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. Legislative action in North Carolina and Mississippi are among important developments this past week as states continue to tap into connections between online commerce and taxes.
North Carolina lawmakers sent an omnibus tax bill to Gov. Roy Cooper (D) Thursday that shores up revenues but also modifies rules for remote sellers and marketplace facilitators.
The legislation, H.B. 1080, requires food delivery services, acting as marketplace facilitators, to collect and remit local meal taxes as well as sales taxes. The bill also clarifies that North Carolina’s marketplace collection trigger of $100,000 or 200 transactions a year only applies to remote businesses. Those with a physical presence in the state must collect on all sales.
Mississippi could be the next marketplace facilitator state, with duties starting July 1, under a bill, H.B. 379, sitting on the desk of Gov. Tate Reeves (R).
If Reeves signs the bill next week, 42 of the 45 sales-tax states will have laws imposing tax duties on marketplaces such as Amazon.com Inc., Etsy Inc., and eBay Inc. and 43 states will have economic nexus laws. Florida and Missouri remain the two outliers, with no remote seller or marketplace facilitator laws.
July 1 also marks the compliance start date for marketplace facilitators in Louisiana, where Gov. John Bel Edwards (D) approved his state’s law just two weeks ago.
The Louisiana Sales and Use Tax Commission for Remote Sellers wants to support compliance with fresh guidance aimed at marketplace facilitators. And for remote sellers who may need a refresher on their obligations before the July 1 deadline, the commission also drafted FAQ guidance that describes most features of the program.
Although nearly every sales tax state has remote-vendor laws, many e-commerce companies aren’t compliant yet. And states aren’t fully prepared to enforce their laws.
Those are two main conclusions of a sales and use tax report by tax software firm Sovos, released Wednesday. Changes are on the horizon, especially in light of the states’ enormous Covid-caused budget shortfalls, the report said.
States will undoubtedly consider increasing rates or passing new taxes as a way to close money gaps, Sovos said. Another solution would be technology-enabled processes such as “continuous transaction controls” to get the most possible compliance with existing requirements, it said.
A separate analysis by another tax software vendor warned the coronavirus pandemic is accelerating long-term trends that will reshape the world of tax administration.
The health crisis has had a dramatic impact on broader social and economic themes including automation, digitization, online shopping, telecommuting, and consumption of services rather than goods, tax compliance company Avalara said Monday. Rapid change across these themes will shift priorities and revolutionize strategies for tax collection, audits, and enforcement, it said.
Sovos and Avalara issued their reports as forward-looking critiques observing the second anniversary of the Wayfair ruling, which was decided June 21, 2018.
In other Covid-connected developments, a Wisconsin think tank is raising questions about a quirk in the state’s Wayfair-inspired laws that will require surging revenues from online sales to be refunded to taxpayers at a moment of fiscal crisis for the state.
The Wisconsin Policy Forum found collections from e-commerce transactions grew 133% in April, but Wisconsin requires the new revenue to be distributed to taxpayers the following year through reductions to the income tax. The group suggested Wisconsin may want to cap the amount devoted to income tax cuts and “avoid some of the need for spending cuts or increases in other taxes to balance the state budget.”
—With assistance from Tripp Baltz in Denver, Jennifer Kay in Miami, and Andrew Ballard in Raleigh, N.C.