California could collect more than $500 million a year in tax from online sales under rules set to take effect April 1.
The revenue estimate is tucked in Gov. Gavin Newsom’s first proposed budget, released Jan. 10. According to the Department of Finance, California’s plan to follow South Dakota’s tax collection thresholds for out-of-state retailers will bring in $219 million between April 1 and June 30, when the fiscal year ends.
Applied to an entire fiscal year, the state’s new policy will bring in $554 million from July 1, 2019, to June 30, 2020, according to Newsom’s budget proposal.
Newsom’s tax revenue estimates assume a notice the California Department of Tax and Fee Administration issued in December 2018 will take effect as planned April 1. The notice requires retailers to collect and remit sales tax if they have $100,000 in sales or 200 transactions into the state in the previous 12 months.
An expected $500 million annual revenue boost could weigh on lawmakers as they decide whether to adopt different rules with a higher sales threshold.
The chairs of the Assembly and Senate tax committees have introduced a bill (A.B. 147) to set the obligation for retailers to collect and remit sales tax at $500,000 in sales into the state in the previous 12 months. They also want online marketplace facilitators like Amazon.com Inc. and eBay Inc. to handle tax collections when they arrange sales and collect payments for third party sellers.
Lawmakers haven’t begun debating the bill from Assemblywoman Autumn Burke and Sen. Mike McGuire. It is unclear if it will pass before the CDTFA notice takes effect April 1. Burke, McGuire, and Newsom are Democrats.
California’s tax notice mirrors the South Dakota thresholds at the center of the U.S. Supreme Court’s South Dakota v. Wayfair ruling.
The Supreme Court’s June 2018 Wayfair decision tossed out its 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 requiring remote sellers to collect sales tax if they had more than $100,000 in in-state sales or 200 transactions would pass constitutional muster.
Registration Without a Law
Sales of software delivered to Georgia customers over the internet remain exempt from sales and use tax, but sellers in certain cases still have to register with the state.
That was the message of a Georgia Department of Revenue letter ruling published to its website Jan. 15, reiterating the department’s reading of state tax law.
The ruling touches on a complicated, multimillion-dollar tax question for software companies trying to navigate the varying state tax treatments of their sales post-Wayfair.
The department issued the letter in response to the inquiry of a software company that appears to be based out of state, although the name and home state of the company are redacted in the letter published online.
Georgia’s sales tax applies to software delivered by “tangible storage media,” such as a disk. Software delivered electronically—such as via the internet—is exempt from sales tax, according to the letter. Nonetheless, state law puts the burden of proving a tax exemption on the seller, meaning any company qualifying as a “dealer” in Georgia would still be required to register for a sales and use tax number.
As of Jan. 1, any company that sells at least $250,000 of goods into Georgia annually must collect and remit sales tax or else comply with reporting and notification requirements—although the legislature is expected to consider repealing the reporting and notification option in its 2019 session.
Third-Party Resolution in South Carolina?
Could there be a deal between South Carolina and Amazon over liability for sales taxes on third-party sales?
Consideration of S.B. 214, a bill to clarify collection requirements for marketplace facilitators, was put on hold by the state Senate Jan. 22, pending a possible agreement in a lawsuit over the issue. Sen. Vincent Sheheen (D), a sponsor of the legislation, requested that an initial vote on the measure be delayed one day to allow the parties to end their dispute.
Sheheen told fellow lawmakers that he “met with both sides and encouraged them to work it out.” Amazon and the Department of Revenue “need to get this cleared up,” he said.
Citing existing authority, the DOR set a $100,000 triggering threshold and a compliance date of Nov. 1. The pending bill aims to make it explicit that marketplace facilitators are required to collect and remit sales taxes.
Amazon began collecting sales tax for South Carolina on Jan. 1, 2016, after a five-year “safe harbor” on such assessments expired. But it is fighting the state over third-party collections even though it has agreed to do so in other jurisdictions.
An administrative law court hearing on the dispute is scheduled for the first week in February. Bonnie Swingle, a spokeswoman for the DOR declined to comment citing pending litigation. Amazon didn’t immediately respond to requests for comment.
—With assistance from Andrew M. Ballard in Raleigh, N.C.; Laura Mahoney in Sacramento, Calif.; and Chris Marr in Atlanta