By: Tripp Baltz of Bloomberg BNA
The House Judiciary Committee will hold a hearing as early as next week to consider how states may collect sales and use taxes on remote transactions in the wake of the U.S. Supreme Court’s groundbreaking Wayfair ruling.
Lawmakers would likely use the hearing to consider proposals taking aim at reversing South Dakota v. Wayfair and reinstating Quill Corp. v. North Dakota, the Supreme Court’s 1992 physical presence threshold for when states could tax remote sales, Karl Nicolas, associate director of the National Tax Department at Ernst & Young LLP in Washington, told Bloomberg Tax July 17.
The June 21 Wayfair ruling tossed out Quill, and now many states are looking to expand their authority over online sales taxation. The majority in the 5-4 ruling suggested strongly that South Dakota’s law would pass constitutional muster; the statute imposes a tax collection threshold at 200 transactions or $100,000 in in-state sales.
The court stopped short of formally declaring South Dakota’s law valid in the absence of Quill, and the South Dakota Supreme Court still has to bless the state’s economic nexus model before it can become effective. It’s expected to do so in mid-August. In the wake of the decision, dozens of states that haven’t already done so are mulling whether to copy South Dakota’s law.
Rep. Bob Goodlatte (R-Va.), committee chair, confirmed the hearing will happen. “I think it’s soon,” he said. “Maybe next week.”
Goodlatte said “we’re going to hold the hearing first before we decide anything else,” such as whether the committee would back legislation designed to curb state requirements that out-of-state sellers collect and remit sales and use taxes on remote transactions.
The Wayfair ruling has fueled the circulation of bills in Congress that would reverse Wayfair and codify Quill, Nicolas said. One of them introduced after the Wayfair ruling, the Stop Taxing Our Potential (STOP) Act (S. 3180), was introduced by Sens. Jon Tester (D-Mont.), Jeanne Shaheen (D-N.H.), Jeff Merkley (D-Ore.), and Maggie Hassan (D-N.H.)—all of whom are from states that don’t have a statewide sales and use tax. The bill “is specifically targeted to reverse the impacts of Wayfair,” Dave Kuntz, spokesman for Tester, told Bloomberg Tax.
The second bill that has been pending with several others for years, the No Regulation Without Representation Act of 2017 (H.R. 2887) (NRRA), sponsored by Rep. Jim Sensenbrenner (R-Wis.)—would codify Quill, among other things.
It’s unclear which of those will be on the table at the Judiciary hearing, but “the committee is tuning-in to the growing chorus of state tax collectors demanding back taxes, interest, and penalties,” Steve DelBianco, president and CEO of NetChoice Inc., told Bloomberg Tax. “There’s enough noise here for Congress to step in and say, stop the music.”
NetChoice, an industry association for e-commerce, has been at the heart of many of the lawsuits designed to stop states’ online sales taxation efforts.
Goodlatte has said he supports the NRRA, and Nicolas said it wouldn’t surprise him if the chairman, an ardent foe of the Marketplace Fairness Act (S. 976) and other congressional attempts to allow states to collect taxes on remote sales, backed a House version of S. 3180 as well. “He’s made his position clear,” Nicolas said.
Greg Matson, executive director of the Multistate Tax Commission, told Bloomberg Tax he has heard reports that Goodlatte and others have pointed to confusion in the wake of Wayfair as states sort out how to collect taxes on out-of-state sales.
“The chaos that everyone predicted is not happening,” Matson said. Most states are saying they won’t impose back tax liability retroactively, and many are coalescing around an Oct. 1 start date for licensing of remote vendors to begin collecting and remitting taxes, he said.
“It’s like Y2K all over again,” he said. “Many said it was going to be a disaster, and then at 12:01 a.m. on Jan. 1, 2000, nothing happened.”
Matson noted that Wayfair will be a major topic of discussion a the commission’s annual meeting in Boston July 23-26 and that the Streamlined Sales Tax Governing Board Inc. is planning to hold an “emergency” meeting on Wayfair in Minneapolis July 19-20.
“It’s early, and most states are taking their time,” he said. “You’re seeing states following the Golden Rule: We’re not going to treat your sellers selling into our state any different than you treat our sellers selling into your state.”
But Bruce Ely, a tax attorney and partner at Bradley Arant Boult Cummings LLP in Birmingham, Ala., told Bloomberg Tax “chaos” was the right word for the current scene.
“Dates are all over the place” for compliance, he said. “Every state has its own effective date, its own threshold, it’s own theory as to when they should start collecting. They’re all over the board.”
Annual sales thresholds are as high as $250,000 to $500,000 in some states, he said. Some have set an Aug. 31 deadline, others Oct. 1, still others Jan. 1, he said. “There’s no uniformity among the states there.”
Meanwhile, a leading states’ rights advocacy group has recommended that states wait until 2019 to implement economic nexus laws for sales tax collection.
“States should ensure that they are fully prepared” before beginning to enforce their sales tax laws on remote sellers” and should consider waiting until Jan. 1, 2019, “to begin sales tax collection requirements on remote sellers,” the National Conference of State Legislatures (NCSL) said in a list of considerations published in June.