Confronting Wayfair's Unanswered Questions

OCTOBER 2019

FEATURE STORY – PAGE 8 Confronting Wayfair’s Unanswered Questions

NEWS AND TRENDS – PAGE 12 South Carolina Supreme Court rules Amazon owes millions in unpaid taxes

DEEP DIVE – PAGE 17 How online retailers are continuing to adjust to a post-Wayfair U.S.

4 What’s Inside States and cities are exploring the online sales taxes they can impose, but some retailers are fighting back

8 Feature Story Rachelle Bernstein, vice president of government relations and tax counsel for the National Retail Federation, discusses the confusion over marketplace facilitator law compliance and current policy refinement efforts

12 News & Trends Recent headlines from the next-gen sales tax space, including the South Carolina Supreme Court’s ruling that Amazon owes millions in unpaid marketplace facilitator taxes and a legal challenge made to Kansas’s safe harbor-free economic nexus law

17 Deep Dive An in-depth examination of how businesses are adjusting to a post-Wayfair tax landscape and how economic nexus policies are developing

20 About Information on PYMNTS.com and Avalara

ACKNOWLEDGMENT The Next-Gen Sales Tax Tracker® is powered by Avalara, and PYMNTS is grateful for the company’s support and insight. PYMNTS.com retains full editorial control over the following findings, methodology and data analysis. WHAT’S INSIDE

The 2018 South Dakota v. Wayfair case opened the Court recently heard arguments over whether online floodgates for states and individual cities to launch tax travel companies that offer hotel booking, like Priceline policies aimed at remote sellers and marketplaces, and and Orbitz, can be taxed as hotel operators. Even these regulations extend beyond simple sales taxes. pre-Wayfair eCommerce regulations are facing new Pennsylvania is arguing that the ruling enables it to tax questions, as software-as-a-service (SaaS) retailer Citrix remote sellers for the net corporate income they make recently challenged Massachusetts’ application of the through selling to the state’s residents and storing as- state’s 2017 online tax law. The provider claimed the law sets there, for example. Jurisdictions are continuing to should either not apply to its subscription sales or the explore the full scope of the Supreme Court ruling and state should also tax Google and Uber when residents how online commerce taxation can look, including tax use the companies’ softwares. types and affected businesses. The U.S. online tax space is constantly evolving as mu- Not all sellers are pleased with this development, how- nicipalities roll out new policies and investigate the full ever, and some have pushed back. Arizona’s Supreme scope of existing laws.

Around the next-gen sales tax world The push to revise eCommerce sales tax laws for marketplaces Retailers have argued against online sales tax applica- tions in Massachusetts and other states, but this fight The recent South Dakota v. Wayfair decision has enabled is coming from within the government in Kansas, where states and cities to unveil legislation requiring eCom- the state’s attorney general (AG) recently stated that the merce marketplaces to collect and remit sales taxes on Department of Revenue’s (DOR’s) economic nexus law the third-party transactions they support. Businesses is invalid. The regulation fails to exempt even small re- and governmental stakeholders have been given some mote businesses with very little activity in the state, and time to observe such marketplace facilitator laws in this lack of exemptions runs counter to the Wayfair rul- action, and many are pushing for policy refinements. ing, according to the AG. Demand is growing for states and cities to make more unified policies, clearly define marketplace facilitators Kansas is concerning itself with small retailers, but an- and empower sellers to collect such taxes themselves. other state is focusing on taking a giant to task. The South Carolina DOR recently filed a suit that claims For this month’s Feature Story (p. 8), National Retail Amazon owes back taxes for remote sales its market- Federation vice president of government relations and place facilitated, and the court ruled in favor of the DOR. tax counsel Rachelle Bernstein explains the state of Amazon could have to pay for more than three years of marketplace facilitator laws and ongoing policy revision sales under the ruling. proposals.

Another major online marketplace is finding a sweeter DEEP DIVE: The complex, ongoing and unexpected reception in California, where the city of San Jose re- effects of the Wayfair case on retailers cently offered eBay a revenue sharing deal that would Sellers dedicated to minimizing tax exposure before enrich both entities at the expense of other in-state mu- the Wayfair ruling only had to worry about their physi- nicipalities. The 15-year agreement enables eBay to cal presences, choosing to operate in states with low tax pretend that all Californian online sales over its platform rates and carefully curtailing activities to avoid qualify- were with residents of San Jose, regardless of buyers’ ing in other states. actual locations, netting San Jose a hefty amount of tax All that has changed after the Wayfair case. Remote revenue that would otherwise go elsewhere. The city will sellers are working to determine where and how new give eBay a cut of the platform’s own taxes in exchange, tax laws obligate them to not only pay new sales tax- preventing the company from having to handle the ad- es but also others such as income and franchise taxes. ministrative work of navigating tax policies and rates. Retailers need to perform careful research to under- For more on these stories and other headlines from stand their obligations and minimize the risk of penalties. around the next-gen sales tax space, visit the Tracker’s This month’s Deep Dive (p. 17) investigates the ways that News and Trends section (p. 12). remote retailers around the world are adjusting to the United States’ evolving online tax landscape.

