As of Oct. 1, 10 states added a requirement for remote sellers to begin collecting online sales tax in the wake of the Supreme Court’s landmark Wayfair ruling in June, and many merchants are finding it difficult to comply.
“These states are moving aggressively to demand online sales tax compliance before the holiday season,” said Matthew Schaefer, an attorney with Brann & Isaacson, the firm representing the plaintiffs in Wayfair et al vs. South Dakota before the Supreme Court. “It’s creating enormous problems particularly for multichannel sellers doing online, catalog and multiple marketplaces. Coming into compliance in the timeframe states are demanding is very challenging.”
The 10 new states now requiring online sales tax collection for out-of-state sellers are Alabama, Illinois, Indiana, Kentucky, Maryland, Michigan, Minnesota, North Dakota, Washington and Wisconsin. Mississippi started on Sept. 1; South Dakota, North Carolina, New Jersey and South Carolina will go into effect on Nov. 1.
Hawaii, Vermont and Maine went into effect on July 1, less than two weeks after the ruling. Oklahoma and Rhode Island also had a start date of July 1 for companies not doing “notice and reporting,” where merchants inform customers their purchase is subject to state sales tax, sometimes requiring reporting of customer information to the state.
Merchant litigation challenging online sales tax collection laws and regulations is ongoing in Indiana, Wyoming, Tennessee, Massachusetts, Virginia and South Dakota; a number of those cases predate the Supreme Court’s landmark ruling in June.
Brann & Isaacson is representing many merchants in these actions, including audio and stereo equipment seller Crutchfield Corp. in Virginia, which also involves the Massachusetts law.
The law firm is also working with merchants challenging the state of Massachusetts, which is seeking retroactive tax collection back to Oct. 1, 2017, when the state enacted its law – nine months before Wayfair was decided.
“Massachusetts says it’s not seeking retroactive liability, only applying it from when adopted its regulation, which is nonsense,” Schaefer said. “They’re asserting that the Wayfair test applies both before and after the ruling, exposing sellers to liability.” He added the state has issued assessment notices against dozens of remote sellers for back tax collection.
Hamilton Davison, president and executive director of the American Catalog Mailers Association (ACMA), said states demanding compliance to new collection laws are not being sympathetic to merchants that have to quickly implement changes, including software installs, during the busy end-of-year period.
While the existence of modern tax compliance software is often cited as the answer to any issue arising from out-of-state tax collection, Davison said it’s not that simple.
“Companies that already had tax lookup software installed can generally just turn on additional states and pay additional fees,” he said. “But differing definitions must be reconciled. Home rule states with multiple sovereign tax jurisdictions such as Colorado must be dealt with, and some systems actually don’t handle this well. Customer education must occur in any case.”
He added the cost of such systems can run well into six figures, and processing times for tax calculations can be challenged when volumes spike during peak season, exacerbating the impatience of consumers who routinely abandon slow-moving online checkout.
Davison said the ACMA has been advocating for its membership before Congress, with the Multistate Tax Commission and the Streamlined Sales and Use Tax Agreement (SSUTA) governing board and state revenue departments.
While there was an initial meeting in July between the ACMA, the MTC and NetChoice – an online seller advocacy group – to try and find common ground in the wake of Wayfair and set up working groups, a subsequent meeting never materialized.
“It’s also not clear how much state revenue departments will yield to MTC or any other group in simplifying their regulations, despite calls from both remote sellers and the states’ own lobbying groups to simplify, be reasonable in implementation and work to collaborate,” Davison said.
“Sometimes only litigation resolves the issues so we must take the matter to court, and that can be expected to continue,” he continued. “Some states are not being reasonable in their demands and when we learn of this we employ all methods to push back. We’re also keeping members abreast of changes and alternatives by providing real-time information and referrals for help from lawyers, software providers and others required to set up companies to comply.”