Why many states have gone slow on collecting online sales taxes
WASHINGTON — California, Florida, New York and Texas are among the many states that haven’t announced when they will require out-of-state online retailers to begin remitting sales taxes as a result of a June 21 U.S. Supreme Court decision in South Dakota v. Wayfair, Inc.
In fact, only a few of the 45 states that levy sales taxes have announced plans to begin implementation before the end of this year.
George Isaacson, the attorney who represented e-commerce retailers before the Supreme Court, suggested at a July 10 congressional forum that Congress should enact legislation to give retailers a transition period through the end of the year.
Isaacson expressed concern about a rush by state and local governments to begin collecting the additional revenue, which is estimated to be from $8 billion to $33.9 billion annually.
Congress, however, doesn’t appear to have any appetite to address the issue anytime soon after ignoring it for more than two decades.
The issue is most likely to be handled among the states with groups such as the Multistate Tax Commission and the 24-state Streamlined Sales Tax Governing Board coordinating implementation issues.
States appear to be coalescing around an implementation date of either Oct. 1 or Jan. 1, according to Gregory Matson, executive director of the Multistate Tax Commission.
Matson said the more important issue is simplification because states need to ensure their e-commerce laws do not place an undue burden on interstate commerce. “States need to be doing everything they can to reduce the burden on out-of-state businesses and out-of-state sellers,” he said.
The Streamlined Sales Tax Governing Board is considering opening up its central registry for remote e-commerce retailers to non-member states as a way to create one national registry.
But not all states are taking a slow approach.
Hawaii and Idaho began requiring remittances for online sales on July 1 after a short-lived attempt by Hawaii to make the requirement retroactive to Jan. 1.
Kentucky also began implementing collections on July 1, but the state Department of Revenue is giving e-commerce retailers until Oct. 1 to register and advising them to contact the state if there is a problem meeting that deadline.
Similarly, Connecticut will begin enforcement Dec. 1 of its state law that went into effect on July 1.
Kentucky is a member of the Streamlined Sales and Use Tax Agreement, so the state is advising remote sellers to use that central registry and to decide whether to use a certified service provider to handle sales tax collections.
Minnesota recently announced it will begin requiring sales tax remittance on Oct. 1, joining four other states — Alabama, Massachusetts, North Dakota and Wisconsin — that have set that date.
Alabama, however, won’t require collection by so-called marketplace e-commerce sites until Jan. 1.
The 5-4 high court decision in the South Dakota case overturned a longstanding requirement that a retailer must have a physical presence in a state before it can be required to collect sales tax.
All nine of the justices found the physical presence standard as outdated, but four of them preferred that Congress address the issue.
The majority opinion written by Justice Anthony Kennedy signaled that South Dakota's 2016 statute that required online retailers to collect sales taxes from many online purchases may pass the test of not putting an undue burden on interstate commerce, but that that determination will be decided by a state court.
South Dakota is a member of Streamlined Sales and Use Tax Agreement and provides a small business exemption for retailers with less than 200 transactions or $100,000 in sales in the state.
Fifteen other states have passed laws setting the same threshold, according to the National Conference of State Legislatures. They are: Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Nebraska, New Jersey, North Dakota, Rhode Island, South Carolina, Utah, Vermont, Wisconsin and Wyoming.
Other states have enacted variations. Massachusetts has set its threshold as 100 transactions or $500,000. Connecticut has set the threshold at 200 transactions or $250,000.
Iowa will begin requiring remittances on Jan. 1.
South Dakota levies only one statewide sales tax unlike some states that have additional levies by cities and counties.
Alaska has no statewide sales tax but there are more than 100 municipalities that levy sales taxes.