A panel looking to smooth out the state sales tax landscape after South Dakota v. Wayfair could spend up to two years examining the critical legal issues without any guarantee of even recommending changes.
Adam Thimmesch, a professor of tax law at the University of Nebraska College of Law and the technical lead for the Uniform Law Commission’s new committee examining state taxation of online sales, said he has more questions than answers.
In an interview with Bloomberg Tax, Thimmesch said the committee would hold its first meeting in June and spend up to two years studying state laws imposing tax collection duties on remote sellers and marketplace facilitators. And, he conceded, the committee may ultimately decline to draft final recommendations or a model law aimed at greater uniformity among the states.
“The process will ask, is there an appetite for an independent party to come in and take a look at these issues and propose a model resolution? Do the states have enough interest in coming to the table and making their laws consistent? I think the industry is interested in more uniformity between the states, but the states have already enacted their own approaches,” Thimmesch said.
The Supreme Court’s seminal Wayfair ruling tossed out the court’s 1992 physical presence standard affirmed in Quill Corp. v. North Dakota, which limited the ability of states to tax remote sales. The majority in the 5-4 ruling suggested strongly that South Dakota’s law, which requires remote sellers to collect sales tax if they have more than $100,000 in sales or 200 transactions to buyers in the state, would pass constitutional muster.
Since the June 2018 decision, all but two of the sales tax states have begun imposing collection and remittance requirements based on a measure of economic activity, as opposed to physical presence. More than 30 states have passed marketplace facilitator laws, which place a duty to collect and remit sales tax on large online web sites such as Amazon Marketplace, eBay Inc., and Etsy Inc. that broker transactions for other, typically smaller, vendors.
The project will have two stages, Thimmesch said. The initial study stage will examine existing state laws against the Wayfair framework and determine if a model approach is viable. The second stage will define the scope of the project and steer the committee toward one or more goals, such as a final report or a model law.
Thimmesch said the committee is coming to the party late, acknowledging that the National Conference of State Legislatures has already developed a model statute and the Multistate Tax Commission (MTC) has issued a detailed white paper on Wayfair implementation. Still, he said the committee could have an important role to play, but only if the members begin asking a few questions.
“I don’t know the answers yet,” he said. “Part of the privilege of my role is that I get to come in from the outside and look at these issues.”
At least one tax policy wonk is casting a cynical glance at the sales tax uniformity project.
Richard Pomp, a law professor specializing in state and local tax issues at the University of Connecticut School of Law, called the idea “quite amusing.”
“This will go nowhere,” said Pomp, a veteran of several previous tax uniformity projects. “It will be disruptive. It won’t be useful. I don’t quite get who put the bee in their bonnet.”
Richard Cram, director of the National Nexus Program at the Multistate Tax Commission, said he’ll be participating in the ULC study committee in an “observer” status and keep the MTC’s Wayfair Implementation and Marketplace Facilitator work group informed about the committee’s activities.
Cram also led a discussion during the MTC Spring Committee meetings, held via teleconference because of the Covid-19 pandemic, about the Wayfair work group. He said the group declined a request in February from AT&T to send a letter to state tax administrators endorsing the National Conference of State Legislatures model marketplace facilitator law. Most states felt it was too soon to talk about amending their recently approved marketplace laws.
“Many state legislatures were in the middle of their sessions and that point, and there was some reluctance to move it forward,” Cram said. “They’re interested in getting some experience under their belts.” In a quick survey of the states, three supported moving the AT&T request forward, four opposed it, and eight said it should stay with the work group for further study, he said.
Then, starting in March, the world changed dramatically, said Tommy Hoyt, chair of the MTC Uniformity Committee, referring to state tax and revenue departments dealing with fiscal impacts of the Covid-19 crisis.
Several states shared what they’ve faced since the virus pandemic hit, including stalled legislative sessions and delayed tax filing deadlines. The halt of sessions put simplification bills in Colorado and Louisiana in limbo. Idaho and Kentucky have halted audits. Remote sales bills in Kansas and Missouri also are on ice.
Members of the Uniformity Committee debated a proposal from Phil Horwitz, a director of Moss Adams LLP in Denver and former tax policy director with the Colorado Department of Revenue, that the MTC develop a white paper focusing on uncollected taxes from remote sellers with inventory in third-party warehouses like those in Amazon’s fulfillment center program.
California and a handful of other states are now going after those merchants for back taxes, penalties, and interest reaching back several years, saying the storage of products in fulfillment centers triggered physical presence nexus requirements to collect and remit taxes on sales involving those goods.
Horwitz said an MTC white paper would bring “their power of moral suasion” to influence states not to “chase after” tax payments from small business sellers. “They’re fighting the Battle of New Orleans, having won the war,” he said. Despite his arguments, the committee declined to endorse the white paper proposal.
—With assistance from Michael J. Bologna in Chicago.