Sales and use tax collections from e-commerce transactions have become the one silver lining running through the coronavirus cloud darkening state revenue coffers.
The evidence is still anecdotal, but sources watching state revenue numbers told Bloomberg Tax collections from online sellers were at least 25% higher during the early months of the pandemic compared to the same period last year.
The surge is attributed to increases in online shopping due to state shelter-in-place orders and wider compliance with sales tax statutes reflecting the precedent established in the Supreme Court’s South Dakota v. Wayfair ruling. The 2018 ruling cleared the way for states to require remote sellers and online marketplaces to collect and remit taxes from e-commerce transactions.
Vermont is a strong example.
Online sales typically account for less than 12% of Vermont’s monthly sales tax collections, said Thomas E. Kavet, chief economist for the Vermont Legislature. But the number has doubled since Vermont’s state of emergency began on March 13. And the percentage may actually be higher because Vermont waived penalties for late payments, suggesting additional quarterly sales tax revenue is still arriving.
“Clearly the online world is taking great advantage of what’s happening,” Kavet said. “And it’s really important for state revenue because there aren’t a lot of bright spots in revenue collections across the whole range of tax sources.”
The surge can also be seen across the 24 states conforming to the Streamlined Sales and Use Tax Agreement, a unique pact harmonizing tax practices for remote sellers. While several states haven’t submitted final first quarter 2020 tax collections data, initial reports from a handful of states reveal revenue increases ranging from 25% to 100% in comparison with 2019 data.
“The main reason for the increase in collections is simply the growth of the streamlined program itself,” said Craig Johnson, executive director of the Streamlined Sales Tax Governing Board Inc.
More than 10,000 sellers have registered through the streamlined registration system and are actively collecting and remitting sales and use taxes, Johnson said. During the first quarter of 2019, there were only 5,700 active sellers. The pandemic hasn’t discouraged sellers from registering with the SSUTA, he said. During March and April, 650 sellers registered in the streamlined states.
The seminal Wayfair decision tossed out the Supreme Court’s 1992 physical presence standard affirmed in Quill Corp. v. North Dakota, which had limited the ability of states to tax remote sales. The majority in the 5-4 Wayfair ruling suggested strongly that South Dakota’s law would pass constitutional muster.
Since the decision, all but two of the sales tax states have begun imposing collection and remittance requirements based on a measure of economic activity, as opposed to physical presence. More than 30 states have passed marketplace facilitator laws, which place a duty to collect and remit sales tax on large online websites that broker transactions.
Louisiana Marketplace Bill Moves Ahead
The Louisiana Senate unanimously approved a proposal to require marketplace facilitators to collect and remit sales and use taxes.
Marketplace facilitators would be held to the same economic presence thresholds as remote sellers: $100,000 in sales or 200 transactions into the state. The bill sponsored by Sen. Bret Allain (R) would take effect July 1, when Louisiana will start collecting state and local sales taxes from remote sellers.
Presenting his bill for a final reading on the Senate floor, Allain said it came out of the Louisiana Supreme Court’s Jan. 29 decision finding that Walmart.com wasn’t required to pay local sales taxes to Jefferson Parish for transactions through the company’s online marketplace.
“This may be the only bill that generates real dollars this year,” Allain said.
Missouri and Kansas
Despite a recent campaign by mayors for legislation imposing tax duties on remote sellers, Missouri’s governor is unsure if he will call a special session to address the issue.
“I don’t know about special sessions at this point,” Gov. Mike Parson (R) said in a press call Monday when asked if Wayfair-inspired legislation alone would be enough to prompt a special session.
Last week a group of mayors pushed Parson for a special session aimed at creating tax parity between online sellers and brick-and-mortar stores. Parson has expressed support for such a law since 2018, but a special session might be necessary because Missouri’s assembly is scheduled to adjourn May 15.
Missouri and Florida are the only states with sales taxes that haven’t passed legislation imposing tax duties on remote sellers.
In nearby Kansas, a legislative committee was scheduled to take up a marketplace facilitator bill Tuesday, one of three Wayfair-related bills still pending in the state legislature. Lawmakers on the House Taxation Committee will meet again Thursday and could potentially vote on H.B. 2657, which would require online marketplaces such as Amazon, eBay, and Etsy to collect and remit the state’s 6.5% sales tax.
Kansas is the only state that taxes remote sales without a dollar amount or transaction threshold triggering the collection-and-remittance obligation.
It appears that the two other Wayfair-related bills—each of which includes a threshold—will die without further legislative consideration, Michael Austin, director of the Kansas Policy Institute and former director of the state Department of Revenue, said Tuesday.
Illinois Proposed Rule
The Illinois Department of Revenue will be accepting public comments through June 22 on a proposed regulation implementing the state’s law addressing tax collections by marketplace facilitators.
The department said the proposed rule includes:
- Definitions of relevant terms;
- The scope and nature of the obligation to collect and remit tax;
- Factors for determination of status as a marketplace facilitator;
- Clarification of the transactions that are included or excluded in determining if thresholds are met; and
- A full explanation of the obligations of marketplace facilitators and sellers.
—with assistance from Jennifer Kay in Miami, Sam McQuillian in Washington, D.C., and Tripp Baltz in Denver.