wayfair decision – indirect and direct tax …...north dakota cent. code sec. 57-40.2-07 goes into...

© 2018 Eversheds Sutherland (US) LLPAll Rights Reserved. This communication is for general informational purposes only and is not intended to constitute legal advice or a recommended course of action in any given situation. This communication is not intended to be, and should not be, relied upon by the recipient in making decisions of a legal nature with respect to the issues discussed herein. The recipient is encouraged to consult independent counsel before making any decisions or taking any action concerning the matters in this communication. This communication does not create an attorney-client relationship between Eversheds Sutherland (US) LLP and the recipient. Eversheds Sutherland (US) LLP is part of a global legal practice, operating through various separate and distinct legal entities, under Eversheds Sutherland. For a full description of the structure and a list of offices, please visit www.eversheds-sutherland.com.

TEI Dallas

Wayfair Decision – Indirect and Direct Tax Implications

December 4, 2018

Todd BetorAssociate

Justin T. BrownAssociate

1

Eversheds Sutherland

Agenda

─ Wayfair and Its Aftermath• South Dakota v. Wayfair• State Reactions to Wayfair• Other Issues after Wayfair

• Impact on Income Tax • Marketplace Collection• Retroactivity • Simplification• Federal Legislation

─ Compliance with Wayfair• Administration and Management• Registration• Amnesty/Voluntary Disclosure Opportunities • Notice and Reporting

2

WAYFAIR AND ITS AFTERMATH


Timeline

4

1967 1973 1979 1985 1991 1997 2003 2009 2015

National Bellas Hess imposes physical-presence requirement for nexus

6/1/1967

2020

Quill upholds physical-presence requirement for nexus

6/1/1992

North Dakota Cent. Code sec. 57-40.2-07 goes into effect-challenging physical-presence requirement.

7/1/1987

TodayVarious federal legislative proposals introduced1/2/1973

1/1/2000

Current

CurrentStreamlined Sales and Use Tax Agreement

Advisory Commission on Electronic Commerce (ACEC) recognizes need for reform

2/1/2000

Justice Kennedy calls for reconsideration of Quill in DMA

3/3/2015

Court grants cert in Wayfair

1/12/2018

Court overturns Quill physical-presence test in Wayfair

6/21/2018

Complete Auto Transit establishes four-part test for determining a valid state tax under the Commerce Clause.

3/7/1977


South Dakota v. Wayfair, cont.

─ January 2016, the National Conf. of State Legislatures (NCSL) initiated a call to action for the state legislatures to directly challenge Quill’s physical presence requirement and avoid retroactive imposition of the tax

─ On March 22, 2016, South Dakota enacted S.B. 106, which asserts nexus against remote sellers with $100,000 in annual gross revenue from sales delivered to the State or 200 separate transactions delivered to the State, effective May 1, 2016

─ The U.S. Supreme Court issued its decision on June 21, 2018 overturning Quill and Bellas Hess• Held that Quill was “unsound and incorrect”• New test is parallel to the Due Process Clause and “economic or virtual”

presence is sufficient for nexus – case remanded to discuss discrimination & undue burden

• Five Justices joined the opinion and four Justices dissented • Dissent stated that departing from the physical presence requirement should be a

decision left to Congress

5


South Dakota v. Wayfair, cont.

─ Whether a tax is discriminatory and/or imposes an undue burden on interstate commerce will be the focus in the future

─ While the case was remanded, the Court’s Majority indicated it “appears” South Dakota’s law minimized the burdens on interstate commerce because it has at least these three features:1) Includes a safe harbor for sellers with “limited business” in SD

– Is “considerable amount of business” required?2) Does not apply retroactively3) South Dakota is a full member of the Streamlined Sales and

Use Tax Agreement (SSUTA)

6


Adoption of South Dakota-Style Thresholds*Reactions to Wayfair – 11/25/2018

• AL – 10/1/2018 -- $250,000 plus an activity in Ala. Code § 40-23-68(b)

• AR – TBD (proposal approved by tax reform comm’n)