EXECUTIVE Insight

The South Carolina Supreme Court recently ruled that Amazon owes back taxes from its digital sales dating back to 2016. What does this ruling mean for eCommerce marketplaces, and how can they best strategize to meet their new tax obligations?

“The South Carolina Supreme Court’s decision to have Amazon pay back taxes on the sales of tangible goods by third-party marketplace sellers signals a slippery slope in new potential tax obligations for eCommerce marketplaces with nexus in the states that have not yet enacted marketplace facilitator laws.

Following South Carolina’s decision, the remaining states that have yet to enact marketplace facilitator laws could potentially base their cases for collecting unpaid taxes on the breadth of services marketplaces offer. For example, most marketplaces man- age some aspect of the marketing, transaction fulfillment, customer service and returns for the goods that third-parties are selling. The only thing many are not currently doing is managing the tax liability.

It will be important for marketplaces to be clear on the entire scope of services they provide — including sales tax collection and remittance — so that they can be prepared if and when these remaining states come seeking uncollected sales tax revenue.”

GREG CHAPMAN senior vice president of business development, Avalara WHAT’S INSIDE

$12.5M $10.5M

Amount of Amazon’s Amount that San Jose, unpaid eCommerce California, will pay eBay taxes sought by South under the first year of Carolina’s Department of their digital sales tax Revenue revenue sharing deal

11 $500K

Number of Arizona cities Minimum gross that aim to tax online receipts an out-of-state travel companies for hotel business must make brokerage services in Pennsylvania before being subjected to its new net income tax

80% FIVE Portion by which Indonesia’s online retail market grew in 2018 FAST FACTS FEATURE STORY Feature Story Confronting Wayfair’s Unanswered Questions

The 2018 South Dakota v. Wayfair ruling paved the way Stakeholders such as NRF wish to refine marketplace for broadened U.S. tax laws, and some businesses and facilitator laws and urge greater clarity following the public sector stakeholders are now pushing back. The Wayfair decision. The negotiation process may not be case ushered in a wave of state- and municipality-issued easy because proposals to change state and local tax economic nexus laws that tax remote sellers based on laws must balance retailers’ hopes for unified standards economic activity rather than physical presences. The that simplify selling across different jurisdictions with ruling also permitted marketplace facilitator laws that states’ and municipalities’ desires to fully control their obligate eCommerce businesses to collect and remit tax policies. taxes for sales made on their platforms. The Wayfair decision did not answer questions about these laws’ The case for refining marketplace facilitator laws specifics, however, prompting stakeholders to make rec- eCommerce marketplaces must wrestle with ample ommendations so businesses can comply more easily. tax compliance challenges as state and city policies of- ten vary regarding the product types subject to taxes. Marketplace facilitator laws have been particularly Companies may also struggle to determine whether a murky, as many are written in broad terms that have particular state considers them to be marketplaces. complicated compliance for eCommerce platforms, according to Rachelle Bernstein, vice president of gov- “Some definitions of marketplace facilitator are so broad ernment relations and tax counsel for the National Retail … that you’d have some problems determining who it is Federation (NRF), a Washington, D.C.-based organiza- that’s supposed to be collecting the tax,” Bernstein said. tion representing sellers from more than 45 countries. Some policies define a marketplace as any NRF filed several friend-of-the-court briefs during the platform-owning entity that lists purchasable items, Wayfair case. even if it does not handle those items’ payments and

cannot see into the transactions. Websites display- or in part, bringing more commonality to state policies, ing clickable advertisements that redirect to merchant Bernstein said. sites would get treated as marketplace facilitators under some state laws, even though the transactions Weighing more flexible responsibility are completed elsewhere, Bernstein said. This can be This is not the only marketplace facilitator law ad- problematic because they lack easy access to the trans- justment under debate. Stakeholders are weighing action details necessary for applying local tax rules. another major policy adjustment: giving remote sellers the option of collecting taxes for their sales through “An advertising platform that doesn’t even know if the marketplaces rather than requiring the latter to always sale was consummated and doesn’t know where the bear responsibility. product is being sold ... could potentially be considered a facilitator,” she explained. Merchants might support this measure if states are underwhelmed with their marketplace tax collections. States have long debated how to write these definitions. They know states may turn to sellers to correct such A November 2018 draft white paper from the Multistate shortfalls, and not knowing marketplaces’ actions could Tax Commission (MTC) noted that some states’ policies leave merchants struggling to clarify their situations, specify that an entity must handle related payments and Bernstein explained. It would thus not be an additional have access to certain transaction details to be consid- burden for sellers that collected taxes in these states ered a marketplace, as well as qualifications that ensure prior to marketplace facilitator laws to continue to han- the marketplace has the capability to collect and re- dle that collection. port taxes.

