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By Tripp Baltz
Should any state prevail in its challenge of the U.S. Supreme Court’s 25-year-old physical presence standard for collection of use taxes by remote sellers, such a ruling would obviate the need for reporting and notice statutes similar to an existing law in Colorado, a state tax official said.
“This style of reporting statute would disappear if South Dakota wins,” Phil Horwitz, director of tax policy analysis in the Colorado Department of Revenue, said April 19. “But it exists as long as Quill is in place.”
Horwitz was referring to the high court’s 1992 ruling in Quill v. North Dakota, affirming an earlier ruling that a state may not require out-of-state vendors to collect and remit sales and use taxes if they lack a physical presence, or nexus, in the state. South Dakota and other states are leading legal challenges to get the court to revisit the Quill standard.
The interplay between the physical presence standard and states’ burgeoning efforts to establish an economic nexus by remote vendors with large sales in their states was the backdrop of a Multistate Tax Commission use tax work group meeting April 19. The group is examining possible changes to the MTC’s draft model sales and use tax notice and reporting act.
The draft statute was modeled after Colorado’s 2010 reporting and notice law, which requires remote sellers that don’t collect and remit taxes to provide annual reports about consumer purchases to the state Department of Revenue if they have more than $100,000 in sales in the state. The law also requires non-collecting retailers to provide buyers with an annual report of their purchases and to notify them of any tax that may be due to Colorado.
Colorado’s law was ruled constitutional in February 2016 by the U.S. Court of Appeals by the Tenth Circuit ( Direct Mktg. Ass’n v. Brohl, 10th Cir. App., No. 12-1175, 2/22/16 ). In December, the U.S. Supreme Court declined to consider an appeal by the plaintiff in the original case, the Data and Marketing Association ( Direct Mktg. Ass’n v. Brohl, U.S., No. 16-267, petition for review denied 12/12/16 ; Brohl v. Direct Mktg. Ass’n, U.S., No. 16-458, petition for review denied 12/12/16 ).
Colorado’s law is set to take effect July 1.
The purpose of the work group was to consider next steps for the model law, and whether and how it should be tweaked, Horwitz said. The MTC Executive Committee approved the model in 2011 after a public process, but shelved it while the litigation was pending.
A bill (S.B. 238) in the 2017 session of the Colorado General Assembly would remove the reporting requirement from the law, meaning remote sellers wouldn’t have to forward consumer purchase information to the DOR. The bill was approved by the state Senate April 17 and was sent to the House.
Kansas tax officials participating in the call said a reporting bill similar to Colorado’s is advancing in their state, but lawmakers concerned about possible privacy concerns have already amended the measure to remove the reporting requirement, referred to as a “tattle-tale” provision by legislators who oppose reporting.
Some legislators in Colorado are also raising privacy concerns, vocalized by retail groups like NetChoice Inc., arguing consumers might not like it that information about their online purchases—including total amounts spent, shipping addresses and billing addresses—is forwarded to the state. When the bill was in a Senate committee, the department testified it “already received a lot of confidential information and has protections in place” to safeguard it.
So far in 2017, a reporting and notice bill has been enacted in Alabama, while another was defeated in Utah. Similar bills are pending in Arkansas, Hawaii, Illinois, Iowa, Nebraska and Pennsylvania.
The Colorado Department of Revenue will host a meeting April 25 to provide information about the rules implementing the reporting and notice law, Horwitz said.
The MTC work group will meet again May 10.
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Text of the MTC's draft model sales and use tax notice and reporting act is at http://src.bna.com/n5M.
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