Tennessee has joined the majority of sales tax states with a law requiring marketplace facilitators such as Amazon.com Inc., eBay Inc., and Etsy Inc. to collect and remit taxes on remote sales.
Gov. Bill Lee (R) signed the measure (S.B. 2182) Wednesday, imposing the obligation on online marketplaces with more than $500,000 of annual sales into the Volunteer State, the same threshold the state previously set for remote sellers. The law takes effect Oct. 1.
Lawmakers in the state House and Senate passed it almost unanimously two weeks earlier, as they rushed to finish budget-related business before suspending the legislative session amid the coronavirus pandemic.
The new law is expected to generate $113 million annually in state revenue plus $38 million in local tax revenue in fiscal year 2021-22 and beyond, according to a legislative staff analysis.
The state will need the additional tax revenue, bill sponsor Rep. Patsy Hazlewood (R) said during House floor debate March 19.
Marketplace facilitator laws have blossomed in more than 30 of the 45 sales tax states in the wake of the Supreme Court’s seminal South Dakota v. Wayfair ruling. The June 2018 decision tossed 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 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 to buyers in the state, would pass constitutional muster. Since the June 2018 decision, all but two states—Missouri and Florida—have asserted their authority to impose remote sales tax based on a measure of economic activity, as opposed to physical presence.
Missouri on Hold
Missouri is frequently mentioned as a state willing to hop on the streamlined sales tax bus, and lawmakers even kicked the tires on the idea earlier this year.
But with the coronavirus pandemic interrupting Missouri’s legislative calendar and the state’s failure to enact a bill taxing remote sellers, hopes for an alliance with the Streamlines Sales and Use Tax Agreement are off the table.
“I wouldn’t hold my breath on that one,” said Rick Najjar, a state and local tax consultant in the Kansas City, Mo., offices of BKD CPAs & Advisors LLP. “There is too much to do to conform to the SSUTA, especially if they want to get something through now on Wayfair.”
State Rep. Warren Love (R) kicked off the conversation in January with H.B. 1967, which would have brought Missouri into full compliance with the SSUTA, a unique pact among the 24 member states aimed at harmonizing and standardizing tax practices for remote sellers. H.B. 1967 had a hearing in the House Feb. 12, but never advanced.
Scott Peterson, vice president for government relations at the tax software and sales tax administration company Avalara, said Missouri just isn’t on a path to conform to the tax pact any time soon. Peterson was also a former SSUTA executive director.
“Missouri has long talked about SST, but the list of things they would have to change is long,” he said. “I would feel more confident they are interested if after all the years of talking about the issues on the list they would have addressed some of them.”
Telecommuting and Taxes
The vast number of employees working from home because of the coronavirus pandemic raises some potential thorny tax issues for some companies, a state and local tax practitioner said Wednesday.
Companies often trigger nexus thresholds for corporate income taxes by having telecommuters or remote workers in a state where they weren’t working before, said Dan De Jong, senior manager of state and local tax for KPMG LLP. He was speaking during a webcast by the accounting firm.
By ushering in a new era of economic presence in lieu of physical presence, Wayfair has reduced the likelihood telecommuting will create a state tax liability, De Jong said. But if a company takes the stance that Public Law 86-272 means they don’t have nexus, having new legions of remote workers might change that, he said.
The 1959 federal law says a state can’t impose an income tax on a company if the company’s business activities in the state are limited to solicitation of orders for tangible personal property.
“If you have a lot of sales in a state, because of economic nexus, it’s likely you’re filing income taxes there,” De Jong said. “But if you’re taking a PL 86-272 stance, the presence of a new telecommuter because of COVID-19 may cause weakness to that position. Taxpayers may want to take a closer look at that.”
De Jong noted that Mississippi and New Jersey recently issued guidance that the presence of a new remote worker won’t be something that changes nexus considerations. “Keep an eye out for more states doing that, or coming to a different stance,” he said.
—With assistance from Michael J. Bologna in Chicago and Chris Marr in Atlanta.