Other states are instead instead future proofing their The path to change laws with far-reaching definitions intended to remain Businesses desire more uniform marketplace facilitator relevant as industries change. They designed broad- laws because they simplify compliance work, but legisla- ly written legislation to block marketplaces from tors with more mixed priorities may not prize uniformity gaming the system and narrowly falling outside the as strongly, Bernstein said. The U.S. Congress is unlikely rules. Bernstein noted that the expansive definitions to move quickly on the issue, which leaves the future of could be accidental in some cases due to lack of aware- tax simplification with states and cities for now. A num- ness about the full ramifications. ber of local governments have so far been reluctant to

Various organizations are now advocating for simpler relinquish any control of their particular tax policies to marketplace facilitator laws, including the MTC, which follow others’ leads or adopt cross-state agreements. is continuing to recommend refinements. The National “It’s always difficult for legislators to want to give up that Council of State Legislators designated a task force to authority,” she explained. develop model legislation that states can adopt in whole

This individuality is not evident across the board, though, Many states are open to tax policy improvements and as 24 states currently abide by the Streamlined Sales working toward simpler, streamlined regulations now and Use Tax Agreement (SSUTA), a promise to unify tax that they are seeing their laws in action, Bernstein noted. environments across intrastate localities, enable sell- Marketplace facilitators may be shouldering new com- er registration via one application and define common pliance burdens after the Wayfair ruling, but they may product categories. The latter provision is aimed at pre- also find many policymakers ready to help. venting issues in which some states count unsweetened carbonated water as a taxable “soft drink” and others do not.

UNDER THE Hood

Has economic nexus law compliance been a struggle for remote sellers?

“What I’m hearing is that compliance has not been diffi- new laws] has not been difficult and has not changed cult. The very largest retailers probably have presences their ability to sell [to customers wherever]. … They are in virtually every state and have been collecting in vir- now very comfortable with these changes. tually every state even before [the Wayfair ruling]. The I’ve also talked to smaller sellers that sell a lot through compliance is not necessarily a change for them. ... their own websites directly and so needed to engage They probably already have software services they’ve software providers to add the additional services [for been using to deal with [tax collection] in multiple tax compliance]. They’ve told me that the process was states and ... it wasn’t very difficult to add collection in not bad and that the costs were not prohibitive, and additional states. Regional retailers with presences in that, clearly, they’re making more money from being one area of the country that may have been selling into able to have these sales into other states than it is cost- other areas, and small retailers that may be only in one ing them. Before [the laws were enacted] I had heard or two states and have websites for selling into other some retailers say, ‘If I don’t have that many sales into states obviously face a change. … At this point, I think a particular state and it’ll cost me so much money to smaller sellers have become comfortable with [the eco- sell there, I’ll say on my website that I’m not selling in nomic nexus laws]. that state.’ Nobody ended up being in that situation, be- I’ve talked to sellers that primarily sell over market- cause it’s not the way these things are priced. … Various places. The marketplaces collect tax for them and ... sellers have been able to find the resources they that makes it easy. These are sellers who were worried need to deal with the new laws.” about what would end up happening, but [coping with

RACHELLE BERNSTEIN vice president of government relations and tax counsel, National Retail Federation

Defining the scope of sales of “tangible personal property” and that the specif- ic software in question — Citrix’s GoToAssist, GoToMyPC digital commerce taxes and GoToMeeting products — do not count because the Citrix fights Massachusetts DOR in Supreme Court company provided only temporary access via subscrip- over SaaS sales tax tions. Citrix asserted that if the DOR does go forward A tax dispute in which Florida-based SaaS seller Citrix is with taxing this use case, companies like Uber and going head-to-head with the Massachusetts Department Google should also pay. of Revenue (DOR) is working its way through the state’s This is not the first time Citrix has sought to have a DOR’s highest court. The DOR has demanded that Citrix pay tax payment request dismissed. The company brought what it asserts are overdue taxes from the sales of other sales tax demands before the state Appellate three software products during April 30, 2007, to June Board in 2018, which ruled in favor of the DOR. This 30, 2009, and Oct. 31, 2009, to Dec. 31, 2011. The dis- most recent case went before the state Supreme Court pute regards whether Citrix’s sales are taxable under on October 4. Citrix employs approximately 8,200 work- Massachusetts’ cookie nexus law, which recognizes ers and took in more than $2.9 billion in revenue in 2018. companies as having physical presences if they store cookies on computers or smartphones located within the state. Citrix is arguing that this policy only applies to

