The 2019 National Multistate Tax Symposium State tax reboot-The age of Multistate - Deloitte
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
The 2019 National Multistate Tax Symposium State tax reboot—The age of Multistate February 6-8, 2019
Challenging state sales tax regimes William M. Backstrom, Jr., Jones Walker LLP Mike Bryan, Deloitte Tax LLP Doug Lindholm, Council on State Taxation (COST) February 6-8, 2019
Agenda
• Wayfair and Its Aftermath: Special Issues
−Threshold Implementation
−Inbound Sellers
−Historical Nexus and Income Taxes
• Do non-SSUTA States Really Have Collection Authority?
• Litigation Considerations
• Modernizing State Sales Tax Systems
• An Example - Louisiana
• After Wayfair: What’s Next?
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
3Wayfair and its aftermath:
Special Issues
4Timeline: National Bellas Hess to Wayfair
Source: Council On State Taxation
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
5Wayfair: The Decision
6The Wayfair Decision: June 21, 2018
• In a 5-4 Decision, Justice Kennedy (joined by Thomas, Gorsuch, Ginsburg, Alito) held that:
−Quill and National Bellas Hess are overruled
−The physical presence rule is unsound, is an incorrect interpretation of the Commerce Clause, and restricts
the states’ authority to “collect taxes and perform critical public functions”
• Majority concluded that the following features of South Dakota’s law minimized the burdens on interstate
commerce:
−Included a transactional safe harbor
−Did not apply retroactively
−South Dakota was a full member of the Streamlined Sales and Use Tax Agreement (SSUTA)
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
7What Is Replacing the Physical Presence Test?
• Justice Kennedy: “For these reasons, the Court concludes that the physical presence rule of Quill is unsound
and incorrect”.
• Justice Kennedy: “Here, the nexus is clearly sufficient based on both the economic and virtual contacts
respondents have with the State.”
• Justice Kennedy: “And respondents are large, national companies that undoubtedly maintain an extensive
virtual presence. Thus, the substantial nexus requirement of Complete Auto is satisfied in this case.”
• What is the “economic and virtual” presence test?
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
8Wayfair: Threshold Implementation
issues
9State Implementation Details: Thresholds
• Issues surrounding measurement period (prior year sales or current year sales)
• Does tax collection apply to the first $100,000, or only after nexus is established?
• Impact of sales fluctuation on nexus determination
• Application of thresholds to local taxing jurisdictions
• Issues surrounding use of “taxable sales” vs. all sales to determine nexus threshold
−Wholesale sales
−Exempt sales (product, use, or entity based)
• Issues surrounding transaction counts
−By invoice
−By item
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
10Wayfair: Inbound Sellers
11Application of Wayfair to Inbound Sellers
• Nothing in Wayfair limits the holding to domestic US businesses
• Controlling case may be Japan Line Ltd. V County of Los Angeles, 441 US 434 (1979)
−Court first applied the four part test articulated in Complete Auto Transit Inc. v Brady 430 US 274 (1977)
−Two additional factors must be considered regarding foreign commerce clause:
◦ The tax may not create the risk of international multiple taxation
◦ The tax must not prevent the US from speaking “with one voice” regarding foreign trade
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
12Application of Wayfair to Inbound Sellers
• Risk of international multiple taxation
−For most states, this is a tax collection requirement, not a tax imposed on the seller
−Requires review of the imposition of export taxes
• Speaking with “one voice” regarding foreign trade
−Argument that the requirement levels the playing field rather than discriminates against foreign commerce
−Counter argument that non-uniform subnational taxes are not “one voice”
• Does the state have the ability to enforce an assessment?
−No treaties at the sub-national level
−Consider affiliated US entities
−Reputational damage
−Doing business with banks, credit ratings
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
13Application of Wayfair to Inbound Sellers
• Relevance of Japan Line and Complete Auto Post-Wayfair
• Wayfair majority noted that a “case by case” approach is preferred to a bright line test and noted that
“other” commerce clause jurisprudence could render laws like South Dakota’s unconstitutional
• Consider Pike v. Bruce Church, Inc.; 397 US 137 (1970)
−Referenced in Wayfair
−States may not pass laws that interfere with interstate commerce if such laws place an undue burden on
businesses
−Could imposition by thousands of jurisdictions be an undue burden?
−Consider threshold of $100,000—results in an average of $7,000 in tax
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
14Wayfair: Nexus Trends and Income
Tax Impact
15What Impact on Historical Nexus Trends?
Sales Tax
• Attributional nexus
• Affiliate nexus
• Click through nexus
• Notice and Reporting statutes
• Drop Shipment statutes
−What about economic nexus for state net income taxes and gross receipts taxes?
