Looking ahead to 2017: online sales tax, amnesty, and marijuana

In addition to sales tax rate changes, new and expiring exemptions, and new taxes on soda, 2017 will bring more marijuana legalization (and taxes), tax amnesty, and especially renewed energy to the online sales tax debate. The debate centers on whether states should have the right to make out-of-state retailers collect their sales taxes. Under existing precedent, states don’t have the authority to tax sales by remote retailers lacking a substantial nexus (physical presence) with the state. In the absence of new federal legislation, states are stretching their sales tax laws to capture revenue from out-of-state sellers.

Will 2017 see major changes to online sales tax legislation? Read on to learn more.

The push by states for online sales tax revenue is sure to continue. Oklahoma created new reporting obligations for remote sellers as of November 1, 2016, and Tennessee implemented a new economic nexus policy that takes effect on July 1, 2017. In Louisiana, where affiliate and click-through nexus policies have been in place since April 2016, a new use tax notification requirement for remote sellers is set to take effect on July 1, 2017. More states are likely to follow suit.

In addition to creating new policies, states are challenging existing precedent. Alabama, Colorado, Florida, and South Dakota are all involved in legal disputes that could find resolution in the Supreme Court of the United States and result in the overturning of Quill Corp. v. North Dakota — the seminal 1992 decision that upheld previous case law establishing that states cannot impose a tax collection obligation on businesses lacking a substantial physical presence in the state.

Recently, attorneys general in Mississippi and ten other states called for the Supreme Court of the United States to overturn Quill. Mississippi Governor Phil Bryant then called on lawmakers to establish a voluntary remittance program for out-of-state online sellers. Taking a slightly different approach, the Ohio Supreme Court ruled in November that three out-of-state businesses with no physical presence (property or employees) in the state must collect the Ohio Commercial Activity Tax (CAT) because they earned at least $500,000 in gross receipts from sales that initiated in Ohio and were delivered to destinations in Ohio (see Crutchfield Corp. v. Testa, Slip Opinion No. 2016-Ohio-7760; Newegg, Inc. v. Testa, Slip Opinion No. 2016-Ohio-7762, and Mason Cos., Inc. v. Testa, Slip Opinion No. 2016-Ohio-7768).

It’s anyone’s guess what federal legislators will do with this issue in 2017, when Republicans will control both chambers of Congress and the White House. State income tax is closely linked to federal income tax, and if federal income tax is altered as expected, lawmakers could appease states by granting them the power to tax remote sales. There are currently four pieces of legislation awaiting consideration on Capitol Hill, three of which would do just that: the Marketplace Fairness Act, the Remote Transactions Parity Act, the Online Sales Simplification Act. From the other side of the issue, the No Regulation without Representation Act, introduced last summer, would definitively prevent that.

Marijuana

Voters in four states approved the legalization of recreational marijuana on November 8: California, Maine, Massachusetts, and Nevada. All must now establish systems to administer tax revenue from these sales. Another three states are doing the same for medical marijuana: Arkansas, Florida, and North Dakota. Read more about marijuana and tax compliance.

Nuts and bolts

Pennsylvania will run a Tax Amnesty Program from April 21 through June 19. And as of January 2017, there are new penalties for delinquent filers in Connecticut.

See more 2017 sales tax changes.

Simplify sales and use tax compliance

Tax automation software provides an end-to-end sales and use tax compliance solution for companies doing business in multiple states.