Experts Look to Congress for Sales Tax Resolution

Bloomberg’s 19th annual Bloomberg Tax Survey of State Tax Departments tells us that 33 of the 50 states have already made tax changes in response to the Wayfair decision. That Supreme Court ruling struck down Quill, the case that said sellers didn’t have to collect sales tax unless they had a real physical presence in a state.

Wayfair, which was intended to update sales tax law in light of ecommerce, allows states to set laws requiring sellers outside the state to collect and remit sales tax.

33 states have now made such laws, all relying on economic nexus. That’s twice as many as last year.

Another six states reported that they were in the middle of implementing this kind of tax change — or dealing with such changes through the courts.

Thirteen states said that marketplace sellers, such as Amazon and Etsy, are responsible for collecting sales tax from their sellers. Interestingly, nine of those states say that individual marketplace sellers are still responsible for their sales tax compliance, even if the marketplace takes on that role.

What do the experts say?

Bloomberg talked with some tax law experts for interpretation of the data they collected. Jeffrey Friedman claimed that 100% compliance is all but impossible. The variety among states is just too extreme, he said.

For example, some states use a calendar year to set thresholds for sales tax collection, while others use the twelve months preceding filing. Some states include wholesale sales and some do not. Add differences like these to the enormous variety and changeability of sales tax rates in multiple jurisdictions, and you’ve got something seriously complicated.

Art Rosen questioned the states’ position that sellers get something from the states and should have to pay for it. “In America’s free market system, each customer gets to choose from whom to buy and, more important, gets just as much out of the transaction as the seller,” Rosen told Bloomberg. “The customers are the ones that receive the benefits and protections provided by the states in which they have physical presence.”

Rosen, Friedman, and in fact all the experts Bloomberg spoke with believe that it’s time for Congress to step in. They believe that sales tax compliance would be easier with more uniform definitions of nexus, sales thresholds, and which sales should be included in those thresholds.

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