−Will Congress intervene and impose uniform national nexus and/or simplification
requirements?
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
16Wayfair: Impact on Income Taxes
• Because Quill was a sales tax case, many states had enacted economic (i.e., non-physical) nexus standards
for income tax purposes. Conversely, some companies may have interpreted a physical requirement to
apply to state income taxes as well.
• After Wayfair, there may be no question as to the constitutionality of economic or factor presence nexus
standards for both income tax and sales tax purposes.
−ASC 740 financial accounting and reporting
• Further Questions to Consider:
−Without a physical presence requirement will the states:
◦ Enact factor presence nexus provisions and/or other broad nexus rules?
◦ Broaden the definition of doing business without bright-line test?
◦ Challenge historic filing positions based on the Court’s ruling?
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
17Wayfair: Impact on Income Taxes
Potential ASC 740 Considerations may include:
• New separate company filing obligations
• Combined / unitary filings
−New filing obligations based on one member having nexus
−Impact to sales apportionment based on Joyce/Finnigan filing requirement
−NOL and credit utilization within the group
P.L. 86-272 is still valid after Wayfair.
• P.L. 86-272 generally precludes a state from imposing an income tax if the only in-state business activities
involve the solicitation of orders for sales of tangible personal property.
• If virtual connections can create nexus, can virtual connections constitute an “in-state” activity that exceeds
solicitation such that the protections of P.L. 86-272 are lost?
• Note that by its terms P.L. 86-272 protection operates in interstate commerce, not foreign commerce.
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
18Do Non-SSUTA States Really Have
Collection Authority?
19Wayfair Dicta
• The Question Remains: “Whether some other principle in the Court’s Commerce Clause doctrine might
invalidate [South Dakota’s] Act.”
• Features in South Dakota Designed to Prevent Discrimination or Undue Burdens on Interstate Commerce:
−Safe Harbor
−No Retroactivity
−Adoption of Streamlined Sales & Use Tax Agreement:
◦ Single State Level Administration
◦ Uniform Definitions of Products and Services
◦ Simplified Tax Rate Structures
◦ Other Uniform Rules
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
20Transactional Safe Harbor
• South Dakota’s transactional safe-harbor of an annual threshold of 200 sales or $100,000 in sales was
sufficient
−Should the threshold be the same for California as South Dakota?
−Can states require small businesses making few sales to collect in all cases?
−What counts as sales? Exempt sales? Wholesale sales?
−How do you get to 200? Items or invoice?
−Will there be a “de minimis” exception?
• Will the Due Process Clause become more important in state tax litigation?
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
21Retroactivity
• Not really addressed, despite emphasis in oral argument
• South Dakota law foreclosed retroactive application
• What will other states do?
• Additional retroactive tax issue with sales/use tax is consumer obligation to self-report tax -- imposing
retroactive tax could result in double taxation (is availability of a refund sufficient) on remote sellers
• Is there any overlap with state retroactive tax legislation cases since the U.S. Supreme Court 1994 decision
in U.S. v. Carlton.
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
22Will More States Join SSUTA?: Streamlined Sales Tax States by Population
Full Member Associate Member Non-Sales Tax Member Non-Member
33.7% of 2% of 2.5% of 62.3% of
population population population population
WA
7.41 M
ME
MT ND
1.34 M
1.05 M 760 K MN
620 K
OR 5.58 M VT
4.14 M 6.86 M
ID NH 1.34 M
WI
1.72 M SD 5.8 M MI NY MA 1.06 M
870 K 9.96 M 19.85 M CT
WY 3.59 MRI
580 K
IA PA
NV NE 3.15 M 12.81 M
NJ 9M
3M 1.92 M OH
IL IN 8.47 M DE 960 K
UT 11.66 M
CA 12.8 M 6.67 M MD 6.05 M
3.1 M CO WV
39.54 M 5.61 M 1.82 M VA
KS D 690 K
MO
2.91 M KY C
6.11 M 4.45 M
NC
TN 10.27 M
OK 6.72 M
AZ
NM AR SC
7.02 M 3.93 M
2.09 M 3M 5.02 M
AL GA
MS
AK 2.98 M 10.43 M
4.87 M
740 K TX LA
28.3 M 4.68 M
HI
1.43 M FL
20.98 M
Source: U.S. Census Bureau
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
23Litigation Considerations
24Post-Wayfair Litigation Considerations
Simplified example – consider for challenge/litigation:
• Smaller, discrete business (each entity is a separate vendor, so think new venture selling remotely a new
type of widget (TPP)).
• Low volume (201-250 separate transactions for delivery into the State).
• Low $ sales ($101,000 to $150,000 in sales into the State).
