NRF On The Case For Revising eCommerce Sales Tax Laws

The 2018 South Dakota v. Wayfair ruling gave states and cities permission to tax remote sellers and online marketplaces based on their economic participation in the state, regardless of whether they had physical presences. State and local governments aren’t satisfied with stopping their tax updates there, however, with many exploring if the Supreme Court ruling also opens the door to applying a wider range of taxes on remote merchants including corporate net income tax. Online retailers aren’t sitting still when faced with new taxes — and some are even fighting back in court.

The dispute continues over exactly what kinds of companies and activities qualify for new eCommerce sales taxes. The October Next-Gen Sales Tax Tracker delves into the latest on this ever-evolving online sales tax landscape.

Around The Next-Gen Sales Tax World

Kansas’ economic nexus tax recently came under fire from its own government. The state’s attorney general recently shot down the Department of Revenue’s tax law, arguing that the lack of a safe harbor provision exempting small businesses or those with little in-state economic activity made the law invalid. The attorney general said that Kansas’ economic nexus policy conflicted with the model established in the Wayfair ruling.

Small retailers may be struggling with Kansas’ law, but large retailers are meanwhile coming under fire in South Carolina. The latter state’s Department of Revenue sued Amazon on allegations that the eCommerce giant should have been paying taxes on remote merchants’ sales facilitated over its marketplace, and the agency demanded back taxes. A court ruled in South Carolina’s favor recently and its decision could potentially require Amazon to pay millions of dollars for more than three years of unpaid sales taxes.

Elsewhere, major eCommerce marketplace eBay is enjoying a warm reception in California. The city of San Jose recently offered eBay a kickback-style deal that would divert tax revenue from other Californian municipalities and into the bank accounts of San Jose and eBay. The agreement calls for eBay to pretend that all of its sales into California are made with residents of San Jose, regardless of where the consumers are actually are located. San Jose would therefore see a surge in its tax collection and would pay eBay a share of this new revenue.

Find more on these and all the latest headlines in the Tracker.

The Push To Refine eCommerce Sales Tax Laws For Marketplaces

Fights aren’t just being waged over how cities and states can enact economic nexus policies. Many governments also have or are introducing marketplace facilitator tax laws that require eCommerce platforms to collect and remit tax on third-party sales they help support. Now that these laws are being enacted, however, some observers are noting where the policies may need fine-tuning and are pushing for change that would facilitate compliance. Some marketplace facilitator laws are written so
broadly that entities that do not actually handle the payments for third-party transactions would still be required to collect sales taxes on them, for example, explained National Retail Federation Vice President of Government Relations and Tax Counsel Rachelle Bernstein. In this month’s Feature Story, Bernstein details the need for simplifying marketplace facilitator taxes and the path to potential change.

To read the full story, download the Tracker.

Deep Dive: The Complex, Ongoing And Unexpected Effects Of Wayfair On Retailers

Sellers who wished to minimize their tax obligations used to be able to do so by locating their businesses in low or no tax states and then carefully limiting the activities they conducted in other states so as to avoid qualifying under each localities’ particular definition of “physical presence.” Those kinds of evasions are no longer an option in a post-Wayfair world.

Remote sellers are now working to identify the full extent of their eCommerce tax obligations in the areas in which they operate. Some states may require them to pay sales taxes, others may put sales tax collection responsibilities onto the marketplaces and still others may apply income and franchise taxes. This month’s Deep Dive examines how U.S. and international retailers are working to comply with the shifting U.S. online tax landscape.

Read the full Deep Dive in the Tracker.

About the Tracker

The Next-Gen Sales Tax Tracker, done in collaboration with Avalara is your go-to monthly resource for updates on trends and changes in the world of eCommerce sales tax.