One word can make a world of difference in sales tax law
- Oct 19, 2020 | Gail Cole
Words matter. If they didn’t, lawmakers wouldn’t bother changing them, as the Vermont Legislature did recently.
Vermont House Bill 954 (Act 175) amends a consumer use tax individual income tax reporting obligation, eliminates a non-collecting seller use tax reporting requirement, and makes marketplace facilitators liable for the Universal Service Charges due on retail sales of prepaid wireless telecommunications services. It also makes a small but important change to the economic nexus lookback period by changing an any to a the.
Economic nexus laws base a sales tax collection obligation solely on a remote business’s economic activity in a state (i.e., sales and/or transaction volume). As originally created in House Bill 873 (Act 134), Vermont’s economic nexus law requires a remote retailer that regularly solicits sales in Vermont to register to collect sales tax if it’s made sales to destinations in the state of at least $100,000 or totaling at least 200 individual sales transactions “during any 12-month period preceding the monthly period with respect to which that person’s liability for tax under this chapter is determined.”
Act 175 changes “any” to “the.” Thus, a remote retailer must register to collect Vermont sales tax if it reached the $100,000 sales or 200 transactions threshold “during the 12-month period preceding the monthly period with respect to which that person’s liability for tax under this chapter is determined.”
Most state economic nexus laws base the economic nexus threshold on the current or preceding calendar year, not any calendar year or 12-month period. And that’s probably what the Vermont Legislature originally intended. After all, they’ve changed it to the now.
But that’s not what the law said, and that matters. According to Scott Peterson, vice president of government relations at Avalara, “Replacing one three-letter word for another changes the lookback period from infinity to one year.”
That’s big. Who knew such a little word could have so much power?
There are several references to the $100,000 sales/200 transactions economic nexus threshold on the Vermont Department of Taxes website. As of this writing, both “any preceding 12-month period” and “the preceding twelve-month period” are on the Sales Tax and Wayfair Frequently Asked Questions page. Hopefully, the department will ensure the correct word is used on all pages moving forward. As Peterson points out, “tax departments don’t get to change law via what they post on their website.” However, they can clarify or obfuscate the law.
This isn’t the first time one word has muddled sales tax. After the decision by the Supreme Court of the United States in South Dakota v. Wayfair, Inc. (June 21, 2018) overruled a physical presence rule and paved the way for remote sales tax, many states rushed to enact economic nexus laws. Despite what were undoubtedly the best of intentions from lawmakers and tax departments, statutes and department websites sometimes ended up with less-than-clear language. (Find more details about similar situations in New York and West Virginia).
At the end of the day, it’s the language of a statute that matters. Peterson explains that if a law contains a typographical error or even just a poor choice of words, it can have unintended consequences. States can be — and have been — sued over poorly written laws. Perhaps that’s why Vermont lawmakers recently took the time to turn an any into a the.
If there’s a lesson here for legislators, it’s that words matter. If there’s a lesson for businesses, it’s to read laws closely and understand their impact on your business. Not so you can sue a state over a poor word choice, but to assure you comply with the law. When in doubt, it’s worth checking with the state tax authority or a trusted tax advisor.
If you make sales in Vermont but aren’t registered to collect Vermont sales tax and aren’t sure whether you should be, check out our sales tax risk assessment. It can help you figure out where you may have an obligation to collect.