Note existing State considerations unaffected by Wayfair
• Physical or agency nexus
• Attributional nexus
• Sham/disregard nexus
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
25Post-Wayfair Litigation Considerations
Due Process Considerations
• Has the entity purposefully availed itself of the substantial privilege of carrying on business in the taxing
jurisdiction?
−Where are the activities specifically directed?
−Whose activities are relevant?
−Nexus with both the entity and the activity?
−More than the slightest presence?
• Is the imposition applied in a fair way with sufficient notice (i.e., not retroactive)?
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
26Post-Wayfair Litigation Considerations
Commerce Clause Considerations
• Does the imposition of the tax or tax collection obligation discriminate against or place an undue burden on
interstate commerce?
−If discriminatory, does the taxing jurisdiction have a legitimate purpose that cannot be adequately served
by reasonable non-discriminatory alternatives?
−If non-discriminatory, is the burden on interstate commerce substantial in relation to the benefits received
by the taxing jurisdiction?
• Can the tax be imposed by more than one State on the entire transaction?
• What factors may be overly burdensome?
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
27Post-Wayfair Litigation Considerations
Commerce Clause Considerations (cont’d)
• Retroactivity?
−Non-uniformity (e.g., State not a party to the Streamlined Sales and Use Tax Agreement)?
−Insufficient safe harbor rules?
−Difficult safe harbor rules (e.g., $100,000 in sales in the current year? How do you know which sale is the
one?)
• Is the imposition of the tax or tax collection obligation reasonably related to the protections and benefits
provided by the taxing jurisdiction?
−Specific benefits and protections received by the entity or more generally applicable protections? Has a
local fire department ever extinguished a fire on an intangible?
• Different factors or considerations for income tax vs. sales and use tax?
−Different nexus tests based on how the entity acts with respect to the taxing state?
−Different burdens tests based on how the tax operates?
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
28Modernizing (and improving) State
Sales Tax Systems
29Why Modernizing State Sales Tax Systems Is Critical to State Tax Policy
• General sales taxes account for over 32 percent of all state taxes – and along with personal income
taxes – are the largest sources of state tax revenues.
• The U.S. state and local sales tax system may be one of the most complex and inefficient
consumption tax systems in the world.
−Exemption of Business Inputs: Sales taxes were designed to tax end-user consumption (not a general
gross receipts tax) – however, on average, 42% of the states’ sales tax revenue is derived from business
inputs. Virtually all other countries mitigate pyramiding of their consumption tax by providing more
expansive credits for business inputs.
−Uniformity and Simplification: There is a much higher level of consumption tax uniformity in Europe
(harmonization through the EU) than in the United States where the largest states with about two-thirds
of the U.S. population have not adopted SSUTA.
−Central Administration: While 45 states have sales taxes (plus DC), when taking into account local
sales tax jurisdictions, there are over 10,000 separate taxing jurisdictions. Accordingly, the U.S. has one
of the most decentralized tax consumption systems in the world.
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
30Why Modernizing State Sales Tax Systems Is Critical to State Tax Policy (cont’d)
The stakes may be high:
• In the 1930’s with the development of the states sales taxes, sales of tangible personal property
represented about 2/3rds of the U.S. economy – today 2/3rds of the economy is service sector driven.
• State efforts to significantly broaden the sales tax base to tax the service sector are challenged because of
business opposition to the pyramiding of sales tax on business inputs and the overall complexity of sales
tax compliance.
• The sales tax base, as a share of personal income, is currently only about two-thirds its 1970 level.
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
31An example: Louisiana
32Wayfair Consequences in Louisiana
Local nexus issues in Louisiana
Louisiana’s systems lack the features outlined in
• Parishes relying on state statutory definitions of “dealer”
Wayfair:
• Does one physical location in the state implicate every
• No factor presence economic nexus
parish?
thresholds … yet (Act 5 not yet “applicable”)
• Each individual parish provides its own local sales tax
• Louisiana has not adopted SSUTA
system, which does not have all the features in Wayfair
• No single, state-level tax administration
• Potential burden to businesses – annually having to file
scheme
over 750 different state and local sales tax returns (with
• No simplified rate structure
numerous disparate calculations made on each return)
• No uniform rules
Remote Sellers Information Bulletin No. 18-001 (8/10/ 18)
Louisiana Sales and Use Tax Commission for Remote Sellers • Opines that due to Wayfair decision, Commission is now
(Act 274 of 2017 Regular Session) authorized under Act 5 of 2nd 2018 Extra. Session to act
• Responsible for administration and collection of state as single entity for administration and collection of sales
and local sales and use taxes related to “remote sales” and use taxes with respect to remote sellers
• As of now, Act 5 is not applicable
• Created to provide uniformity and simplicity in sales
• Opines that a flat adoption of the SSUTA is not a
and use tax compliance for “remote sellers” requirement found in Wayfair decision
• Questions asked to Commission: • Provides that Department will not be seeking any
• Who is a qualifying “remote seller?” retroactive application of Wayfair decision and will
• What is a qualifying “remote sale?” instead begin enforcing collection from remote sellers on
January 1, 2019
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
33Wayfair Consequences in Louisiana
Remote Sellers Information Bulletin No. 18-002 (December Marketplace Providers:
18, 2018) • Commission noted Marketplace Providers
• Provides definition of “Remote Seller”
• “A remote seller means a seller who sells for sale at
will be addressed in a legislative packet
retail, use, consumption, distribution, or for from the Governor during the 2019 Regular
storage to be used for consumption or distribution Session
any taxable tangible personal property, products • A district court has held that the statutory
transferred electronically, or services for delivery definition of dealer set forth in LA R.S.
