As accountants and tax attorneys, we often find ourselves
in conversation with our peers about the constitutionality of
state taxation.
Our customers and clients rely on us to
have these discussions in an effort to better define and advance tax law. Thanks to
Amazon.com and other large e-commerce
retailers, along with their more traditional
brick-and-mortar counterparts, we may be
witnessing a critical shift in the debate over
the constitutionality of one state tax in particular: the sales tax.
Through their interpretation of the Commerce Clause of the U.S. Constitution, the
Supreme Court has made it clear that no state
or local taxing authority can impose a tax on
any seller if that tax is deemed to impede
interstate commerce. While the decisions
handed down in the National Bellas Hess and
Quill cases have given accountants and tax
attorneys sufficient guidance to answer the
most basic nexus questions for their clients
and customers, the advent of e-commerce
muddied that guidance by removing a clear
test to determine if nexus exists. Most e-commerce companies lack the physical presence
requirements needed for the jurisdiction to
assert nexus and require the retailer to collect
and remit their sales tax.
New legislation presented before Congress
and the House of Representatives seeks to
allow federal intervention into the complex
questions that arise surrounding this topic.
Commonly referred to as the Main Street
Fairness Act of 2011, this legislation would
give federal consent to the Streamlined Sales
and Use Tax Agreement, also known as the
SSUTA.
While this agreement goes a long way in
simplifying the collection and remittance requirements imposed on retailers of all size, it
still leaves one question unanswered: What
exactly impedes interstate commerce and
how do we address this most fundamental issue? This question is sparking debate around
a critical piece of the SSU TA: the small-seller
exception and its application to collection
Small sellers and sales taxes
By Cory BArwiCk
Constitutional questions abound around state taxes
taxnews
able to them to monitor the ever-changing
sales and use tax rates and rules, the SSTGB
provided a vehicle to prevent violations
of interstate commerce constitutional and
case law by allowing smaller businesses to
continue to sell across state lines without
fear of audit or exposure by the state into
which they are selling.
It’s this concept that has e-commerce
companies like eBay still on the fence about
federal legislation to regulate the collection
and remittance requirements on remote sellers. The question that is being presented now
is one of national equality: Can states that are
not members of the SSUTA still pass laws that
would impose unfair collection and remittance requirements on remote businesses?
The simple answer is yes. Nowhere in the
SSU TA or the Main Street Fairness Act does it
require all 50 states and the District of Columbia to become members of the agreement.
If states are allowed to remain outside the
confines of federal law governing sales and
use tax collection and remittance requirements, have Commerce Clause issues been
adequately resolved? Again, the answer is
simple: no. State and local governments that
are not party to the SSUTA may still seek to
impose sales tax collection and remittance
requirements on remote sellers as they are
currently trying to do, regardless of whether
that seller has the resources necessary to collect and remit sales tax.
If the business cannot compete in its chosen marketplace due to unfair sales tax law,
is that not the exact definition of a violation
of the Commerce Clause that we are striving
to address?
Small and middle-market businesses are
very much a part of this debate and should
remain at the forefront of our minds as we try
to make progress on this issue. It is unlikely
that anyone would argue that companies
with more revenue are in a better position
to invest in sales tax collection and remittance across the country. The question that
we must help to answer is not how this law
would affect larger companies, but instead
how would this law affect the small seller
down the street that wishes to expand their
market by offering their products via a Web
What, exactly,
impedes
interstate
commerce?
See SALES TAXES on
18
and remittance requirements. This one simple concept raises yet another question: Will
allowing small businesses to be exempt from
collection and remittance of sales tax where
they have no physical presence satisfactorily
address the constitutional limitations imposed on taxing?
The advent of sales and use tax software
and the intervention of the SSU TA to partially
offset that cost with state monies have gone
a long way toward minimizing the burden of
monitoring sales and use tax rates and rules
across the nation. The SSUTA goes even fur-
IRS OFFERS RELIEF TO
HURRICANE IRENE VICTIMS
WASHINGTON, D.C. — The Internal Revenue Service is giving tax relief to both
individuals and businesses affected by
Hurricane Irene, which hit the East Coast
in late August.
The IRS said that certain taxpayers in
North Carolina, New Jersey, New York
and Puerto Rico will receive tax relief,
and other locations were expected to
be added following additional damage
assessments by the Federal Emergency
Management Agency.
The tax relief from the IRS postpones
some tax filing and payment deadlines
to Oct. 31, 2011. It includes corporations
and businesses that previously obtained
an extension until Sept. 15, 2011, to file
their 2010 returns, and individuals and
businesses that received a similar extension until October 17. The relief also
includes the estimated tax payment for
the third quarter of 2011, which would
normally have been due September 15.
Full details, including the start date
for the relief in various locations and information on how to claim a disaster loss
by amending a prior-year tax return, can
be found in tax relief announcements for
individual states on IRS.gov.
Cory Barwick is lead tax analyst at CCH, a
Wolters Kluwer business. He was previously
director of compliance at Speed Tax.
ther and places that burden squarely on the
states that are parties to the agreement via the
certified software companies that partner with
the Streamlined Sales Tax Governing Board,
to provide these services to taxpayers.
Technically speaking, a remote seller could
install, set up, run and update software for
little to no cost to the business, depending on
their vendor of choice. But what if that remote
seller also conducts business in states that
are not party to the SSU TA, where they either
must, or voluntarily wish to, collect tax?
In November 2010, the SSUTA was modified to include a small-seller exception that
exempts retailers with gross receipts of less
than $500,000 per year from the remote-sell-er collection and remittance requirements.
(The seller will always remain liable for collection and remittance in their state or states
of domicile, regardless of gross receipts.)
The idea behind a small-seller exception is
simple and effective. Recognizing that small
businesses do not have the resources avail-
ILLEGAL WORKERS GOT
$4.2 BILLION IN TAX CREDITS
WASHINGTON, D.C. — Individuals who are
not authorized to work in the U.S. nevertheless received $4.2 billion in refundable
Additional Child Tax Credits from the Internal Revenue Service last year, according to a report from the Treasury Inspector General for Tax Administration, which
found that claims for the credit more than
quadrupled in the past five years, from
$924 million to $4.2 billion in 2010.
TIGTA recommended that the IRS
should require unauthorized workers
claiming the ACTC to provide verifiable
documentation to support the claim that
their dependents meet the qualifications
for the credit, including residency. IRS officials did not agree to require additional
documentation, noting that they do not
have the legal authority to verify and
disallow these claims during processing;
an examination is required instead.
