Sales Tax Information Reporting/Notice Requirements – States Get Creative

Ok, it may be a bit of an overstatement that the states have a “workaround” for the soon-to-be-announced Wayfair/Quill nexus decision.  But Georgia recently continued the growing trend in many states, e.g., Colorado, of passing an already-constitutionally “blessed” type of law—so-called “customer information reporting/customer notice” laws (Direct Marketing Association v. Brohl, 575 U.S. ___ (2015), Sup Ct. 137 S.Ct. 591 (cert. denied 2016)). See [http://www.legis.ga.gov/legislation/en-US/Display/20172018/HB/61].

Such laws are a burden to retailers and can be used by the states to force retailers to make a tough business choice:  either collect and remit the sales tax under rules defined by each state statute or comply with onerous information and notice rules that require companies to notify its customers of the customers’ potential use tax liabilities in their state and to turn over to the state of each customer information about the purchase. Being perceived as “ratting” on your customers by providing customer information to the states may be seen more as a “Hobson Choice” than a fair business choice.

These “creative” state collection tools, combined with the already growing number of different nexus rules around the country,  continue to remind companies and their tax advisors of the need for sophisticated tools to track these differences in meeting the demands of state sales and use tax compliance and planning.

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Over the past 22+ years since the Quill decision, most states have not been passively” twittering their thumbs” waiting for the courts or Congress to act.  They have been proactively “getting around” or at least “testing the limits” of the Quill standard, not only with various direct assaults on Quill like economic nexus, click-through nexus, cookie nexus, but also with an indirect “nonnexus” assault—the so-called information reporting/notice requirements on remote retailers.

In a Nutshell

Information Reporting/Notice Laws in general require out-of-state sellers that are not currently collecting and remitting applicable taxes to report sales information for tax purposes to the state and/or consumer.  So-called “ratting” on your customers”.  Quill does not prevent states from requiring online sellers to report transactions to tax authorities so that they can collect use tax from consumers according to the Supreme Court in Direct Marketing Association (“DMA”)

These reporting/notice laws may very well continue to “live’ regardless of the outcome of the Wayfair decision.  These laws have the practical effect of forcing remote sellers for business, not legal reasons, to simply “give in” and start collecting and remitting sales tax to avoid the increased administrative burdens as well as being perceived as scaring customers with warnings on invoices about their use tax obligations or even worse, turning over purchaser information to the state.

The Bandwagon

Colorado started the information reporting/notice statutes but many other states have jumped on the bandwagon.  See for example a recent ruling (SUT-18-001) in Pennsylvania that specifically references their information reporting/notice statute in interpreting their Marketplace Sales Act

[http://www.revenue.pa.gov/GeneralTaxInformation/TaxLawPoliciesBulletinsNotices/LetterRulings/SUT/Pages/default.aspx]

Ten States Have Adopted Colorado-Style Reporting Sales Tax Laws…and now Georgia makes 11

Alabama Pennsylvania
Colorado Rhode Island
Kentucky South Dakota (modified)
Louisiana Tennessee
Oklahoma Vermont
Washington

 

The Georgia Statute:  The Devil is in the Detail

Although each state may vary in its law, it may be useful to review the most recent Georgia statute in more detail to demonstrate the potential burdens facing retailers.

Effective on January 1, 2019, the Georgia law requires certain retailers to either collect and remit sales and use taxes or provide certain notifications to certain purchasers and the state reflect the new notice and reporting requirements.  Certain retailers mean retailers who:

  • obtain gross revenue, in an amount exceeding $250,000.00 in the previous or current calendar year, from retail sales of tangible personal property to be delivered electronically or physically to a location within this state to be used, consumed, distributed, or stored for use or consumption in this state; or
  • conduct 200 or more separate retail sales of tangible personal property in the previous or current calendar year to be delivered electronically or physically to a location within this state to be used, consumed, distributed, or stored for use or consumption in this state.

If the retailer does not collect and remit the tax, the retailer must:

(A) Notify each potential purchaser immediately prior to the completion of each retail sale transaction with the following statement: “Sales or use tax may be due to the State of Georgia on this purchase. Georgia law requires certain consumers to file a sales and use tax return remitting any unpaid taxes due to the State of Georgia. ‘;

(B) Send, by the end of January of each year, a sales and use tax statement to each purchaser who completed one or more retail sales with such delivery retailer that total $500.00 or more in aggregate during the prior calendar year in an envelope containing the words ‘IMPORTANT TAX DOCUMENT ENCLOSED’ on the exterior of the mailing by first class mail and separate from any other shipment; and

(C) File by the end of January of each year, a copy of each sales and use tax statement with the department.  This statement must:

(A) Be on a form prescribed by the department;

(B) Contain the total amount paid by the purchaser for retail sales from the delivery retailer during the previous calendar year, as well as, if available, the dates of purchases, the amounts of each purchase, and the category of each purchase, including, if known by the retailer, whether the purchase is exempt from taxation; and

(C) Include the following statement: “Sales or use taxes may be due to the State of Georgia on the purchase(s) identified in this statement as Georgia taxes were not collected at the time of purchase. Georgia law requires certain consumers to file a sales and use tax return remitting any unpaid taxes due to the State of Georgia.”

Penalties for failure to notify

Unless reasonable cause is shown:

(A) Failure to provide the notice shall subject a retailer to a penalty of $5.00 for each failure;

(B) Failure to send a sales and use statement shall subject a delivery retailer to a penalty of $10.00 for each failure; and

(C) Failure to file a copy of a sales and use tax statement shall subject a delivery retailer to a penalty of $10.00 for each failure.

Why are These Statutes Important?

Even a cursory reading of the above information and notice requirements by remote sellers should make it easier to understand why a retailer might decide for practical business reasons to simply collect and remit the tax rather than choose the comply with the information and notice requirements in Georgia.  Justices Scalia and Alito summed it up best referring to the Colorado statute upheld in the Direct Marketing Association case:

Justice Scalia: “This is certainly a very important case because I have no doubt that…every one of the states is going to pass a law like this.”

Justice Alito echoed this conclusion:” … as a small internet business, I will have to submit potentially 50 different forms to all of these States reporting that somebody in South Carolina purchased something from me that cost $23.99…that’s where this all could lead, couldn’t it?” Reporting requirements under these notice-and-reporting statutes are deliberately cumbersome so as to compel collection.
These “creative” state collection tools, combined with the already growing number of different nexus rules around the country, continue to remind companies and their tax advisors of the need for sophisticated tools to track these differences in meeting the demands of state sales and use tax compliance and planning.

Click here to learn how CCH SureTax can help you stay compliant and efficient.

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AUTHOR

Jerome Nestor

Jerome Nestor, Esq., CPA, MBA-Accounting Information Systems Manager Tax & Accounting North America Wolters Kluwer Mobile: +1 847.312.5671 Email: jerry.nestor@wolterskluwer.com

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