Remote sellers with tax obligations in multiple jurisdictions need to pay close attention to a quickly-changing patchwork of tax filing and payment deadlines resulting from the new coronavirus public health emergency.
Dozens of states and municipalities have revised their tax deadlines just in the last week to give businesses greater flexibility to comply with their duties. The new filing rules, however, could prove confusing for sellers still flummoxed by the menagerie of sales, use and income tax laws linked to the U.S. Supreme Court’s 2018 South Dakota v. Wayfair ruling.
Tax practitioners caution the changes are coming quickly and the approaches are inconsistent.
“It’s an extremely fluid situation,” said Sarah McGahan, a member of KPMG LLP’s state and local tax practice. “It varies widely by state in terms of what types of extensions are being provided based on tax type.”
Remote sellers need to pay close attention to the filing and payment requirements for each tax program, McGahan said. Retailers are generally aware of their duties under state and local sales tax regimes, but they may also have business tax obligations. Some Wayfair-inspired laws assert sellers have economic presence for the purposes of a state’s corporate income tax or franchise tax.
Massachusetts, Minnesota, and Mississippi
Within this landscape, some states are making no adjustments for sales taxes, while extending income tax filing deadlines to conform to IRS decision to move the tax filing deadline to July 15 from April 15. Other states are accommodating retailers with sales tax extensions, but offering no relief on income taxes.
Massachusetts is sticking with the traditional April 15 deadline for income taxes, but delaying its collections of sales, meals, and room occupancy taxes that would be due in March, April, and May, establishing a new deadline of June 20.
Minnesota Gov. Tim Walz (D) announced Monday he was giving income taxpayers until July 15 to file their returns and make payments without penalties and interest. Walz didn’t address sales taxes because on March 16 he signed an order shifting monthly sales and use tax payments due March 20 to April 20.
Meanwhile, the Mississippi Department of Revenue announced Monday it will move the income tax filing deadline to May 15. But the department specified the extension does not apply to sales tax, use tax, or any other tax types, adding “these returns should be filed and paid on the normal due date.”
The department then tweeted that the state can’t follow the federal July 15 extension because it “will have approximately a $550,000,000 impact to the state budget. This would shift these receipts from the current fiscal year to the next fiscal year.”
In this changing environment, McGahan recommended businesses register for updates from revenue agencies in each state where they have tax obligations. To keep track of it all, read a roundup of Bloomberg Tax coverage or refer to a state-by-state roadmap.
The Wayfair ruling created a framework for states to collect sales taxes from remote retailers. In Wayfair, the court tossed the physical-presence standard affirmed in 1992’s Quill Corp. v. North Dakota, which limited the ability of states to tax remote sales.
In total, 43 states and the District of Columbia have adopted laws and regulations requiring out-of-state sellers with an economic presence to collect and remit sales tax. More than 30 states have passed marketplace-facilitator laws, which place a sales-tax obligation on large websites such as Amazon Marketplace, eBay Inc., and Etsy Inc. that broker transactions.
Double Whammy in Florida
Bills addressing tax collection duties for remote sellers and marketplace providers were pronounced dead in Florida earlier this month, but Tallahassee is swimming with fresh rumors that the legislation could rise from the grave in June.
Here’s the rub.
Florida, like many states, potentially faces a revenue shortfall heading into fiscal year 2021 in response to the coronavirus public health emergency. But Florida is in a unique position because it operates without an individual income tax and it doesn’t impose tax collection and remittance duties on remote sellers and facilitators. Of the 45 sales tax states, only Florida and Missouri have chosen to forgo tax collections enabled by the Wayfair ruling.
In this context, Florida could be headed for a revenue “double whammy” when the fiscal year begins July 1, said H. French Brown, a tax partner in the Tallahassee office of Dean Mead.
“Florida is looking at a double whammy as governors are closing brick-and-mortar establishments and as more people are going to online purchases,” said Brown, a former deputy director of Florida’s revenue department. “So Florida is losing sales tax revenue on those brick-and-mortar sales, while other states are seeing an uptick on their remote sales during this time.”
Even though lawmakers built certain coronavirus protections into the budget, Brown said fears continue to mount over the worsening crisis and its potential impact on the budget. As a result, the recently deceased measures addressing e-commerce retailers and marketplaces (S.B. 126 and H.B. 159) could be on the table during a rumored special session for Florida.
“There is a lot of pressure, and definitely a lot of chatter around Tallahassee that the legislature may want to try to do a budget special session before July 1,” he said.