The Multistate Tax Commission (MTC) held a public hearing on May 18, 2011, to discuss a proposed model sales and use tax notice and reporting statute. As previously reported, the proposed statute was developed by the MTC Uniformity Committee and is modeled on remote-seller legislation enacted in Colorado in 2010. (TAXDAY, 2011/04/19, S.1) As drafted, the statute would require sellers that do not collect sales or use tax on items delivered to a state that has adopted the statute to (1) provide notice at the time of the transaction that tax may be due, (2) provide an annual report to purchasers listing the transactions on which tax was not collected, and (3) provide an annual report to the state’s department of revenue providing dollar amounts and customer information (such as name and billing address) for each transaction on which tax was not collected. The statute provides exceptions with regard to small sellers, de minimis in-state sales, and sellers that register to collect sales and use tax.
MTC general counsel Shirley Sicilian stated that the purpose of the model statute is twofold. First, she stated that the statute provides a public service from an informational standpoint by acknowledging that remote purchasers are unaware that tax may be owed. Second, Sicilian stated that the statute aids in tax collection through the use of reports. She also pointed out that the statute has a confidentiality component, insofar as purchaser information would be treated as confidential taxpayer information.
Jamie Yesnowitz, Grant Thornton LLP and Vice Chair of the American Institute of CPAs (AICPA), spoke in opposition to the model statute as drafted. Yesnowitz stated that the statute undermines the Streamlined Sales Tax (SST) project through burdensome notice and reporting requirements and that it is poor tax policy to essentially force registration by out-of-state retailers with no physical presence under Quill Corp. v. North Dakota, , U.S. Supreme Court, 504 U.S. 298, 112 S.Ct. 1904 (1992). Yesnowitz added that individual use tax requirements should not be policed where there is no sales tax requirement. He also pointed to The Direct Marketing Association v. Huber, U.S. District Court, D. Colorado, No. 10-cv-01546-REB-CBS, in which a federal district court granted a preliminary injunction in January prohibiting the enforcement of Colorado’s recently enacted remote-seller provision that contains similar notice and annual reporting requirements. (TAXDAY, 2011/01/31, S.7) Yesnowitz stated that given a likelihood of success against the Colorado provision, it is unwise to use this enjoined law as a template.
Tim Jennrich of the Washington Department of Revenue, Interpretation and Technical Advice Division, also spoke in opposition to the proposed model statute. Jennrich stated that the statute is an incomplete solution because it does not address the substantial cost and barriers involved in collecting sales and use taxes directly from consumers. He also stated though the purpose of the MTC Compact is uniformity, the proposed statute does not take into account the lack of uniformity among states with respect to the reporting of use tax on income tax returns. Jennrich also cited potential complications pertaining to sourcing and, like Yesnowitz, cautioned that it is premature to move ahead with the statute in light of the pending litigation in federal court.
As the next step, a recommendation will be submitted to the MTC Executive Committee for evaluation. The Executive Committee, which meets next in early June, will decide whether to move ahead on the statute or whether to call for amendments. If the Executive Committee recommends moving forward and 50% of the MTC Compact Member states are in agreement, the statute will be considered at the MTC’s annual meeting in July in Whitefish, Montana.
A copy of the draft model statute can be found at http://www.mtc.gov/Uniformity.aspx?id=5092.
Public Hearing, Multistate Tax Commission Sales & Use Tax Uniformity Subcommittee, May 18, 2011