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Daily Tax Report: State

Holiday or Headache? Retailers Juggle Back-to-School Tax Rules

July 31, 2020, 7:14 PM
  • The Week in Wayfair: The world of e-commerce selling is still adapting to the U.S. Supreme Court’s groundbreaking 2018 ruling in South Dakota v. Wayfair, which permitted states to impose tax collection duties on remote retailers based on economic activity in a state rather than physical presence. With most legislatures adjourned, the states are focusing on guidance affecting remote sellers and marketplace facilitators. More than a dozen states released notices advising sellers how to comply with end-of-summer sales tax holidays. This week also saw the Multistate Tax Commission’s annual meeting, which featured some viewpoints on the need for greater uniformity in economic nexus laws and regulations across the states.

It’s the holiday season—the back-to-school sales and use tax holiday season. Still, a lot of e-commerce businesses aren’t celebrating.

Thousands of remote sellers swept into state tax collection schemes for the first time this year are expected to have a tough time keeping up with the complicated rules for exempting sales tax across the 16 tax holiday states. Online sellers operating in multiple jurisdictions will have to contend with different tax-free calendars, different lists of exempt and non-exempt items, and different caps on the volume of merchandise consumers can purchase tax free.

“It would be a rare seller or a rare sales tax holiday where compliance is as simple as turning tax collection off on a Friday evening and turning it back on Sunday night,” said Scott Peterson, vice president of U.S. tax policy at the tax software company Avalara. “A remote seller trying to comply would have a very difficult time managing the differences.”

The administrative challenges for sellers are wedged against an unprecedented retail environment triggered by the Covid-19 health crisis, which will force millions of consumers to shop online for backpacks, clothing, and computers rather than risk trips to brick and mortar stores.

Texas, a new epicenter of the Covid-19 crisis, emphasized online buying during its sales tax holiday Aug. 7-9 to control the spread of the virus.

“Online shopping is covered, so I encourage all Texans to shop online or practice social distancing when making in-store purchases,” said Texas Comptroller Glenn Hegar in a statement. “We want folks to stay safe while saving money.”

The Tax Foundation released a report describing the patchwork of sales tax laws retailers will confront during August and September. Here’s just a snapshot of some of the diverse rules.

  • Alabama, Arkansas, Connecticut, Florida, Iowa, Maryland, Massachusetts, Mississippi, Missouri, New Mexico, Ohio, Oklahoma, South Carolina, Tennessee, Texas, and Virginia all have sales tax holidays.
  • Online sellers needn’t worry about Missouri and Florida because they never implemented Wayfair-style physical presence laws.
  • Ohio sponsors a sales tax holiday between Aug. 7 and 9 and caps tax-free purchases at $75 for clothing and $20 for school supplies.
  • New Mexico has a holiday on Aug. 8 and 9, and caps tax-free purchases of clothing, school supplies, and computers at $100, $30, and $1000 respectively.
  • Mississippi has a back-to-school holiday July 31-Aug. 1 and a separate tax-free holiday for guns and ammunition between Aug. 28 and Aug. 30.
  • Tennessee will sponsor a school supply and clothing tax holiday between July 31 and Aug. 2, and a first-ever holiday on restaurant sales of food and drinks between Aug. 7 and 9.


The Tax Foundation acknowledged the programs are politically popular, but they’re just bad tax policy.

“Sales tax holidays introduce unjustifiable government distortions into the economy without providing any significant boost to the economy,” the Washington D.C.-based think tank concluded. “They represent a real cost for businesses without providing substantial benefits. They are also an inefficient means of helping low-income consumers and an ineffective means of providing savings to consumers.”

A bit more clarity, if you please.

Businesses are pushing states to provide more transparency about their Wayfair-inspired marketplace facilitator laws, using a committee of the Streamlined Sales Tax Governing Board to develop a matrix of “disclosed practices” about how states are enforcing their relevant rules and regulations, said Fred Nicely, senior tax counsel at the Council on State Taxation.

“It’s very hard to find information on a state-by-state basis, and very time consuming,” he said. “The end goal is to have 30 or so questions the states will answer on how they’re handling their marketplace law, on such things as exemption certificates, definition of facilitator and seller, payment processors, refunds, and a lot of other details.”

The initiative of the governing board’s State and Local Advisory Council will come up with a matrix of state practices to provide better information to the business community, he said. The council previewed a marketplace facilitator chart at a meeting in May, which will lay the groundwork for the matrix.

Is it too late?

Interest appears to be waning for an initiative to craft a uniform law on taxation of remote sellers and marketplace facilitators. Given that 43 of the 45 sales tax states have already enacted Wayfair-inspired tax collection laws, some are doubting the need for the recently formed Online Sales Tax Collection Committee of the Uniform Law Commission.

“There was not much interest expressed by the members” of the committee who participated in a recent meeting on the idea, Richard Cram, an observer of the committee and the director of the National Nexus Program of the Multistate Tax Commission, said Tuesday during the MTC’s annual meeting. “The feeling was that since a large number of states have already enacted them, there didn’t seem to be much of a purpose.”

Participants suggested that if the study committee did anything, it could recommend the Uniform Law Commission endorse an existing model marketplace facilitator statute created by the National Conference of State Legislatures.

Utah state Sen. Lyle Hillyard (R), co-chair of the committee, said Friday the committee will meet one more time in August or September to examine outstanding issues and look at “whether we really want to do this.” Pulling the plug on the effort is one option on the table, he said.

-- With assistance from Paul Stinson in Austin, Texas.

To contact the reporters on this story: Michael J. Bologna in Chicago at mbologna@bloomberglaw.com; Tripp Baltz in Denver at abaltz@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Yuri Nagano at ynagano@bloombergtax.com

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