The Streamlined Sales Tax (SST) Governing Board held an open discussion of South Dakota v. Wayfair, Inc. on July 19, 2018. Wayfair struck down the requirement that a vendor must be physically present in a state to be subject to sales and use tax in that state.
The SST is an effort by state and local governments to simplify sales and use tax on a national level. Twenty-two states are members of the project, and two states are associate members. Analysis of the Wayfair decision came from Craig Johnson, SST Governing Board Executive Director, and Stephen Kranz McDermott Will & Emery.
The governing board also met in closed session on July 20.
Kranz noted that the U.S. Supreme Court did not give “carte blanche” to states to tax remote sales. The Court, said Kranz, did not establish a bright line and instead set forth a set of principles. He also said further challenges may come. He cautioned that if a state gets further away from the threshold established by South Dakota, the more likely it will be challenged. A “hard and fast speed limit” was not set, Kranz noted, and that if a state becomes “reckless,” it is likely to be challenged.
Responding to comments and questions, Kranz noted the importance for uniformity at the local level. He said that the local tax burden has been responsible for the inability of states to require remote collection. No one is opposed to local collection, but if local jurisdictions are unwilling to lessen the burden by creating uniformity, state-only collection may be an option.
Implementation of Wayfair and Economic Sales Tax Nexus
Retroactivity is a key issue. Kranz noted that Congress is watching and asking questions about retroactivity. He cautioned that if states try to apply Wayfair retroactively, Congress will become concerned.
Even before the decision came out, states started thinking about how they should react, according to Johnson. “Put yourself in the shoes of a remote seller. What would you want to know?” he asked. Remote sellers are making sales every day and wondering whether they are accruing liability to collect.
Johnson noted that the governing board meeting is intended to get all member states to move in the same direction. Businesses are asking questions, and the answers must be consistent.
Getting Ready for Economic Nexus
Participants raised many issues related to the implementation of an economic nexus standard, including:
- How would drop shipments be affected?
- What type of sales transactions (gross sales, gross revenue, taxable sales) go towards meeting thresholds?
- Once the threshold is met, how soon must a remote seller start collecting?
- How will thresholds and collection apply to start ups?
- Once nexus is established, does a seller always have it in that jurisdiction?
- If a mail order sellers converts to a brick and mortar seller, does it lose nexus?
- What if a purchaser knows they have met the threshold but the seller does not collect?
- Do nontaxable sales push a seller to the threshold? What about sales to exempt users or exempt entities?
Johnson urged SST members and non-members to consult the following for guidance:
- SST taxability matrix
- SST taxable services and exemption matrix
- Rate and boundary database
Governing Board Emergency Meeting, Streamlined Sales Tax Governing Board, July 19, 2018
Learn about the decision in South Dakota v. Wayfair and get CPE Credit at Quill Overturned: Understanding State Tax Issues.