Complying with a patchwork of Wayfair-inspired state sales and use tax laws is tough enough for small remote sellers, but what happens to retailers routinely battered by fluctuating sales?
Patterns of sales surges and droughts could create scenarios in which small sellers have economic presence in a particular state one year, but not the next. The uncertainty and burden associated with tax compliance for these retailers could constitute a viable due process violation, according to Fred Nicely, senior tax counsel at the Council on State Taxation, a Washington-based nonprofit trade association.
“I could see a due process issue arising from a seller that sees casual transactions,” Nicely said Nov. 19 during the Bloomberg Tax Leadership Forum in Washington. “If every couple years they see their business spike, but there is no regular business flow, it could create a harsh burden for the seller.”
Nicely’s premise is one among a number of possible legal issues that practitioners have raised in the months since the U.S. Supreme Court’s 2018 ruling in South Dakota v. Wayfair.
The Wayfair decision threw out the physical presence standard affirmed in 1992’s 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, which requires remote sellers to collect sales tax if they have more than $100,000 in sales or 200 transactions with buyers in the state, would pass constitutional muster.
Since the decision, more than 40 states have begun imposing remote sales tax based on a measure of economic activity, instead of physical presence. In addition, more than 30 states have passed marketplace facilitator laws, which place a sales tax collection duty on large online websites that handle third-party sales such as Amazon Marketplace, eBay Inc., and Etsy Inc. States with expansive facilitator laws may also capture payment processors, advertisers, delivery services, and travel businesses.
Louisiana Moves on Tax-Filing Portal
The Louisiana Sales and Use Tax Commission for Remote Sellers is hoping to ease burdens on retailers required to collect taxes under the state’s Wayfair-inspired law through a proposed electronic tax-filing portal.
The commission unanimously approved a proposal by Virginia-based Avenu Insights & Analytics to create a software portal for remote sellers to pay sales taxes, file tax returns, and make refund requests, according to Andre Burvant of Jones Walker LLP, who attended the commission’s Nov. 14 meeting. No other proposals were presented.
However, vendors will need a separate system to determine and collect the appropriate sales taxes, Burvant said.
The proposal suggests a price tag of $466,666 for the design, development, and implementation of Louisiana’s Sales and Use Tax E-filing and Collection system. Avenu pegged the annual cost for hosting, operating, and maintaining the portal at $95,450.
The state set a July 1, 2020, deadline for streamlining the process for remote sellers to collect and remit sales taxes.
Individual Louisiana parishes have authority to levy their own sales taxes and handle those collections.
Illinois Publishes Wayfair Regs
For more than a year Illinois has been requiring remote sellers to collect and remit taxes in line with standards established in the Wayfair ruling, but on Nov. 15, the state formally adopted and published its regulations for the program.
The regulations, published in the Illinois Register, adopted the “economic nexus” standard laid out by the Supreme Court and described remote sellers’ use tax remittance duties. The rules, implementing Illinois Public Act 100-587, set the collection threshold at $100,000 in gross receipts or 200 separate transactions for sale of tangible personal property into Illinois.
The regulations include definitions, practical guidance, and a number of examples designed to help retailers as they comply with the state program.
—With assistance from Ryan Prete in Washington and Jennifer Kay in Miami.