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ACMA Compiling Remote-Seller Testimony to Spur Federal Legislation

Posted on Nov. 21, 2019

The American Catalog Mailers Association (ACMA) is gathering information about the challenges experienced by remote retailers trying to comply with states’ remote sales tax laws, in an effort to get federal lawmakers to intervene.

ACMA needs multiple case studies that can be taken to the Hill demanding attention and action from Congress,” the group said in a November 18 email asking retailers for detailed accounts of their efforts to comply with varying state sales tax rules.

Following the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair Inc., states have responded by requiring remote sellers that meet annual in-state sales thresholds to collect and remit sales and use tax. The states are broadly opposed to any federal effort to restrict their remote sales tax authority post-Wayfair, but the ACMA argues that their varying rules present a compliance burden particularly for small and midsize retailers. The group is urging Congress to rein in the states and address sellers’ concerns.

Remote sellers must contend with thousands of sales tax jurisdictions, “many of which have different definitions of product sales” and other complications, such as varying sales tax holidays, ACMA Vice President Paul Miller said in an email to Tax Notes. He argued that federal legislation to impose restrictions on states’ remote sales tax rules is necessary post-Wayfair.

The ACMA's goals include “considerable simplifications so our members and other remote sellers can handle this properly,” Miller said.

At the time of its request for testimonials, the ACMA said it had two reports from businesses detailing their experiences with remote seller rules. One company, K-Log Inc. — a school and office furniture business based in Illinois — said it has had problems with sales tax compliance software services and is “spending tens of thousands of dollars to collect very little tax,” since most of its sales are tax-exempt. The company is shrinking its sales efforts to avoid states with particularly challenging tax rules, the company's report said.

The other seller, Halstead Bead Inc., an Arizona jewelry business, told the ACMA that it has spent over $154,500 to comply with the remote seller rules after Wayfair. According to the company, compliance costs have contributed to it raising prices by 9.26 percent and that two states — Tennessee and Wyoming — have threatened enforcement actions against it as a result of unintentional sales tax errors.

Congressional lawmakers should “cosponsor H.R. 1933 in the HouseS. 2350 in the Senate” — the Online Sales Simplicity and Small Business Relief Act of 2019 — or similar legislation, according to Halstead.

The ACMA’s email also said that the results of an October survey showed that many other businesses are being negatively affected, with some paying hundreds of thousands of dollars in compliance costs and over half reporting decreased sales that they attributed to remote seller laws.

Most states have sought to reduce the compliance burden for remote sellers, particularly the 23 Streamlined Sales and Use Tax Agreement member states, which, before Wayfair, simplified their sales tax codes, centralized tax administration, and set up a system to minimize the cost of compliance services. States that have passed remote seller rules in response to Wayfair have also incorporated elements of South Dakota’s law implicitly blessed by the Supreme Court, including pursuing taxes prospectively and establishing safe harbor thresholds for small sellers. States have also increasingly moved to require online marketplace facilitators to handle sales tax collections on behalf of their third-party sellers, partly to minimize the burden on small sellers.

However, the states’ remote seller rules still vary in numerous ways, and some state tax codes — such as Colorado’s “home rule” sales tax jurisdictions — present a higher compliance challenge for sellers. Practitioners and tax law experts have also predicted that states’ remote seller and marketplace facilitator laws will need further revision as issues are identified. Notably, a Multistate Tax Commission work group just released a white paper to serve as a guide for how state legislatures should consider drafting or amending such laws in 2020.

Miller told Tax Notes that his organization believes the current laws don’t sufficiently address the concerns of remote sellers.

“Our members, and the broader online retail community, hope that with enough persistence on Capitol Hill,” and with individual accounts of hardship by numerous remote sellers, “we can break through the political gridlock and get federal legislation drafted to solve this problem,” Miller said.

Experts have previously told Tax Notes that it’s unclear if Congress has any appetite for legislation to curtail states’ post-Wayfair remote sales tax authority. However, practitioners have suggested that if states’ remote seller laws prove to be particularly burdensome and states don’t take sufficient corrective action, that could bolster the case for either congressional intervention or litigation.

Randy Ferris, former chief counsel for the California State Board of Equalization and now with EY, said at a November 7 panel at the 2019 California Tax Bar and California Tax Policy Conference in San Diego that a lot will depend “on how states exercise their judgment with respect to how they deploy their audit resources.” He said he hopes that “states will continue to be reasonable and try to avoid needless litigation.”

The ACMA is also seeking funding for potential test litigation against states’ remote seller laws, alleging that they represent an excessive burden and that some states haven’t fully adopted the spirit of the Wayfair ruling, referring to the Supreme Court's praise of South Dakota’s SSUTA membership.

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