Daily Tax Report: State

State of Wayfair: Amazon Addressing Illinois Bottleneck

Jan. 9, 2020, 9:21 PM

Amazon Marketplace is working on a solution for an Illinois tax collection bottleneck affecting a narrow group of platform sellers.

The bottleneck came to light Jan. 1, when the Illinois Department of Revenue issued an emergency rule under the state’s marketplace facilitator law. The department specified that facilitators such as Amazon would be responsible for collecting and remitting the state’s 6.25% use tax, but marketplace sellers with a presence in Illinois would be responsible for collecting any taxes due under the Retailers’ Occupation Tax. The ROT is paid by Illinois-based sellers and includes any locally imposed sales taxes.

In a letter, Amazon warned its marketplace sellers doing business in Illinois of these “non-standard rules.” The company said it couldn’t currently help sellers calculate their ROT obligations and advised sellers to work with their tax professionals.

A company spokesperson told Bloomberg Tax, however, that Amazon is working on system updates to help these sellers in Illinois with their ROT calculations. The company has no specific time frame for building the function into its sales platform.

Since the Supreme Court’s seminal South Dakota v. Wayfair ruling, more than 30 states have passed marketplace facilitator laws requiring Amazon Marketplace and similar third-party sales brokers—eBay Inc., Etsy Inc., and Wish, for example—to collect and remit sales taxes on transactions for other, typically smaller, vendors on their platforms.

The ruling threw out the court’s 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 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 June 2018 decision, more than 40 states have begun imposing remote sales tax based on a measure of economic activity instead of physical presence.

Alaska Local Governments Code

Following release of a remote sellers municipal tax code, retailers selling to customers in Alaska may be able to start remitting sales tax to local units of government as soon as April, the Alaska Municipal League said Jan. 8.

The league said the Alaska Remote Sellers Sales Tax Commission had completed its uniform Alaska Remote Sellers Tax Code, which will serve as a “statewide framework for the local collection of sales tax on remote sales.” The code includes an extensive list of supplemental definitions. Alaska is unique among the states responding to the landmark Wayfair ruling, as the only state without a statewide sales tax to permit local jurisdictions to collect tax on remote seller transactions.

The code “establishes the common rules of the road for administering sales taxes on remote commerce,” the league said. Units of government hoping to meet their legal obligations under Wayfair “must adopt the uniform code wholly as it is been agreed upon by the Commission.”

The code will be rolled out to cities and boroughs across the state for adoption in the coming weeks. Once it is adopted, municipalities will be able to begin notifying e-commerce sellers of their duties, leading to collections as soon as March and remittances as soon as April in some communities.

On a separate track, the commission is working on a centralized administration process featuring a customized software system, which is to become available beginning Jan. 31. It will include links to a tax exemption and tax rate database, allowing easy online reporting and remittance, the league said.

Colorado Task Force

A state legislator said Jan. 8 on the first day of the Colorado General Assembly’s 2020 session that she’s confident her colleagues will approve her bill (H.B. 1022) re-upping a special task force dedicated to simplifying the Centennial State’s byzantine system of state and local sales taxes.

Colorado, like other states that have a strong tradition of home rule cities and towns, is generally seen as having one of the most complex systems of sales taxation in the country. The structure is so complicated that none of the home-rule municipalities have begun to require out-of-state sellers to collect and remit sales taxes, something the Wayfair ruling appears to allow them to do.

There are still a lot of changes to be made to the system, and having the Sales and Use Tax Simplification Task Force helps state policy makers understand the ins and outs, said Rep. Tracy Kraft-Tharp (D), chair of the task force, which sunset in 2019. Kraft-Tharp is certain lawmakers will agree the group should be started up again to deal with the new landscape of remote sales taxes post-Wayfair.

Additionally, the state is working on building a single portal for remote sellers to use when filing state and local taxes. Statutory municipalities for which the state collects taxes will automatically be involved in the system, and the hope is that it will work so well that home rule localities will want to use it as well, Kraft-Tharp said.

Colorado also has recently begun imposing collect-and-remit tax obligations on intrastate municipal taxation: In-state sellers should be collecting and remitting local taxes based on the address of the buyer.

—with assistance from Michael J. Bologna in Chicago.

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; Kathy Larsen at klarsen@bloombergtax.com

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