The recent U.S. Supreme Court decision allowing states to require remote sellers to collect sales taxes has created new avenues of uncertainty requiring legislative clarification. Route Fifty identifies some of the challenges.
“Now comes the interesting part,” Kim Rueben, director of the State and Local Finance Initiative at the Urban-Brookings Tax Policy Center, said at an event on Tuesday…
There’s plenty to be sorted in the coming months.
Justice Anthony Kennedy’s opinion in Wayfair appears to endorse elements of the South Dakota sales tax law that led to the case, offering a checklist of sorts for states considering legislation.
Some of these elements include a “safe harbor” to shield businesses with minimal online business in a state from sales taxes, not applying the taxes retroactively to past transactions, and tax administration that is centralized, rather than fragmented across localities.
It’s still possible that a court could strike down a state sales tax law targeting online retailers, if it’s determined that the law imposes too heavy a burden on interstate commerce.
Setting thresholds will be important.
One key area where there’s some uncertainty has to do with the “de minimis,” or minimum, levels of online retail activity that will be covered by state tax laws. Joe Bishop-Henchman, executive vice president of the Tax Foundation, said he thought de minimis guidelines will “probably be the next big issue of contention.”
The South Dakota statute that spurred the Supreme Court case is written to only apply to vendors with over $100,000 of sales, or 200 separate transactions in the state annually.
It’s also possible Congress will step in the guide the process (yes, we know the phrase “guide the process” when applied to Congress is counterintuitive).
Meanwhile, Overstock.com, Inc., which joined Wayfair in challenging the South Dakota tax statute, said Monday it had voluntarily started the process to collect sales tax on purchases made by consumers from the more than 12,000 U.S. tax jurisdictions.
The company is also urging Congress to intervene with legislation. Congress has failed previously in attempts to reach consensus in both the House and Senate on legislation to address online sales tax issues.
Bishop-Henchman said that House lawmakers in March came very close to including legislation known as the Remote Transactions Parity Act in an “omnibus” spending package. But he said this effort was ultimately derailed, mainly due to lobbying by online retailers.
The Route Fifty piece offers a good overview of where this might be headed. Stay tuned.