Senate Finance releases post-Wayfair sales tax charges

Small business owners told the Senate Finance Committee on Tuesday how the interstate scope of state and local sales taxes authorized by the Supreme Court in South Dakota vs. Wayfair, Inc., 138 S.Ct. 2080 (2018), imposed new costs and other charges.

The committee also heard from an official from the United States Government Accountability Office (GAO) to study the issue; Executive Director of the Streamlined Sales Tax (SST) State Consortium Board of Directors; and a CPA, Diane L. Yetter, who is president and founder of the Sales Tax Institute and a longtime practitioner in the area of ​​state and local sales tax compliance. The session was titled “Review of the impact of South Dakota vs. Wayfair on small businesses and distance selling.”

The business owners’ testimony received unanimous, bipartisan sympathy from senators, beginning with a statement from committee chairman Ron Wyden, D-Ore., that while his home state has no sales tax, Wayfair now forces its resident remote-selling retailers to navigate a “complex web of laws” across all 45 states with sales tax and thousands of local jurisdictions.

“Congress should step in and get concrete, real relief for these hurting small businesses,” Wyden said, adding that he co-sponsored the Online Sales Simplicity and Small Business Relief Act of 2019, S 2350, which would limit state sales taxes. on distance sellers.

John Hennessey, president and CEO of Littleton Coin Co. in Littleton, NH, described the challenges of the new sales tax landscape for his collectible coin business. The coin company has been in business since the mail-order catalog era but, like most such retailers, migrated to online ordering and selling when Wayfair “Immediately forced us to become the tax collector for up to 12,000 different state and local jurisdictions, with no way to calculate and collect taxes from our clients,” Hennessey said.

The company initially spent $225,000 to purchase software, hire legal and tax experts and handle other compliance tasks, Hennessey said. It continues to incur tens of thousands of dollars in expenses and hundreds of staff hours each year to maintain compliance, he said. She also encountered more types of possible state and local tax exposures beyond sales and use, including business and professional taxes, franchise taxes, and, in California, an assertion, which the company disputes. , that she should pay state income tax.

“The very complexity is a risk to our business,” Hennessey said.

If all of the various sales tax instructions to its customers under the economic nexus rules permitted by Wayfair had been printed in the company’s old print catalog, they would have required about 40 more pages, Hennessey said, holding up a printout.

Michelle Huie, whose business sells support socks, VIM & VIGR Compression Legwear, in Missoula, Mont., spoke about the bewildering variety of sales tax regimes she suddenly discovered her business was subject to. All had different rates, applicable thresholds depending on the amount of sales or the number of sales, and rules on taxable products and their uses.

“I didn’t start my business to be a sales tax expert, but I wanted to be compliant,” Huie said.

Two witnesses, who are primarily sales tax experts, said they also identify with the plight of entrepreneurs, while also acknowledging how state revenue expectations in the modern age of commoditization of online and cross-border sales were disrupted, leading the Supreme Court to conclude that its previous standard under Quill Corp. vs. North Dakota504 US 298 (1992), requiring that the sales tax nexus be based on a retailer’s physical presence in the state, was no longer clear or easily enforceable.

Craig Johnson, executive director of the Streamlined Sales Tax (SST) Board, explained how the 24-state consortium worked to simplify and standardize how states collect sales tax. More than 18,000 vendors have voluntarily registered through the SST system for centralized tax collection and remittance, he said.

“We recognize that the Wayfair This decision has brought about significant changes for remote sellers across the country, so we are working to help them comply with their collection and remittance obligations,” Johnson said.

Yetter, who also runs Yetter Tax and has spent 38 years in the sales tax field as a state auditor as well as a sales and use tax corporation and public accountant, said that sales tax collection rules should be fair to sellers, with uniform and clear requirements and guidance by states.

Although the collection and remittance of sales tax is the obligation of the business owner, Wayfair made compliance more difficult for some companies and imposed significant costs on them, Yetter said. Those compliance burdens have persisted since the ruling was issued four years ago, but Congress and states can reduce them, she said.

James McTigue Jr., director of strategic issues at GAO, said distance sales tax now accounts for about a third of all state revenue in the 45 states and the District of Columbia that have sales tax. All have adopted an economic nexus regime on distance sellers, but the thresholds, rules on small business exceptions, taxable product categories and local tax applicability all vary.

Later Tuesday, the GAO released a report incorporating McTigue’s testimony and detailing more findings, Distance Selling Tax: First Observations on the Effects of Expanding State Authority (Rep’t No. GAO-22-106016).

In response to a question from Senator John Thune, RS.D., Huie talked about another type of cost that business owners may incur besides paying for software, consultants, legal services and time. employees to manage compliance.

“Another cost that is not documented is the fear and worry about ‘Am I doing something wrong? Am I reaching the link in a state I’m not aware of?” Huy said. “And an impending or potential letter from the Department of Revenue. No small business owner wants to receive that.”

To comment on this article or suggest an idea for another article, contact Paul Bonner at [email protected].

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