within Louisiana but does not have physical
47:301(4)(l) applies to a marketplace
presence in Louisiana. If a seller has physical
presence in Louisiana, the seller is considered a operator (decision pending)
dealer as defined by La. R.S.47:301(4) and subject
to state and local collection and remittance
requirements.”
• Uses older “physical presence” standard
• Commission determined that physical presence
should not include “affiliate nexus”
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
34Wayfair: What’s Next?
35Will State “Platform” Laws Be the Hot Legislative Item in 2019 & Beyond?
A growing trend in the sales tax arena is adoption of “marketplace” laws, also referred to as “platform” laws.
In general, these laws impose collection and/or reporting obligations on a “marketplace facilitator” or
“marketplace providers” for sales made by “marketplace sellers”
• To date, about 9 states have adopted platform laws:
− e.g., Alabama, Connecticut, Iowa, Minnesota, New Jersey, Oklahoma, Pennsylvania, Rhode Island, and
Washington.
• Of these 9 listed states, 4 states give the platform the option to collect and remit sales tax on
third party sales, or comply with the Colorado-style reporting requirements:
− Alabama, Oklahoma, Pennsylvania, and Washington
− Will these states change their laws to require collection in 2019?
• 4 of these states require the platform to collect (with no choice to report):
− Connecticut, Iowa, Minnesota, and New Jersey
• Rhode Island only imposes reporting obligations on platforms
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
36Post-Wayfair Federal Legislation
• Stop Taxing Our Potential Act (STOP), S. 3180
−Introduced June 28, 2018 by Sen. Jon Tester (D-MT) with cosponsors Sens. Jeanne Shaheen & Maggie
Hassan (D-NH) and Jeff Merkley (D-OR)
−Prohibits states from imposing any reporting or collecting obligations for sales and use tax on sellers with
no physical presence
• Protecting Businesses from Burdensome Compliance Cost Act, H.R. 6724
−Introduced September 6, 2018 by Rep. Bob Gibbs (R-OH)
−Prohibits retroactive sales tax collection on transactions pre-January 1, 2019
−Requires states to establish a single statewide sales tax rate for remote sellers
−Requires states to allow remote sellers to remit to a single state location and bars localities from imposing
collection obligations
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
37Post-Wayfair Federal Legislation (cont’d)
• Online Sales Simplicity and Small Business Relief Act, H.R. 6824
−Introduced September 13, 2018 by Rep. Jim Sensenbrenner (R-WI)
−Bans retroactive taxation on transactions occurring before June 21, 2018
−Establishes a small seller sales threshold of $10 million
−Requires states to develop and adopt a Congressionally-approved compact governing sales taxation of
remote sellers
−Bars states from imposing remote seller collection obligations before January 1, 2019
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
38Q&A
39Contact information
William M. Backstrom, Jr. Mike Bryan
Jones Walker LLP Deloitte Tax LLP
bbackstrom@joneswalker.com mibryan@deloitte.com
Doug Lindholm
Council On State Taxation (COST)
dlindholm@cost.org
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
40This presentation contains general information only and the respective speakers and
their firms are not, by means of this presentation, rendering accounting, business,
financial, investment, legal, tax, or other professional advice or services. This
presentation is not a substitute for such professional advice or services, nor should it
be used as a basis for any decision or action that may affect your business. Before
making any decision or taking any action that may affect your business, you should
consult a qualified professional advisor. The respective speakers and their firms shall
not be responsible for any loss sustained by any person who relies on this presentation.
Copyright © 2019 Deloitte Development LLC. All rights reserved. The National Multistate Tax Symposium: February 6-8, 2019
41As used in this document, “Deloitte” means Deloitte Tax LLP a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte USA LLP, Deloitte LLP and their respective subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright © 2019 Deloitte Development LLC. All rights reserved.
You can also read
