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Wayfair: One Year Later

David Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: Wayfair, anniversary edition. It's now been a year since the Supreme Court handed down its decision in South Dakota v. Wayfair. In its ruling, the court reversed the longstanding precedent that had required physical presence before a retailer could be compelled to collect and remit sales taxes in a given state. Here to discuss what's happened since the ruling is Taxes Notes Today State reporter Paige Jones. Paige, welcome back to the podcast.

Paige Jones: Always a pleasure to be on here, Dave.

David Stewart: Why don't we start with a brief recap of the Wayfair case and what the decision meant for the states?

Paige Jones: The Wayfair decision was huge for the state tax world. It essentially got rid of the physical presence rule that had been around for decades and basically allowed states to begin requiring remote sellers to collect and remit sales tax. So this essentially was a huge change for states and remote retailers alike. In that something that they have been dealing with for decades and been failing for decades, even though some states had begun to somewhat skirt the physical presence rule in their own ways through, you could argue click-through nexus, through cookie nexus — most notably known in Massachusetts. This was a huge change, and most people have been saying, you know, this is a landmark case for state tax and a huge change from what we've been seeing in the past years.

David Stewart: Alright, so since the decision came out, have states started changing their rules to match in order to collect this revenue?

Paige Jones: Most states have, we've seen, I wanna say most of them have moved forward and adopted or enacted remote seller laws. And some have moved forward in terms of either guidance or regulations. But even beyond that, we've seen states go ahead and enact marketplace facilitator laws, and that's essentially requiring marketplace facilitators — and this would be like Etsy, like eBay — kind of these big platforms that allow these remote retailers to sell on their sites, that they would instead go ahead and collect and remit on behalf of these remote retailers. Usually when you mention marketplace facilitators or marketplace providers, you think of Amazon, and that company had actually already been collecting in the 45 states that levy a sales and use tax for, actually not too long before the Wayfair decision. So, the Wayfair decision, of course, did have an impact on Amazon, but that company was already collecting on behalf of its third-party sellers a little bit before the Wayfair decision came down.

David Stewart: So have any states, I don't know, maybe gone against the grain as others are adopting remote seller laws?

Paige Jones: So almost all the states have gone ahead and adopted remote seller laws. The only one that we've seen so far that has really gone against the tide and really gone out on its own is New Hampshire. So they've actually, just recently, the legislature has passed a bill. At the core of the legislation, it would essentially block out-of-state tax jurisdictions from imposing sales tax collection obligations on remote sellers who are in New Hampshire. So this is almost, in a way I would say, resisting Wayfair. So they tried to actually do this a month after Wayfair came out in 2018. So in July 2018, the governor actually called for a special session, and all the lawmakers met. And they put together this bill in a matter of weeks after Wayfair came out, which, you know lawmakers, that's very hard to do, and that's a very short amount of time. So they put together this bill, and it went through the Senate unanimously. But the House actually gutted the bill, only keeping a provision that would establish a commission to study what does Wayfair mean for the state. How do they go forward? That sort of thing. So the bill actually died in July of 2018. So, at the beginning of 2019 in January, the bill sponsor actually reintroduced the bill, almost identically the same, and they moved forward and it went through the same, the normal legislative process I should say, in terms of it went through hearings, it went through a number of experts testifying on it, that sort of stuff. And it actually ended up passing the Senate again unanimously. It was tweaked a little bit before the full House passed it. And it's now pending before the governor, but it's different from what we've seen in any of the other states.

David Stewart: Is there any sense of how this is gonna turn out, because it would seem that this New Hampshire law is inconsistent with what the Supreme Court has decided?

Paige Jones: So I spoke with some of the lawmakers who worked on the bill, as well as a local tax attorney in New Hampshire who was also working on the bill kind of providing feedback the whole time, and their thought is that this is constitutional. This is legal. This is well within New Hampshire's parameters to go ahead and do this. And that their thought is that this is pretty much protecting New Hampshire's state interests, just in the fact that they don't have a sales tax and they don't want one, at least right now. I feel like I should say, right now, because you never know with New Hampshire or any other state. But we haven't really seen or heard anything from outside states or retailers right now at the moment saying this is definitely something we're gonna go after, this is definitely where something we're gonna challenge in court. None of that has happened right now. There's been a few practitioners who have said, hey, this seems likely to head to court just because it's so different. And like you said, it seems like it might go against the Wayfair ruling and what the Supreme Court said in their decision. But I think really only time will tell.

David Stewart: Now in the Wayfair decision, I recall there was some discussion about the use of the Streamlined Sales and Use Tax Agreement as a means of simplifying the sales tax system. What's happened with that following this decision?

Paige Jones: So, after the Wayfair decision, a lot of practitioners and experts and others in the state tax field really thought or believed that more states would join SSUTA, but actually that didn't happen. Actually there's been no new members since the Wayfair decision. There were two bills introduced in two different states. So there was some legislation in Connecticut that proposed that the state join SSUTA, but that bill ended up failing. Part of that was due to the fact that the revenue department in that state didn't support the bill. And then a similar bill was introduced in Missouri. That bill also failed. And that was partly due to the fact that Missouri lawmakers were afraid that it would somehow affect their state tax code. So SSUTA right now has 23 members and one associate member, and not much in terms of membership has changed since Wayfair.

