Reading the Supreme Court’s mind on Wayfair
Six months after the Wayfair ruling, state tax administrators and business communities are still trying to figure out exactly what the Supreme Court intended, according to Scott Peterson, former executive director of the Streamlined Sales Tax Project and currently vice president of U.S. tax policy and government relations at Avalara.
“They seemed to give an indication that in [Streamlined Sales Tax] states, the sales tax would pass muster, but they didn’t really say they would, and didn’t go into any detail on what it was they liked about what was in SST. That leads every state that’s not a member wondering what were the salient things the court liked about SST. States are trying to figure out the bare minimum the Supreme Court required: They have to have a small-seller exception, and they need to not apply the tax retroactively, and that’s all. They said a couple of nice things about what SST states do, but they never said they were mandatory, they just mentioned them.”
States are implementing their response to Wayfair in different ways, Peterson observed. Pennsylvania and New York have just announced their own intention to tax remote sellers.
“They have announced they would implement the Wayfair decision by an interpretation of existing law, rather than through new legislation. There is the potential for other states to look to this as an example of how to quickly and effectively implement Wayfair,” Peterson noted.
On Jan. 8, 2019, the Pennsylvania Department of Revenue issued a bulletin explaining a new interpretation of their current “engaged in business” law, which will allow them to require remote sellers to collect and remit sales tax.This will go into effect on July 1, 2019.
Although Pennsylvania is not an SST member state, it is unlikely to run afoul of the minimum standards, Peterson indicated. “Pennsylvania is not particularly complicated,” he said. “It only has two additional jurisdictions -- Philadelphia and Pittsburgh -- compared to states like Texas and Missouri, which have hundreds. In some states, the sales tax may be so overwhelming as to be worthy of a court challenge, but Pennsylvania isn’t one of them.”
Like the South Dakota legislation at issue in Wayfair, the Pennsylvania law sets a $100,000 threshold. “The odds that a multi-state retailer will exceed the $100,000 threshold in South Dakota are a lot less than that they would exceed that threshold in a large state like Pennsylvania,” Peterson observed. “In Pennsylvania, the law requires you to get a sales tax license if your gross sales exceed the threshold, and then you have to collect and remit on items that are taxable. So in theory, this would include steel sold to a manufacturer -- you need the license even though the item sold may be exempt from tax. States are going to get license applications from people who historically have not been in the sales tax arena before, which is why everyone needs to go out and get hold of a CPA and find out.”
“Pennsylvania is the first state that is not an SST member state to put in writing that they will certify solutions providers like Avalara to help retailers,” he added. “SST states realized long ago that one of the values they could add was to certify software companies.”
Under the SST agreement, a Certified Service Provider can perform all the seller's sales and use tax functions, and their services are provided free to sellers in member states.
“In SST states, we have to prove that we can register a taxpayer with that state, that we can file a return, and we have to prove that we can make a remittance, and that we understand what is taxable and what is exempt,” said Peterson. “Pennsylvania didn’t use the same exact words, but the effect is the same.”
On the heels of the Pennsylvania action, New York published a notice on its website stating that their current law requires sellers to get a sales tax license and begin to collect, according to Peterson.
“Their announcement does not contain an effective date,” he noted. “Unless the state modifies this announcement, it appears from the following from their announcement that some sellers may already be delinquent: ‘A person is presumed to be regularly or systematically soliciting business in the state if, for the immediately preceding four sales tax quarters: The cumulative total of the person’s gross receipts from sales of tangible personal property delivered into the state exceeded $300,000; and such person made more than 100 sales of tangible personal property delivered in the state. Therefore, a business that has no physical presence in New York State but meets the requirements outlined above must register as a New York State vendor. Such business is required to register as a vendor immediately immediately if it has not already done so.’