Tax Group Committee OK’s Online Sales Reporting, Notice Model Law

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By Tripp Baltz

The Multistate Tax Commission’s Uniformity Committee approved a draft model law requiring remote sellers that don’t collect sales and use taxes to meet certain reporting and notice requirements.

The committee April 25 approved the draft, developed by a Use Tax Information Reporting Work Group, for states considering similar reporting and notice requirements for noncollecting remote vendors. The draft will go before the MTC’s Executive Committee, the primary policy and decision-making body of the commission, April 26.

If approved by the Executive Committee, the next step would be a public hearing, MTC General Counsel Helen Hecht said during the Uniformity Committee meeting. The MTC, which is holding its Spring Committee Meetings April 23-26 in Bloomington, Minn., is an intergovernmental agency that promotes uniformity between state tax systems for multistate taxpayers, among other policy priorities.

Following Colorado Law

The MTC draft model follows Colorado’s 2010 reporting and notice law, which was affirmed as constitutional by the U.S. Court of Appeals for the Tenth Circuit in February 2016. The state law requires sellers that don’t collect and remit Colorado sales and use taxes to (1) notify buyers at the time of transaction that tax isn’t being collected but may be due, (2) provide consumers an annual report of their purchases, and (3) send an annual report to the Colorado Department of Revenue showing the total dollar amount of each buyer’s purchases.

The first deadline for reporting to the state was March 1, Phil Horwitz, director of tax policy analysis for the department, told the Uniformity Committee.

An earlier version of the MTC model was put on hold while the court case against Colorado’s law, filed by what was then the Direct Marketing Association (now the Data & Marketing Association), was pending. The MTC Executive Committee directed the work group to begin drafting a new model after the Tenth Circuit upheld Colorado’s statute.

Wayfair Case

With respect to collection of state sales and use taxes on e-commerce and other remote transactions, Horwitz said the “elephant in the room” is the pending decision from the U.S. Supreme Court in South Dakota v. Wayfair—which challenges the 1992 decision in Quill Corp. v. North Dakota barring states from requiring remote retailers to collect sales tax.

“If the state of South Dakota prevails, in a broad sense there’s an open question as to whether the reporting statute will even be necessary,” Horwitz said. If Quill is overturned, there might no longer be “noncollecting” vendors in the e-commerce sphere—all sellers would have to collect, whether in-state or remote, which means reporting and notice requirements like Colorado’s wouldn’t be triggered.

However, after the Wayfair oral argument, it’s “very unclear what’s going to happen” with the case, he said. There was a “broad expectation the state was going to win, the only question was how,” he said. “I think that’s not what everybody’s feeling anymore.”

Interest in the model reporting act has increased in proportion to that sentiment, Horwitz said, and this “once again becomes an important model, especially should Wayfair win and Quill be upheld.”

New Marketplace Provision

What’s new in the model act since the first time the MTC worked on it is how to deal with online marketplaces, Horwitz said. The model act doesn’t contain a collection obligation by marketplaces as an alternative to the reporting obligation— the reporting obligation stands on its own, he said.

However, it does include marketplace reporting—a gap in the Colorado statute. Under the new model, marketplaces who are in control of information about sales have a reporting obligation, Horwitz said.

The Uniformity Committee agreed with the work group that there should be a minimum threshold for the requirement that vendors send an annual transactions report to purchasers. Under the model, vendors will be obligated to send the reports only to purchasers with $200 or more in transactions during the previous calendar year, Horwitz said.

To contact the reporter on this story: Tripp Baltz in Denver at abaltz@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

For More Information

The latest version of the MTC Uniformity Committee's Model Use Tax Reporting statute is at http://src.bna.com/yhU.

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