Remote sellers and marketplace facilitators coping with diverse state sales tax obligations after the landmark Wayfair ruling are still frustrated with the lack of uniformity across the map.
“The EU has 28 countries, but their VAT structure uses all the same rules,” Douglas Lindholm, president and executive director of the Washington D.C.-based Council On State Taxation, said Tuesday. “We have 50 states that are subnational entities that all do it differently. There are efforts to make it more uniform, but they aren’t really succeeding.”
Lindholm’s views received a warm reception from retailers and tax practitioners attending the Ohio Manufacturers Association’s Business Tax Conference in Columbus. One panel discussion focused on compliance costs and complications for multistate organizations trying to meet their tax duties in multiple jurisdictions.
State laws requiring marketplace facilitators to collect and remit taxes on behalf of sellers have relieved some burdens, said Monica Kilgren, a tax department chief for the Ann Taylor, Justice, and Lane Bryant fashion brands. But that’s not the whole story.
“With marketplace facilitators, we spent months going back and forth on a contract, trying to protect ourselves,” said Kilgren, whose formal title is vice president of corporate tax, of New Albany, Ohio-based Ascena Retail Group, Inc. “If they don’t collect the right sales tax, are the states going to come after us? That’s something we need clarity on—who is the responsible party?”
The Supreme Court’s 2018 Wayfair ruling created a framework for states to collect sales taxes from remote retailers. In Wayfair, the court tossed the physical-presence standard affirmed in 1992’s Quill Corp. v. North Dakota, which limited the ability of states to tax remote sales.
Since the Wayfair decision, all but two of the sales-tax states have begun imposing remote sales tax according to economic activity, rather than physical presence. In addition, more than 30 states have passed marketplace-facilitator laws, which place a duty to collect and remit sales tax on large websites such as Amazon Marketplace, eBay Inc., and Etsy Inc. that broker transactions.
Real-Time Tax Remittances?
State revenue agencies and retailers will have to tackle a menu of practical problems before following Massachusetts’ lead and rigging physical and virtual cash registers for daily sales- and use-tax remittances.
Daily or real-time tax collection will probably be a goal for most state revenue departments, but not immediately, said Scott Peterson, vice president for government relations at the tax software and sales tax administration company Avalara.
“I suppose this idea is something that will eventually happen, but there are issues that must be resolved, worked through, before it could apply to every retailer,” said Peterson, who was South Dakota’s sales-tax director before joining Avalara. “I think a majority of those issues need to be worked out before the idea would spread to other states.”
Daily tax collection got some juice last week when Massachusetts Gov. Charlie Baker (R) introduced a sales-tax modernization plan as part of his budget. The plan would require retailers to remit taxes each day beginning in 2023.
Peterson pointed to at least three problems states and retailers would have to conquer before heading in that direction:
- breaking down communication gaps between retailers and payment processors;
- improving the tax administration abilities of smaller retailers; and,
- building the capacity in state revenue agencies to receive daily or real-time payments.
South Carolina is expanding its guidance on voluntary disclosure of tax liabilities to specifically address remote sellers.
Under the state’s voluntary disclosure rules, companies with unpaid tax liabilities have the opportunity to come forward and pay their debts with interest while avoiding the penalties that otherwise would be assessed. Participating taxpayers generally remit taxes and interest for the previous three years unless they were only liable for a shorter period.
South Carolina’s Department of Revenue released draft guidance Jan. 24 that includes information on participating in the voluntary disclosure program tied to the Nov. 1, 2018, date that remote sellers were required to begin collecting sales taxes. The state’s requirements for collecting and remitting taxes apply only to remote vendors with annual gross revenues greater than $100,000 from sales sourced to South Carolina.
The DOR is taking comments on the draft until Feb. 14.
Bonnie Swingle, a spokeswoman for the state agency, said remote sellers have collected more than $97 million in state and local sales taxes since the Nov. 1, 2018, compliance date.
—With assistance from Alex Ebert in Columbus, Ohio and Andrew Ballard in Raleigh, N.C.