• AZ – None**• CA – TBD (bill intro’d, but

died)• CO – 12/1/2018• CT – 12/1/2018 --

$250,000/200 (pre-12/1/2018, CRS may seek to enforce 100 or more retail sales threshold)

• DC – TBD (bill pending)**

• FL – Under review**• GA – 1/1/2019 --

$250,000/200 (collect or report)

• HI – 7/1/2018• ID – Under review**• IL – 10/1/2018• IN – 10/1/2018• IA – 1/1/2019• KS – Under review**• KY – 10/1/2018• LA – 1/1/2019 (est. by DOR)• MA – 9/22/2017 -

$500,000/100• MD – 10/1/18• ME – 7/1/18• MI – 10/1/2018

• MN – 10/1/2018 – 10 more transactions over $100,000/100 transactions

• MO – None**• MS – 9/1/2018 -- $250,000

plus systematic solicitation• NC – 11/1/2018• ND – 10/1/2018• NE – 1/1/2019• NJ – 11/1/2018• NM – Under review**• NV – 10/1/2018• NY – Under review**• RI – 8/17/2017• SC – 11/1/2018 -- $100,000

(includes marketplace sales)

• SD – 11/1/2018• TN – TBD (enjoined,

legislative of regulation approval needed) --$500,000 plus systematic solicitation

• TX – 10/1/2019 (proposed reg.) – $500,000** (a pre-filled bill would adopt SD-style threshold)

• UT – 1/1/2019• VA – Under review**• VT – 7/1/2018• WA – 10/1/2018• WI – 10/1/2018• WV – 1/1/2019• WY – 2/1/2019

7

*Unless otherwise noted, states adopt SD-style threshold of $100,000/200

**State “doing business” statute applies to the extent allowed under the U.S. Constitution.

ISSUES AFTER WAYFAIR


Nexus Threshold Issues

─ Should there be uniform economic nexus standards for thresholds?

─ Should states use “retail sales” or gross revenues to measure the threshold?

─ What are the consequences of being over a threshold?

─ Should thresholds apply to localities? If so, how?• Aldens, Inc. v. Tully (N.Y. 1980).

─ Should thresholds apply to foreign sellers? If so, how?

9


Simplification Issues

─ As a Streamlined full member state, South Dakota substantially complied with the following simplification measures in the Agreement:

• State level administration of sales and use tax collections.• Uniformity in the state and local tax bases.• Uniformity of major tax base definitions.• Central, electronic registration system for all member states.• Simplification of state and local tax rates.• Uniform sourcing rules for all taxable transactions.• Simplified administration of exemptions.• Simplified tax returns.• Simplification of tax remittances.• Protection of consumer privacy.

─ Will the Streamlined Sales and Use Tax Agreement attract new members – i.e., the more populated states?

─ Are there simplification alternatives to Streamlined to comply with the Wayfair “checklist” – e.g., state-level remote seller tax regimes?

10


Retroactivity

─ Emphasized in oral argument, but only mentioned in passing as one factor of protection against discrimination or undue burdens against interstate commerce• South Dakota law foreclosed retroactive application• Vast majority of states have assured remote sellers of no retroactive

application, with MA, ME, MS and PA among the exceptions

─ Generally, U.S. Supreme Court rulings on constitutionality can be retroactive, but a particular set of facts (and considering prior positions of the state) may violate Due Process as a retroactive application of a state statute (See U.S. v. Carlton, 512 U.S. 26 (1994))

─ Additional retroactive tax issue with sales/use tax is consumer obligation to self-report tax – imposing retroactive tax could result in double taxation on remote sellers (is availability of a refund sufficient?)

11


Other Post-Wayfair Issues

─ Will future litigation fine-tune the Wayfair checklist?• Local issues – Alabama, Colorado, and Louisiana • Potential retroactivity issues – Massachusetts, Mississippi, and

Pennsylvania• Simplification – Large non-Streamlined states, e.g., New York,

Texas

─ Impact on business activity/income tax planning, filing positions, reserves, audits, etc.

