Te Court expressed concern for undue and costly burdens imposed on small sellers to comply with overly complex sales tax laws in 45 states plus the District of Columbia and Puerto Rico, as well as hundreds of locally administered taxes in some states. As of the date of this writing, those agencies collect tax for more than 11,000 tax jurisdictions. In 2017, more than 700 of those units had rate changes, while hundreds more were affected by annexations. Adding to this complexity is the lack of uniformity in acceptance of sales tax exemption certificates, issues with drop shipments, states where locally ruled units have laws differing from state law, and constantly changing tax laws in all of these units. Tese combined factors create a crushing burden for any multi-state seller. Te Court pointed to South Dakota’s

participation in the Streamlined Sales and Use Tax Agreement (SSUTA) as a factor in approving of South Dakota’s law. SSUTA is a group of 24 states that have cooperatively simplified many complexities. Te Court carefully evaluated South Dakota’s law , noting six features showing it was “designed to prevent discrimination against or undue burdens upon interstate commerce.” Tese six features are (1) a safe harbor excluding those who sell only limited amounts in South Dakota (the SD threshold was $100,000 in annual sales or 200 sales transactions annually); (2) no retroactive tax collection; (3) single, state-level administration of sales taxes; (4) a simplified tax rate structure; (5) uniform definitions and other rules; and (6) access to software provided by the state with immunity for those who rely on it. Items three through six are products of SSUTA initiatives.

Te justices who dissented in Wayfair emphatically stated the basis of their decision was that it is Congress’s domain to enact law to regulate interstate commerce, stating, “…any alteration to those rules with the potential to disrupt

the development of such a critical segment of the economy should be undertaken by Congress.” Te dissent argued Congress is better able to consider the competing interests and has more flexibility than the Court in crafting a solution. Additionally, the Court’s written majority opinion affirmed Congress’s authority to act, in effect inviting Congress to enact uniform laws to regulate taxation of interstate sales. Te Court in Quill made a similar suggestion in 1992. Additionally, the dissenting opinion noted the majority disregarded costs that would be incurred by retailers to collect and remit tax on e-commerce sales, which will fall disproportionately on small retailers. Tis is an excellent opportunity for Congress to bring a measure of simplicity to relieve excessive costs for multi-state businesses. Te Court’s decision was specific to South Dakota’s law. It does little to specify what level of sales is required to create nexus, nor does it address locally administered taxes, the complex maze affecting businesses for physical presence rules when sales are not above the sales threshold or any of the other complexities resulting from inconsistent state rules.

Now that Wayfair has been decided, what conclusions can be drawn, and how should remote sellers react? First, the physical presence test is not eliminated. Unless Congress enacts such a standard, the confirmation that states can impose an economic threshold does not replace the requirement for a seller with physical presence to collect tax. Sellers whose employees (or contract worker agents) sell, install, repair or deliver in company vehicles on a regular basis or have inventory in a state will have exposure for nexus in that state. Additionally, marketplace providers are still faced with laws in some states compelling them to collect tax for third-party sellers. In other states, those third-party sellers face nexus

because their fulfillment vendor holds their inventory in various states. Taxpayers should continue to evaluate their footprints in states for physical presence irrespective of the new economic nexus standards. Second, most states will attempt to enact laws similar to the South Dakota law to impose their tax on an economic nexus basis. Many have already passed such laws. Tree states (Alabama , Massachusetts and Tennessee ) enacted regulations imposing these standards without passing such laws, but such impositions are of doubtful legal standing. For states like Alabama, Colorado and Louisiana that have numerous locally administered taxes separately reported to those jurisdictions, imposition of economic nexus thresholds seems likely to be challenged on the basis that their sales tax laws are not sufficiently simplified and are not state-administered as specified in the Court’s ruling. Taxpayers having multi- state sales should assume—for planning purposes, in the opinion of this author— that by Jan. 1, 2019, they will likely face imposition of tax on an economic basis in most states, and at this juncture, the best (and only) standards to consider are those by South Dakota—$100,000 in sales or 200 sales transactions annually. Tird, because this decision was strongly based on simplification and did not address locally administered taxes, it did not create authority for them to impose their taxes on an economic nexus. Tat does not mean locally administered jurisdictions such as Denver or Orleans Parish, for example, will not attempt to impose their taxes on this basis, nor does it guarantee such efforts will be ruled invalid. While this is an open question, it seems unlikely locally administered jurisdictions will ultimately be able to rely on an economic nexus threshold. Since collection of these taxes is so burdensome for small businesses, until and unless Congress acts or further legal decisions clarify this issue, businesses may be forced to weigh the cost of compliance

 September/October 2018 CPAFOCUS 9

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