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. Over the last week Louisiana, Tennessee, and Wisconsin have all taken steps to orient taxpayers toward their new tax-collection duties. Meanwhile, some are questioning Chicago’s use of Wayfair principles to require wineries to collect the city’s excise tax on alcoholic beverages.
Don’t count Missouri out of the economic nexus club for 2020 just yet. A special legislative session addressing a wide range of state tax policies, including provisions imposing tax collection duties on remote sellers and marketplace facilitators, will likely be convened before the end of the year. Missouri and Florida remain outliers among the 45 sales tax states, failing to pass laws reflecting the objectives spelled out in the Wayfair ruling. Kansas also failed to pass a marketplace facilitator law in 2020.
Missouri Gov. Mike Parson (R) called a special session to address violent crime beginning July 27, but there are credible rumors of a second special session later in the year, said Sen. Lauren Arthur (D). The second session would focus on tax policies addressing the fiscal strains brought on by the Covid-19 pandemic.
Arthur hopes to convince her fellow lawmakers to use a portion of the more than $300 million anticipated from a Wayfair-inspired law to pay for a refundable earned income tax credit. Republicans, controlling both the House and the Senate, are open to both Wayfair and EITC measures, but only in the context of a broader bill overhauling the state tax code and fortifying state finances.
“There are rumors we will have a session at some point to address the Wayfair issue and I think it’s fair to assume an EITC will be part of that conversation,” Arthur told Bloomberg Tax Thursday. “It feels like a relevant and important conversation to have given the economic recession we’re experiencing.”
Florida and Kansas have no plans for special sessions this summer.
Business interests widely opposed a Multistate Tax Commission model standard for income and similar taxes based on a remote company’s economic activity in a state.
They’ve argued that the physical presence standard affirmed in 1992 in Quill Corp. v. North Dakota applied to state income taxes, and any standard based on sales and other economic activity was unconstitutional, according to a report by MTC Uniformity Counsel Helen Hecht.
The U.S. Supreme Court’s ruling in South Dakota v. Wayfair, by tossing out the physical presence standard, has put that argument to rest, Hecht said. For that reason the MTC continues to recommend states considering adopting the commission’s “factor presence nexus model” for the purpose of providing a minimum threshold for business taxes.
By so doing, adopting the factor presence standard—based on a remote company’s sales in the state—would protect those businesses with a “relatively small economic footprint” in the state, Hecht said in the report, which she’ll deliver July 27 during the MTC’s virtual annual meeting.
Imagine a company finds out it has a sales tax filing obligation in a state where it’s not registered. Upon further examination, it discovers the obligation extends back several years.
Most states provide two types of programs to get taxpayers to voluntarily come forward in that scenario. Voluntary disclosure agreements are one method, and state amnesty programs are the other.
Entering a voluntary disclosure agreement or participating in an amnesty program can limit liability and exposure and significantly reduce penalties and interest related to unpaid tax liabilities, according to the Sales Tax Institute.
But companies need to discern the differences between VDAs and amnesty programs so they can evaluate the right fit for their situation. Also, they need to weigh the impact of a disclosure agreement on other tax types, the Institute said.
—With assistance from Michael J. Bologna in Chicago and Jennifer Kay in Miami.