Dakota law that was the focus of the court’s June 21 ruling.

The June 21 Wayfair ruling tossed out 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 decision suggested strongly that South Dakota’s law—which requires remote sellers with $100,000 in annual sales or 200 annual transactions to collect and remit sales tax—would pass constitutional muster. Dozens of states are passing versions of South Dakota’s law or enforcing existing laws in the wake of the ruling.

Tamping Down in Texas

Things are said to be bigger in Texas.

But the Lone Star State isn’t expecting to see a billion-dollar windfall post-Wayfair, nor will it turn back time to collect sales taxes following the high court decision, the state’s top finance official said.

“We don’t think it’s anywhere near a billion dollars—it’s substantially less,” said Texas Comptroller Glenn Hegar (R), adding that impact-estimates are being tamped down because the Internet’s heavy-hitters are already implementing the collection program.

“Amazon is collecting, eBay, all these major businesses—all these major companies, which is where the bulk of the business goes through—they’re collecting,” Hegar told Bloomberg Tax in a Sept. 28 interview.

Texas has pegged Jan. 1 as its start date for remote sellers to collect and remit taxes, and the state won’t be building a time machine, the comptroller emphasized. “We don’t want to go back and collect the taxes retroactively—just in fairness, we’re trying to move forward. That’s important from a legal standpoint,” Hegar said. “But we need to set up the structure,” he said, referring to potential legislative efforts to help achieve “some kind of uniformity.”

Part of that structure includes arriving at a blended rate allowing sellers to collect a combined rate for everybody, he said.

A New Zero?

After Wayfair, the Streamlined Sales and Use Tax Agreement might need a new zero, Scott Peterson, director of government affairs at Avalara Inc., told Bloomberg Tax Sept. 27.

Vendors that use the agreement’s registration system—in place before the Wayfair ruling—are advised that after they register, they will have a sales tax account and will be required to collect, report, and remit the applicable sales and use tax in all states that are party to the SSUTA, said Peterson, former executive director of the Streamlined Sales Tax Governing Board Inc.

However, if a seller has no sales in one of the states, they may indicate that when completing their registration, and while they will still be issued a license for that state, they won’t be required to file returns until they have sales in the state.

Post-Wayfair, given the “small seller thresholds” included in the economic nexus laws that states are approving and enforcing, vendors don’t have a tax collect-and-remit obligation until they hit that minimum amount of sales. Peterson is suggesting the Streamlined Sales Tax Governing Board consider removing the “no sales” indicator and replace it with an option for vendors to show they are below the small seller exemption threshold—the “new zero.”

Colorado: A Whiff of Litigation?

The Council Of State Taxation Sept. 27 urged lawmakers in Colorado to address urgent issues regarding simplification in the state’s tax system, and thereby “prevent protracted litigation,” before the state Department of Revenue approves an emergency rule clearing the way for the state to enforce sales tax collect-and-remit requirements on remote sellers.

Colorado, along with Alabama and Louisiana, is one of three states with a sales tax system that allows for separate administration of local sales taxes, COST said in a letter to the Colorado General Assembly’s Sales and Use Tax Simplification Task Force.

Colorado is also the only state where home rule jurisdictions—those with self-government independent of the state—can define their own tax base, the items that can be taxed. The fact that local tax bases can vary significantly from the state tax base is one of the reasons COST gave Colorado an “F” in its August 2018 sales tax system scorecard.

Fix it, COST said, and do so before the department passes remote sales tax emergency rules or before the Legislature weighs in by introducing bills in its 2019 session. The statutory authority upon which the department is relying for parts of its emergency rules is “questionable,” the COST letter said.

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