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States Extend Sales Tax Deadlines, May Pass More Marketplace Bills

Posted on Mar. 31, 2020

Some remote sellers will be able to take advantage of extended sales tax deadlines as a result of some states’ responses to the coronavirus, but the pandemic could also lead more states to pass marketplace facilitator laws to bring in additional revenue.

With the outbreak of COVID-19 disrupting government agencies and businesses alike, many states have announced various extensions for tax deadlines. Some — including New York, Massachusetts, AlabamaLouisiana, and Mississippi — have provided extensions or waived late penalties for retailers' sales tax payments. 

But experts say it’s also likely that states will push for additional revenue as the pandemic's effect on the economy affects state revenues. Jared Walczak with the Tax Foundation told Tax Notes March 25 that some states that previously lacked marketplace facilitator laws “are moving forward on the adoption of facilitator laws now as a way to generate additional revenue to address budget concerns.”

Walczak specifically mentioned Tennessee, where a marketplace bill was sent March 20 to the governor, and Louisiana. Other states that could pass facilitator bills include Mississippi, Missouri, and Kansas. Florida also lacks a marketplace facilitator law — legislation to create one died earlier this year, but the issue could be revisited.

Large marketplace facilitators such as eBay and Amazon “are already complying with facilitator laws in other states,” Walczak said, making it easier for lawmakers in states without those laws to argue that marketplace facilitators should be collecting in their states as well.

Notably, Kansas’s remote sales tax rules lack a minimum sales threshold, potentially making them vulnerable to legal challenge. A marketplace facilitator bill introduced in the state, S.B. 369, would set a $100,000 threshold.

However, the disruption caused by the coronavirus will likely limit interest in "cleanup" legislation to tweak existing remote seller and marketplace facilitator laws. Darien Shanske, a tax expert with University of California, Davis, told Tax Notes that he’d be surprised “if state legislators have the time or appetite for marketplace clean-up legislation” at present. Walczak also said that “there wasn’t much activity on ‘cleaning up’ marketplace facilitator laws even before the COVID-19 pandemic,” and that while organizations like the National Conference of State Legislatures have identified possible ways to improve marketplace laws, “states have not been particularly eager to take on the issue.”

Richard Pomp, a tax law expert with the University of Connecticut School of Law, said he expects states to focus on making sure they’re getting tax revenue from marketplaces and major retailers, in part because the lockdown appears to be driving even more shopping online.

“I think the first wave will be states that have not yet enacted a marketplace statute, and number one on that is Louisiana,” Pomp said. Other states may review whether to revise their rules to protect revenue.

Pomp also said that “when people return from working remotely, we are probably going to see an uptick in general in the audit function,” predicting that states will put pressure on their revenue departments to go after tax revenue, including from remote sellers.

One question “is whether the states will be willing to settle more cases that are pending,” Pomp said. “Will taxpayers be able to settle long-standing litigation so that the state can generate short-term revenue?”

Representatives of Avalara and Tax Cloud — two companies that provide sales tax compliance services to remote sellers — told Tax Notes that they’re reviewing states’ adjustments to sales tax filing and payment requirements so they can better facilitate their clients’ ability to use them.

Avalara is communicating with its customers to “provide them with information on taxing authority changes and how to take advantage of filing and remittance extensions,” Tommy Morgan of Avalara said in a March 26 email. “Our tax content specialists are ensuring that every tax change in response to COVID-19 is captured within our solutions so that we can handle filing and remittance on behalf of customers who elect to take advantage of the extensions.”

And Patrick Riley with Tax Cloud said his company is also working to update its platform to help taxpayers use extensions. “Hopefully by early next week we will have our Wayfair map located on the bottom of our home page updated to include any COVID impacts as an information resource to all,” he said in a March 27 email. “That intelligence will be built into the platform to handle extensions” for clients where possible, he added.

It’s not clear how many remote sellers would attempt to use extensions or other relief. Morgan said it's too early to tell how much interest there is among Avalara’s clients. Also, states’ measures have different provisions — for example, Massachusetts’s extension is for businesses with less than $150,000 in total liability for the previous 12-month period ending in February and excludes marketplace facilitators. New York, however, didn’t extend its March 20 filing requirement, but the state can waive interest and penalties for late payments by businesses that apply for relief.

Walczak said business tax extensions in general will benefit small businesses, many of which are struggling with compliance as a result of the pandemic. However, he said that whether small remote sellers benefit from the option to delay sales tax payments in some states will depend on the business. For one thing, some small remote sellers may not be aware of the extensions or waivers, while others may lack sufficient sales in the states that are providing relief for it to be useful.

In many cases, “this is probably much more significant relief for an in-state business,” Walczak said, but he added that small-to-midsize remote sellers with significant sales in states providing relief could benefit.

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