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For Pandemic-Fueled E-Commerce, It’s a Jolly Season Online (1)

May 21, 2020, 3:34 PM; Updated: May 21, 2020, 6:44 PM

It’s like Christmas in springtime, at least for e-commerce.

Thanks to recent Covid-19 stay-at-home orders, online shopping trends are comparable to the peak of the year-end holiday season, when shopping is at its highest, said Steven Ridzyowski, founder of Ecommerce Marketing Agency. That’s providing a solid boost to states’ remote sales tax collections.

Walmart Inc. on Tuesday reported its ecommerce sales grew 74% in its latest quarter, which ended May 1, with strong results for grocery pickup and delivery services, Walmart.com, and Walmart Marketplace, the giant retailer’s platform for third-party sales. Even with 5,000 brick-and-mortar stores and $900 million in incremental costs related to Covid-19, it said, overall comparable sales rose by 10%.

Covid-19 and restrictions on business mean most brick-and-mortar retail shops must consider whether to go online or die, Ridzyowski said.

“The establishments who didn’t or cannot go online are most likely not going to make it to the next quarter, but being online is not enough,” he said. “A strategy must accompany it.”

One important retail trend to watch, he said, is inventory deployment, where, “large inventory will be all held in one place versus multiple stores, and the future products will be shipped directly to consumers.”

State taxes collected on e-commerce and other remote sales were bolstered in June 2018 with the U.S. Supreme Court’s groundbreaking ruling in South Dakota v. Wayfair, which tossed out the foundational physical presence standard the court had affirmed in Quill Corp. v. North Dakota.

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 decision, all but two of the sales tax states have imposed collection and remittance requirements on merchants based on some measure of their economic activity, rather than their physical presence.

Additionally, nearly 40 states have passed marketplace facilitator laws, which place a duty to collect and remit taxes on large online retailers such as Amazon Marketplace, eBay Inc., and Etsy Inc. that provide platforms for sales by typically smaller third-party merchants.

North Carolina Eyeing Food Deliverers For Local Collection

Marketplace facilitators of prepared food delivery, such as Grubhub Inc., Uber Eats, DoorDash Inc., and Postmates Inc., may soon have to collect and remit local meals taxes in North Carolina.

The state Legislature is advancing omnibus tax legislation (H.B. 1080) to require such collections for localities that levy a meals tax. Remote sellers would have to collect the local levy along with the state sales taxes they now have to gather and remit post-Wayfair.

Accommodation facilitators like AirBnB Inc. already have to collect and remit local occupancy taxes in the state.

The pending bill, which passed a House committee and has a Senate companion (S.B. 727), also would clarify that the state’s marketplace collection threshold of $100,000 or 200 transactions a year only applies to remote businesses. Businesses with a physical presence have to collect on all sales.

If enacted, the proposed law would take effect July 1. Currently, only Cumberland, Dare, Mecklenburg, and Wake counties along with the town of Hillsborough levy a local meals tax.

Georgia Out of Line

Georgia was sanctioned Thursday for falling out of compliance with the Streamlined Sales and Use Agreement, but Michigan and Rhode Island each got a clean bill of health.

The Streamlined Sales Tax Governing Board pointed to four areas where Georgia remains out of compliance with features of the SSUTA and barred the state from voting on amendments to the agreement until the deficiencies are remedied. The SSUTA is a unique pact among 24 states aimed at harmonizing and standardizing tax practices for remote sellers and marketplace facilitators.

The governing board has at times sanctioned non-conforming states to ensure uniformity and reduce compliance burdens for remote sellers operating in multiple states.

Among other deviations from the agreement, a summary of findings showed Georgia permitted an exemption for food to a local option sales tax in a single county, while food is not exempted elsewhere in the state.

Georgia, Michigan and Rhode Island were all found to be in substantial noncompliance with the SSUTA last October. The governing board chose not to sanction Michigan and Rhode Island on Thursday, finding that Michigan had already corrected its deficiencies, and the Rhode Island Legislature is expected to enact a corrective measure shortly.

Craig Johnson, executive director of the governing board, said the Georgia Department of Revenue is aware of the problems and is making good faith efforts to bring the state’s sales tax code in line.

“The governing board delegates for Georgia know that action by their Legislature is needed to correct their issues, and my understanding is that the Georgia Department of Revenue personnel have had discussions with their Legislature regarding these issues,” Johnson told Bloomberg Tax.

The governing board also got a sneak preview of summary documents describing member state laws governing marketplace facilitators and marketplace sellers. The two documents will give taxpayers a quick overview of the key tax administration features of each state program with links to each state’s statutory provisions and revenue department guidance documents.

—With assistance from Andrew M. Ballard in Raleigh, N.C. and Michael J. Bologna in Chicago.

(Adds item on Georgia's noncompliance with the Streamlined Sales and Use Agreement.)

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

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; David Jolly at djolly@bloombergtax.com

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