Idaho lawmakers consider online sales tax

Last updated, 3.26.2018: A measure to tax sales by certain out-of-state sellers was approved by the Idaho House and Senate on March 16 and signed by Governor Butch Otter’s on March 22. Click-through nexus takes effect in Idaho July 1, 2018.

This isn’t the first time a measure to tax remote sales has been introduced in the Idaho Legislature — the idea’s been kicked around Boise for years. Yet previous attempts, which didn’t include the requirement that remote retailers be affiliated with an Idaho-based business, never made it out of committee. Senator Steve Vick, who has opposed earlier attempts to tax remote sales, told colleagues that he supported this bill because of the affiliation provision.

From the outset, HB 578 has had a fairly favorable reception. The House passed it 46-21 after debating its constitutionality. The Senate then approved it 30-4, without debate.

Senate President Pro Tempore Brent Hill found the lack of debate significant. He told the press, “Some people used to see [a tax on online sales] as a tax increase and I think people are finally understanding that that’s a tax we already have.” He was referring to the fact that Idahoans are supposed to remit use tax to the state when sales tax isn’t collected by the seller on their taxable purchases.

Following in the footsteps of peers in many other states, lawmakers in Idaho are looking to tax online sales. Legislation approved by the House and now under review by the Senate Local Government and Taxation Committee would tax sales by certain out-of-state sellers with ties to in-state affiliates.

Under current law, only vendors with a physical presence or employees in the state have nexus, the connection between a state and a business that triggers an obligation to collect and remit sales tax. Businesses without nexus in Idaho may volunteer to collect.

The physical presence standard was upheld by the Supreme Court of the United States in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). Since then, many states have pushed to broaden nexus to include other connections, such as relationships with affiliates, referrals, and economic activity. Idaho is now considering doing the same.

Click-through nexus

House Bill 578 would tax sales by an out-of-state vendor that “has an agreement, directly or indirectly, with one or more persons engaged in business in this state … under which, for a commission or other consideration, the persons refer potential purchasers to the retailer directly, whether by a link on an internet website, written or oral presentation, or otherwise” — so long as such referrals generate more than $10,000 in annual gross receipts.

According to the bill’s statement of purpose and fiscal note, ecommerce accounts for approximately 10 percent of retail sales in Idaho. The Idaho Tax Commission estimates tax is not being collected on between 15 and 25 percent of all online sales, meaning the state could gain between $22 and $37 million in sales tax revenue.

The statement of purpose also points out that retailers have the technology to remove the burdens of compliance that were identified in 1992, and that the U.S. Supreme Court has backed, or at least not blocked, certain state efforts to tax remote sales. To wit, in 2013, the court refused to hear a challenge to a New York law requiring out-of-state sellers with New York affiliates to collect and remit New York sales tax. And in 2016, the court let stand a Colorado law requiring non-collecting out-of-state sellers to comply with onerous use tax notice and reporting requirements.

Supreme Court to reconsider physical presence standard

Idaho’s legislation comes at an interesting juncture. On April 17, the Supreme Court will hear arguments in a case that challenges Quill’s physical presence standard (South Dakota v. Wayfair, Inc.). If the court overturns Quill, states may have more latitude to tax remote sales.

Learn more about Quill and how South Dakota v. Wayfair could impact sales tax obligations for ecommerce businesses in this on-demand webinar.