On the heels of the Supreme Court hearing in Wayfair v. South Dakota, but before any decision has been made public, Georgia Gov. Nathan Deal got a jump on the court by quietly signing legislation aimed at making sure that Georgians who buy goods from online retailers will pay sales taxes on what they purchase, beginning January 1, 2019.
“A lot of states are holding off on taking any action, just to see what happens with Wayfair,” observed Chreasea Dickerson, tax law editor for Bloomberg Tax, who helped oversee the just-released Bloomberg Tax’s 18th Annual Survey of State Tax Departments.
“Surprisingly, 16 states indicated that their sales tax nexus policy was based on economic nexus, despite the fact that it contradicts Quill. In addition, six states indicated that they have an economic nexus that is not currently being enforced due to an effective date in the future, or pending litigation,” she said.
Georgia’s bill requires online retailers who make at least $250,000 or 200 sales a year in Georgia to either collect and remit to the state sales taxes on purchases, or send “tax due” notices each year to customers spending at least $500 on their sites. Its passage will generate an extra $500 to $600 million a year to local and state governments, according to proponents of the bill.
“Georgia is getting in line with everyone else,” said Tim Howe, a partner at Atlanta CPA firm Smith & Howard. “If the Supreme Court decides for South Dakota, Georgia wants to have its legislation in place so it’s ready to rock. They don’t want to wait until the next legislative session next spring to go through the process.”
“Everyone believes that ecommerce is the current basis, and the future, of retail,” he said. “You just don’t see brick and mortar stores popping up – that has either flatlined, or is in decline,” said Howe. “But it’s a gamble that SCOTUS will decide in favor of South Dakota. Everyone in the tax practitioner world knows that this is the appropriate way to go. Without it, states are losing hundreds of millions of dollars.”
Somehow, either the Supreme Court or Congress will have to define a threshold of what constitutes a small business, according to Howe.
“There has to be a threshold below which a seller doesn’t have to file,” he said. “They need to come to a conclusion as to who is going to have to comply with remote seller laws. It can’t vary from a $100,000 threshold to a $500,000 threshold state by state. There needs to be a standard threshold.”
“They can’t just focus on attorneys – they need to add CPAs to the mix,” he said. “Get us in a room for five minutes and we can whiteboard out what this should look like. Right now, practitioners – the ones responsible for compliance -- don’t have a strong enough voice.”
“States are using the use tax notification reporting requirements, and their associated penalties, to strong arm out-of-state taxpayers into registering for sales tax purposes,” said Stephen Bradshaw, a senior manager at Top 100 Firm Bennett Thrasher. “Use tax notification reporting requirements are burdensome, and penalties for noncompliance are high.”
“For example, I have a mid-market online retailer client with about $20 million of revenue that had 3,500 transactions to Georgia customers in 2017,” he said. “If they were ignorant of Georgia’s new law, which is very possible without a CPA or counsel, or if they decided on constitutional grounds to not register for sales tax purposes with Georgia and not comply with Georgia’s use tax notification rules, they could be faced with as much as a $90,000 penalty based on their 3,500 transactions for the use tax notification penalties alone. If this client was ignorant of other states’ notification rules, as is often the case, and if they were noncompliant for multiple years, the accumulated penalties could easily exceed $500,000.”
“So even if Quill [the 1992 Supreme Court decision that requires a physical presence in the state before a state can impose sales tax collection requirement on a remote seller] is upheld, it is likely that states will use reporting requirements to force sellers into collecting the sales tax,” he added.
