House Judiciary Committee examines ramifications of Wayfair decision
The House Judiciary Committee met July 24, 2018 to examine the Wayfair decision and its ramifications for consumers and small businesses. In South Dakota v. Wayfair, Inc, the Supreme Court of the United States ruled a business no longer needs a physical presence in a state for the state to impose a tax collection obligation on it.
It’s no secret that Bob Goodlatte, Chairman of the House Judiciary Committee, is at odds with that decision. On June 21, 2018, the day it was released, he called the ruling “a nightmare for American businesses and small online sellers.” Leading up to today’s hearing, he said the Supreme Court should have allowed Congress to resolve the issue of online sales tax.
Goodlatte’s statement suggests the Supreme Court elbowed Congress aside with the Wayfair ruling. Yet over the years, the chairman has repeatedly blocked his peers’ attempts to expand state taxing authority. Under his leadership, the committee has kept the Marketplace Fairness Act (MFA) and the Remote Transactions Parity Act (RTPA) from consideration, even during 2017’s tax reform discussions. His proposed solution, the Online Sales Simplification Act (OSSA) has never made it beyond draft form.
Nonetheless, the chairman has consistently insisted Congress is the proper venue for the discussion. Last December, when the Supreme Court was deciding whether to take the Wayfair case, he urged the justices to let Congress settle the matter. Although the court didn’t heed his advice, he reiterated the point in the July 24 hearing.
High points from the hearing
In his opening statement, Chairman Goodlatte (VA) said the Wayfair decision “has the potential to unleash chaos for consumers and remote sellers, particularly small business sellers.” He pointed out that there are more than 10,000 sales tax jurisdictions with differing rates, product taxability rules, and exemptions, liability thresholds, and so forth. Potential audit costs could be “staggering.”
He also brought up retroactivity, saying the retroactive application of sales and use taxes poses a real threat: “Already six state jurisdictions have laws on the books with effective dates that look back as much as two years. Remote sellers could thus be held liable for sales taxes that they never collected from sellers, meaning the tax would come out of the sellers’ pockets.”
How states interpret Wayfair moving forward was a main concern. He noted that members of the Streamlined Sales and Use Tax Agreement haven’t reached consensus on a number of key points, such as whether to give large online retailers more time to come into compliance. He also cited a Multistate Tax Commission memo that raises “numerous technical questions that must be answered. For example, should tax-exempt sales count toward any small business thresholds?”
“With so many unanswered questions,” he said, “both sellers and states need time to figure out how to proceed.” Although he didn’t call for a moratorium during these remarks, he later asked if a moratorium is warranted.
Ranking Member Jerrold Nadler
Offering an alternative perspective, Congressman Jerrold Nadler of New York said in his opening remarks: “The Wayfair decision provides states with a clear roadmap for passing and enforcing laws that do not discriminate against, or unduly burden, interstate commerce. These features include a safe harbor for sellers with limited transactions within the state; prohibitions against retroactive enforcement; and adopting simplified and uniform tax systems that reduces administrative and compliance costs.”
Nadler agrees that Congress “has a role to play.” However, he favors more of a wait-and-see-where-we’re-needed approach: “In the absence of examples of discriminatory enforcement by the states, I am skeptical of the need for congressional intervention on the basis of speculative harms.”
The House Judiciary Committee heard from nine witnesses, some opposed to allowing states the authority to tax remote sales, some for it. Below are telling statements from theirSpeaking against the expansion of state taxing authority:
Mr. Grover Norquist, President, Americans for Tax Reform:
Congress should at the very least block tax collection in the wake of Wayfair until legislation is passed, and legislation should prevent retroactive tax collection.”
Mr. Chad White, Owner, Class-Tech-Cars, Inc.:
“I urge Congress to pass legislation to protect small businesses like mine, and millions across the country, from having to endure this uncertainty and these burdensome tax requirements and audit risks.”
Mr. Andrew Moylan, Executive Vice President, National Taxpayers Union Foundation:
“I believe Congress should act immediately to press ‘pause’ on frenzied state actions designed to capitalize on an expansive view of Wayfair’s grant of new power.”
Mr. Bartlett Cleland, General Counsel and Chief Strategy and Innovation Officer, American Legislative Exchange Council:
“Taxing those outside of state is still raising taxes and is additionally repugnant.”
Mr. Andrew J. Pincus, Partner, Mayer Brown:
“The Supreme Court’s Wayfair decision has created considerable uncertainty and confusion regarding sales tax collection obligations. … The elimination
of the physical presence standard is likely to lead States to become more aggressive in asserting the power to collect income taxes.”
Speaking for allowing states to tax remote sales:
Mr. Lary Sinewitz, Executive Vice President, BrandsMart USA:
“BrandsMart is looking forward to competing in the new retail landscape where they can compete on price and service, without having the same product be taxed in a different way if it is ordered over the internet instead of in a store.”
The Honorable Curtis Bramble, President, National Conference of State Legislatures (and current member of the Utah State Senate):
“For decades, states petitioned Congress for the ability to enforce their existing tax laws and close the remote sales tax loophole, but Congress did not act. ... I ask that Congress continue to do what it always has done in regards to sales tax — not act. Given that Congress has never had the appetite to address the issue of remote sales tax fairness, I do not see why it should start now.”
Mr. Joseph R. Crosby, CEO, MultiState Associates Incorporated:
“There is no immediate problem requiring a congressional solution. … “[E]nact[ing] a moratorium on the effect of the Wayfair decision, reinstating the so-called physical presence standard, or a prohibition on retroactive State enforcement of any sales tax collection obligation on remote sellers … would be devilishly complicated.”
What does this mean for businesses?
Nothing was decided during today’s hearing. If Congress does decide to act, we’ll let you know here.
In the meantime, businesses would be wise to assume states have the authority to tax businesses that don’t have a physical presence in the state (as well as those that do), and to learn how states are moving forward in the post-Wayfair world. You’ll find more information about states’ expanded nexus laws and their potential impact on remote sellers here.
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