David Stewart: Now, earlier you mentioned the role of marketplace facilitators collecting sales tax on behalf of their sellers. What more can we expect from that area in the coming months and years?

Paige Jones: I think we can expect more legislation being enacted that would require marketplace facilitators to collect and remit sales tax on behalf of their sellers. I think that's something we've seen a little bit already just in the fact that some states have already gone ahead and passed or enacted marketplace facilitator laws at the same time that they've done remote seller laws. So that's definitely something to expect in the future, and I know a number of tax administrators have already said marketplace facilitators is the next frontier in terms of Wayfair.

David Stewart: So, we talked a bit ago about the streamlined group and the effects, or lack of effects, of the Wayfair decision on it. Have other state institutions been affected by Wayfair?

Paige Jones: I would say the Wayfair decision indirectly affected the National Conference of State Legislatures, also known as NCSL. So within that group, there is an executive committee task force dedicated just to state and local taxation, commonly called the SALT task force. And they were formed in 1999 with the sole purpose of tackling the remote sales tax issue. Now their scope was broadened a little bit in 2012 to focus on more than that and other state and local tax issues, but really the driving force for them these past 20 years was remote sales taxation. So the Wayfair decision came down and six months later, the three staff members who had been working for a number of years on this subject as well as the two legislative co-chairs were gone. Max Behlke’s departure from the NCSL and the NCSL SALT task force was actually related to Wayfair. He had said for a number of years that he had planned to leave the task force and the group after the Wayfair decision came down. It was just something that that he had planned for. And so a couple months after the decision came down, he did leave, but not before staying with the task force for a couple months to help in terms of where do the states go next? What are some guiding principles that should be laid down? But the other two staff members and the legislative co-chairs left for reasons that were unrelated to Wayfair, but this all happened within six months of Wayfair. And with their departures, of course, came new leadership and new priorities, and so NCSL, and the SALT task force particularly, has been going through a little bit of a change in terms of what's next. They've spent 20 years really driving and focusing on remote sales taxation. And now that Wayfair has come down, it's what's next. And so I sat down and I spoke with the two new staff members who are leading the task force, and they were saying, what's next actually, is marketplace facilitators. Do we need some kind of guidelines? Is there some kind of uniformity that we can encourage or provide to the states in terms of, let's make this easier for all the parties involved? And so that's on their agenda, as well as other things that members have brought up. And that includes items like tax-exempt lands and transportation funding. So they're really kind of going through a monumental change at this moment. And so they're celebrating their 20th anniversary actually in a couple months. And kind of everything that they've done, but we're definitely seeing some issues and some new players.

David Stewart: And so the NCSL is looking at what's next. When we're looking for what's next, what is next for the reactions to Wayfair?

Paige Jones: Well, I think in terms of what's next for Wayfair, there are some lawsuits that are pending, some that actually started either right around or right before Wayfair, but most of those have closed. So I think what we're looking at next is what's gonna be the outcome of these lawsuits. And what could be future lawsuits? That obviously is directly about New Hampshire and what could come out of this potentially new law in terms of blocking out-of-state taxing jurisdictions from imposing the sales tax collection obligations on in-state remote sellers. But I think what we're gonna see in the rest of 2019 and probably into 2020 is more remote seller laws, likely more marketplace facilitator laws as well and still figuring out the way forward in terms of for sellers the software and how to go about doing that. And for states, that very fine line of what's been blessed and what they would say is okay with the Supreme Court decision that came down, and what goes beyond that. So almost kind of towing the line and trying to figure out what is okay and what's not okay, because beforehand, we had this bright-line nexus that made it very clear that what's okay and what's not okay. I think going forward that's a little bit less clear. And so a lot of practitioners have said that these next few years are just gonna be figuring out what's okay.

David Stewart: Okay, Paige, thank you for being here.

Paige Jones: Thank you for having me.

David Stewart: If you wanna learn more about what we've talked about today, we'll be linking to our Wayfair anniversary coverage as well as the state Nexus Tracker in the show notes.

And now, Coming Attractions. Each week we preview commentary that will be appearing in the next issue of the Tax Notes magazines. I'm joined by executive editor for commentary, Jasper Smith. Jasper, what will you have for us?

Jasper Smith: In Tax Notes Federal, Sean Morrison and Andy Howlett trace how the reasonable compensation standard developed and examine how it applies to the section 199A deduction for 20 percent of qualified business income. Also, Angela Yu and Daniel Paulos examine the new anti-hybrid rules, which target certain payments to foreign related parties.

In Tax Notes State, the latest issue of Board Briefs weighs in on the New York Legislature’s approved measures authorizing the state to provide tax return information of elected and high-ranking public officials to specific congressional committees. Also, Todd Betor and Jeffrey Friedman argue that states should not include GILTI in their corporate income tax base.

And in Tax Notes International, Yue Dai explains why China has been relatively absent from international debates on digital taxation, while Sandy Bhogal discusses the United Kingdom's proposed digital services tax in the context of OECD and EU efforts to address the perceived tax problems arising from digitalization.
 

As always, we want to remind listeners of the June 30th deadline for our student writing competition. For more information, visit taxnotes.com/contest.

David Stewart: You can read all that and a lot more in the June 24th editions of Tax Notes Federal, State, and International. That's it for this week. You can follow me on Twitter at @TaxStew, that's S-T-E-W. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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