Congress Expected to Weigh Tax Collection Parameters, Post-Wayfair

With states moving to collect online sales taxes after the Supreme Court’s Wayfair decision (see 1806210067), Congress will explore collection limitations (see 1806280047), given business implications, lawmakers and observers told us. Sens Jeanne Shaheen, D-N.H., and Ron Wyden, D-Ore., wrote last week to ask the Small Business Administration help businesses cope with the decision. SBA "has begun to review the ruling and will do so by engaging small businesses and stakeholders, including members of Congress," a spokesperson said.

“It’s not clear what states will do and how they will respond, so I think we need to let it play out a little bit before we determine whether we need to take further action here to try provide some parameters for what the court decision might mean,” Shaheen told us. She said the impact could be bigger in states like hers, one of four that doesn't collect sales taxes. There are more than 12,000 state, county and city tax jurisdictions. Wyden told us large companies have less to worry about, as the major e-commerce platforms have physical presence in most states. Shaheen and Wyden are part of a group of Democratic senators who opposed South Dakota’s sales tax regime as well as the Marketplace Fairness Act (S-976) from Sen. Mike Enzi, R-Wyo., to let states follow suit.

Sen. Lamar Alexander, R-Tenn., a sponsor of the legislation, is pleased with the decision in Wayfair. Both Enzi’s bill and the ruling allow states to stop the federal government from forcing them to prefer out-of-state businesses over local businesses, he told us: “The decision was good for states and good for Main Street.”

Information Technology and Innovation Foundation Vice President Daniel Castro, whose organization supported South Dakota and an “even playing field” for e-commerce and brick-and-mortar shops, said Congress could explore guardrails for Wayfair. NetChoice General Counsel Carl Szabo, whose organization supported Wayfair, agreed, saying Congress’ role on tax collection has never been more important: “We’re starting to see a lot of chaos coming at the state level, and now is certainly time for Congress to step in and re-establish a clear, bright line for sellers.”

Szabo accused Massachusetts of flouting Justice Anthony Kennedy’s opinion, which suggested ways for states to overcome constitutional challenges to remote sales tax collection. Suggestions included states joining the Streamlined Sales and Use Tax Agreement (24 states adopted measures from the agreement), not pursuing retroactive tax collection and establishing small-business protections. Massachusetts, which Szabo said isn't a Streamline member and lacks small-business protections, is trying to collect back taxes related to Wayfair. Expect a lot of litigation over the constitutionality of collection and varying interpretations from state tax courts, he said. The office for Massachusetts Attorney General Maura Healey (D) deferred to the Department of Revenue, which didn't comment.

Kelley Drye's Andrew Lee, who represents telecom clients on state and local tax issues, said states could look to South Dakota’s model, which passed muster concerning the Constitution’s Commerce Clause. Lee agreed Congress should weigh in: “Congress’ role should be to establish national standards and bright-line rules that would apply not only to sellers of tangible personal property but also providers of services such as telecommunications services.” Telecom could use some clarification, he said, because South Dakota’s statute is difficult to apply to the industry. Transaction thresholds don’t easily apply to telecom, because telecom transactions, like phone calls, aren't a good metric, he said. There are difficulties identifying locations of customers, he added.

Castro called the decision a “natural progression” of the digital economy, which should be free of “artificial incentives.” Large e-commerce platforms like eBay and Etsy, he said, stand to benefit greatly: “If you’re an independent seller, maybe you’re going to move to one of these platforms or something else that’s going to handle the tax side of it and allow you to focus on the main part of your business."