12


Other Post-Wayfair Issues

─ Sales Tax: Issues remaining after Wayfair─ Third-party sellers

─ Intermediaries / Agents

─ Income Tax─ Will states more aggressively enforce income tax

economic nexus?

─ Will states apply Wayfair decision to other taxes?

13


Impact on 2019 State Legislative Sessions

─ Renewed interest in SSUTA?

─ State-level taxes for remote sellers (rate, administration, etc.)?

─ Base expansion?

─ Marketplace collection

─ Removal of reporting in lieu of collecting options

─ Opportunities for the business community• Rate reductions• Business input exemptions

14


Congressional Action

─ How would Congress structure Federal SUT collection legislation?• Current (and proposed) legislation

• H.R. 6724 – Protecting Small Business from Burdensome Compliance Costs Act – No retroactivity and simplification requirements

• S. 976 — Marketplace Fairness Act – $1 M threshold• H.R. 2193 — Remote Transaction Parity Act – $10 M phase-out threshold• H.R. 2887 — No Regulation Without Representation Act – Keep Quill• S. 3180 — Stop Taxing Our Potential (STOP) Act (S. Res. 433) – Keep Quill• Draft Online Sales Simplification Act (hybrid origin-based system)

• July 24th Judiciary Committee Hearing discussed a moratorium

─ What are the Business Activity Tax implications?• Is there more urgency for BATSA now that Quill is gone?• Is PL 86-272 protection from merely soliciting sales still relevant?

15

Administration & Management


Post-Wayfair Considerations─ Review Nexus Footprint

• Determine current filing obligations and assess new obligations where economic nexus enacted

─ Overall Business Impact• Discuss impact of economic nexus with various organizational

departments (legal, marketing, finance, etc.)

─ Review Sales• Develop taxability determinations, review mixed transactions

(TPP/Services)

─ Review Technological Requirements for Business• Current software and other options• Consider upgrades or outsourcing compliance

─ Compliance & Registrations• Register in new jurisdictions and ensure timely filing/payment

─ Monitor Tax Updates/Audits17


Evaluating Nexus

─ Physical Presence in state –• Is this still relevant?

─ Sales threshold calculation• Evaluation Period• Taxable or Total Sales

─ Effective Date

─ Sales tax nexus no longer impediment to business operations

─ Home rule local taxes

─ ASC450 Implications

─ Qui Tam and Class Action risks

18


Taxability

─ Taxability becomes much more important to determine

─ Product classification

─ Tax Type evaluation (sales vs seller’s use)

─ Invoicing standards• Bundling• Ancillary Charges• Delivery Point

─ Exemption Documentation• Required for all states• Impact on drop shipments

19


Consumer’s Use Tax Impact

─ Use Tax Accrual requirements should decrease

─ Managed Compliance Rates need to be reevaluated

─ P-Cards use tax process need to be reviewed and adjusted

─ Vendor tax review may be more important• Correct tax type in states where rate differences (sales vs seller’s

use tax)• Taxability (certificates not issued because vendor not charging tax)

20


Automation Considerations

─ Sales Tax Automation is more critical• More jurisdictions• Greater risk

─ Exemption Certificate Automation• Maintenance of certificates• Validation and integration to calculation system of certificates

─ Use Tax Automation Adjustments• Will this be as necessary?

21

Registration Considerations


Registration Considerations

─ When to Register • Effective Date implications• Amnesty considerations• Waiting to see if state offers consideration

23


Registration Considerations (cont.)

─ Streamlined Registration Consideration• Volunteer Filer No fixed place of business for more than 30 days Less than $50k or less than 25% total property or payroll No previously collecting tax Not required to collect as a statutory requirement Any seller that meets above and who became legally obligated to

register due to enactment of federal legislation• Simplified Registration Process• CSP use• Amnesty benefits: TN would be prospective• Potential for non SST states

24

Amnesty Opportunities


Amnesty Opportunities

─ Indiana• May 2, 2018 – December 31, 2018.• Amnesty inclusion period: Taxes due after January 1, 2017.• Applies to sales, use and income taxes for sellers whose presence

in Indiana was inventory at 3rd party warehouse (online sellers FBA type).

