WASHINGTON – State and local governments were advised Thursday to avoid imposing burdens on out-of-state e-commerce retailers that could spark a new round of litigation as they begin implementing the Supreme Court’s South Dakota v. Wayfair, Inc. ruling on sales taxes.

New Hampshire – one of the five states without a statewide sales tax – may already be leading the way. Its state legislature will hold a special session on Aug. 15 to consider legislation that would prevent in-state businesses from being forced to collect sales taxes for other states and jurisdictions.

"We are going to move quickly," Republican Gov. Chris Sununu was quoted as saying by the Associated Press. "We are going to take a national lead in this process. The Supreme Court got this one wrong, and we're going to make sure our businesses are protected."

George Isaacson, the attorney who represented e-commerce retailers Wayfair, Overstock and Newegg before the U.S. Supreme Court.
George Isaacson, the attorney who represented e-commerce retailers Wayfair, Overstock and Newegg before the U.S. Supreme Court. Brian Tumulty, The Bond Buyer

George Isaacson, the attorney who represented e-commerce retailers before the Supreme Court, has said also that Massachusetts and Hawaii are applying the ruling retroactively.

However, both states announced their action prior to the June 21 court decision and took action based on a new state law in the case of Hawaii and a new regulation in the case of Massachusetts.

Massachusetts announced in September that it would begin requiring out-of-state online retailers to begin collecting sales tax for transactions as of Oct. 1, 2017 if they had at least $500,000 in Massachusetts sales or at least 100 transactions.

The Massachusetts regulation uses computer data cookies as a physical presence.

The Massachusetts Department of Revenue reports that nearly 300 businesses have registered with the state because of the regulation.

Hawaii Gov. David Ige signed legislation on June 12 that uses the same 200-transaction or $100,000 in sales standard as the South Dakota law and became effective on July 1. But the new law applies to calendar year sales dating back to Jan. 1 of this year and is therefore retroactive.

Isaacson suggested that Congress should enact legislation both to prevent states from attempting to collect sales tax retroactively and give them a transition period through the end of this year.

During a webinar on Thursday moderated by the National League of Cities, officials pointed out that the South Dakota case has been remanded by the U.S. Supreme Court back to the South Dakota Supreme Court.

“The court has emphasized that the undue burden on businesses has not yet been resolved,” said Emily Brock, director of Government Finance Officers Association's federal liaison center.

The Supreme Court’s majority opinion written by retiring Justice Anthony Kennedy also took note of South Dakota’s effort to minimize the burden on remote sellers through its membership in the Streamlined Sales and Use Tax Agreement which includes 24 states.

Craig Johnson, executive director of the Streamlined Sales Tax Governing Board, told Thursday’s webinar participants that his organization is inviting non-member states to either join as full members or consider using some of the centralized services such as a one-stop place for e-commerce retailers to register.

“One of the things in the opinion with respect to removing the undue burdens was providing the software and the services to those sellers and having the states cover that,” Johnson said. “That’s really what we do through our certified service providers."

Although ruling is expected to result in $8 billion to $33.9 billion in additional annual sales tax revenue for state and local governments, some states haven’t yet set a date when they will implement the Supreme Court ruling.

“Some jurisdictions are estimating very conservative increased collections of sales and use tax in the meantime,” Brock said.

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