At the end of December, the Uniformity Committee of the re-convened Wayfair Implementation and Marketplace Facilitator Work Group (“Work Group”) released its annual white paper (“2019 White Paper”). The paper addresses issues arising from the enactment of sales/use tax laws implementing economic nexus and requiring marketplace facilitators/providers to collect sales/ use tax. It includes the Work Group’s findings concerning the Committee’s prioritized list of issues and is intended to provide guidance to state legislatures and tax agencies considering such laws or amendments during their 2020 legislative sessions. The 2019 White Paper follows up and supersedes (to the extent inconsistent with) the white paper dated November 20, 2018 (“2018 White Paper) (www.mtc.gov).
This blog is the fifth in a series in which I review and comment on a number of key issues raised in the white paper that will likely influence state legislation and administrative directives through the year and beyond. This blog will cover the question of information requirements.
Issue: Should clear guidelines exist as to the specific information each party (marketplace seller or marketplace facilitator/provider) must provide to the other for the obligated party to correctly collect and report the sales/use tax?
Information requirements between the marketplace seller and marketplace facilitator/provider should be clear and standardized. Several of my fellow business participants suggested that the marketplace seller should be required to provide to the marketplace facilitator/provider information needed to properly categorize the product, but should not be responsible for making the taxability determination. When the marketplace seller retains the obligation to collect sales/use tax, the marketplace facilitator/provider should be required to provide the marketplace seller the information needed to properly complete the sales/use tax return.
Comment by Mark Friedlich
As I have mentioned in previous blogs in this series, responsibility for sales tax collection and remittance for marketplace facilitators and marketplace sellers remain a matter of contention in the courts of some states. To demonstrate just how significant an issue this is for marketplaces and sellers on these marketplaces, consider Amazon, which reports that about 60% of its total sales in 2019 – roughly $200 billion – were from the 3 million active third-party sellers associated with the largest marketplace facilitator (Amazon). Post-Wayfair sales tax burdens on small businesses can be draconian … sometimes placing the very existence of the business at risk.
And Congress is taking a close look at these issues.
Last week, the House’s Committee on Small Business, Subcommittee on Economic Growth, Tax, and Capital Access, held a hearing titled, “South Dakota v. Wayfair, Inc.: Online Sales Taxes and their Impact on Main Street.” The hearing focused on the burden posed by the US Supreme Court’s decision in South Dakota v. Wayfair, Inc. One of the witnesses testifying before the Committee was Halstead Bead, Inc. Its Financial Director, Brad Scott, testified to the costs of complying with sales taxes. He noted that the company had spent $183,500 and 3,800 labor hours to collect just $79,423 in sales tax. The company has actually restricted sales to Colorado customers because it would not be able to comply with Colorado’s tax collection requirements. Mr. Scott recommended that:
- States should rely on a national threshold of $30–$40 million of sales; and
- Taxpayers should be allowed to sue other states in their own states’ courts or federal court.
The committee members were concerned with Wayfair’s impact on small businesses. Representative Kim, the subcommittee’s chairman, stated that he wants to “explore some actions that Congress can take” to alleviate their nationwide sales tax compliance burdens.
Frankly, despite the Committee’s good intentions, involvement by Congress in these matters is highly unlikely, certainly in the next year or two.