• Amnesty benefits: Waiver of all taxes prior to 2017, waiver of penalties and interest.

26


Amnesty Opportunities (cont.)

─ New Jersey• November 15, 2018 – January 15, 2019.• Amnesty inclusion period: Tax liabilities for returns due on or after

February 1, 2009 and before September 1, 2017.• Not sales-tax specific – applies to any tax administered and

collected by the Division of Taxation.• Amnesty benefits: Waiver of most penalties, cost of collection fees,

and one-half of interest due as of November 1, 2018.

27


Amnesty Opportunities (cont.)

─ New Mexico• November 8, 2018 – December 31, 2018.• Amnesty inclusion period: Appears to be open to any previously

unreported taxes.• Not sales-tax specific – applies to most taxes subject to the New

Mexico Tax Administration Act.• Amnesty benefits: Waiver of both penalties and interest.

28

Notice & Reporting Impact


Notice & Reporting Impact

─ States where this could apply• States where not required to register• States without economic nexus

─ Register or Notice Evaluation• Below economic threshold• Rule may be based on taxable sales rather than total sales• Burden evaluation• Customer relations impact

30

Notice & Reporting Requirements: Enacted and Proposed Legislation

EnactedProposed in 2018

31


Notice & Reporting Requirements Legislation (cont.)─ Pennsylvania – effective April 1, 2018 and April 1, 2019

• Post conspicuous notice on forums• Provide written notice to purchasers at time of sale. The notice

must be prominently displayed on all invoices and order forms and on each sales receipt or similar document.

• Provide annual report to purchasers and the DOR • Penalties for non-compliance with the notice and reporting

provisions will be $20,000 or 20% of the total sales in Pennsylvania during the previous twelve months, whichever is less. The penalty shall be assessed separately for each violation but may only be assessed once in a calendar year.

32


Notice & Reporting Requirements Legislation (cont.)─ Rhode Island – effective August 17, 2017

• Post notice on website• Notify customers that sales/use tax is due and in-state customers

must file a sales/use tax return at time of purchase• Within 48 hours of purchase, notify customers that sales/use tax is

due and in-state customers must file a sales/use tax return at time of purchase

• Send annual notice to customers to customers with annual taxable purchases totaling $100 or more for prior calendar year.

• File form with the state annually attesting that retailer has complied with above requirements.

• Penalty to comply with any of the above: $10 for each such failure, but not less than a total penalty of $10,000 per calendar year.

33


Notice & Reporting Requirements Legislation (cont.)─ Vermont – effective May 24, 2011 and July 1, 2017

• Notify customers that sales or use tax is due and a sales or use tax return must be filed.

• The notice must be provided annually to Vermont purchasers who have made purchases amounting to $500 or more from the vendor in the previous calendar year.

• Failure to send the notice will subject the vendor to a $10 penalty for each such failure, unless the vendor shows reasonable cause for the failure.

34


Notice & Reporting Requirements Legislation (cont.)─ Washington – effective January 1, 2018

• Post a conspicuous notice on marketplace, platform, web site, catalog, or any other similar medium

• Provide a notice to each consumer at the time of each retail sale. The notice must be prominently displayed on all invoices and order forms and upon each sales receipt or similar document provided to the purchaser.

• Provide annual report to customers• Provide annual report to the state

35


Questions?

36


Be sure to also submit your pet through our app to be featured as Pet of the Month!

Download the Eversheds Sutherland SALT Shaker app todayConnect with us!

─ Apple App Store

─ Google Play

─ Amazon Appstore

37

@ESsaltlaw

eversheds-sutherland.com© 2018 Eversheds Sutherland (US) LLPAll rights reserved.This communication cannot be used for the purpose of avoiding any penalties that may be imposed under federal, state or local tax law.

Contact us

Todd BetorAssociate Eversheds Sutherland (US) LLP202.383.0855

AssociateEversheds Sutherland (US) [email protected]

Justin T. Brown

[email protected]

wayfair decision – indirect and direct tax …...north dakota cent. code sec. 57-40.2-07 goes into...

Documents