Arizona Supreme Court ruling taxes hotel and the levy applies to money made in state from selling, brokerage sites renting, leasing or licensing tangible personal proper- Arizona’s Supreme Court recently ruled on its own tax ty; selling services; and selling or licensing intangibles, quandary, in which 11 cities sought to tax online travel like franchise agreements. Companies that do business companies on revenue from facilitating hotel bookings. in Pennsylvania, own property there, conduct activities The cities charged that these companies were essential- — except certain excluded types of solicitation — or use ly operating hotels and should be taxed as such – and capital or property owned there qualify for the tax. the court agreed. Justice John Lopez wrote in favor of the opinion, stating that broker sites like Orbitz, Priceline Online marketplaces and Travelocity perform activities that are central to keeping hotels in business, noting the sites “advertise eBay informs online sellers of mandatory new tax collection procedures available rooms, solicit potential customers, collect customers’ information, process payments, confirm Major online marketplace eBay started collecting sales reservations, provide customer service, and facilitate tax for its merchants in 11 states on Oct. 1. The mar- reservation modifications and cancellations.” Justice ketplace warned its sellers in advance that they would Ann Scott Timmer objected to the ruling on the grounds not be able to opt out of automatic sales tax collec- that it too broadly defined hotel operation, asserting that tion or prevent their items from being sold in affected travel sites do not perform various critical functions states, asserting that its policies address legal require- such as managing or deciding where to locate hotels. ments and that similar laws will likely be put in place in more states in the future. The marketplace now collects While the court’s ruling supported the cities’ claims, it and remits sales tax on eligible transactions in Arizona, only allowed the municipalities to collect unpaid tax for California, Colorado, Maine, Maryland, Massachusetts, revenue on transactions dating from 2013 rather than the Nevada, North Dakota, South Carolina, Texas and Utah cities’ request to bill from as far back as 2001. Apache as well as several other states. Junction, Chandler, Flagstaff, Glendale, Mesa, Nogales, Phoenix, Prescott, Scottsdale, Tempe and Tucson were South Carolina court rules Amazon must pay the involved Arizonan cities. marketplace facilitator back taxes Amazon is also slated to be inundated with new taxes, Pennsylvania seeks to tax remote sellers’ despite having frequently earned exemptions by prom- corporate net income ising states investments or local job creation. South Pennsylvania is also testing online sales tax boundar- Carolina appears to simply want the cash, pursuing ies, as the commonwealth’s DOR asserts the Wayfair what its DOR claims are unpaid taxes owed on sales ruling enables it to require out-of-state businesses to Amazon facilitated from out-of-state merchants. Judge file taxes on the net corporate income they make with- Ralph Anderson III issued a September court ruling in in the state. It plans to only tax businesses meeting or which he agreed that responsibility for those taxes falls exceeding $500,000 of direct or indirect gross receipts,

on Amazon. The DOR initially requested $12.5 million undue advantages over local businesses by not collect- in taxes, interest and penalties for Q1 2016, but a DOR ing sales tax. spokesperson says the online marketplace could be on the hook for 13 quarters-worth. eBay signs deal to divert digital sales tax revenue to San Jose Amazon expressed concern over the potential ruling Major marketplace eBay is coping with new digital during a July quarterly report, fearing that the ruling sales taxes by cutting a deal reminiscent of a kickback could set a precedent and that “if South Carolina or other scheme with the city of San Jose, California. The ar- states were successfully to seek additional adjustments rangement calls for eBay to pretend that all Californian of a similar nature, [the company] could be subject to purchases made over its platform were with residents of significant additional tax liabilities.” Amazon prom- San Jose, enabling eBay to simplify its tax compliance ised to “vigorously” oppose South Carolina’s efforts. by only following San Jose’s policies and giving the city Washington-based think tank Tax Foundation concurred a revenue bump by diverting sales tax funds from other with Amazon after the ruling, stating that it believes ret- municipalities to itself. San Jose sweetened the deal by roactive tax collection was “unconstitutional,” while the offering direct financial incentives: After the citycollects ruling’s defenders said the eCommerce giant received

$5 million in sales taxes from eBay, it will let the compa- new laws slows. Merchants would use their own web- ny keep 30 percent of any additional tax revenue. San sites’ stores only to redirect customers to marketplaces Jose officials expect the first year of the 15-year agree- where customers can then complete transactions. ment to bring in $40 million net taxes, providing the city “These eCommerce platforms can make tax simple and with $29.5 million — compared to just $5 million without have it built in and have an easy ‘click and submit’ pro- the deal — and eBay with up to $10.5 million. cess,” Chapman said. eBay, which was founded in San Jose, was required to start handling digital sales taxes on Californian trans- New remote seller tax actions on Oct. 1. This is not the first city-business tax revenue sharing deal in the state, and Governor Gavin laws Newsom has several more months to sign bills that Alabama enforces its economic nexus law would ban this kind of profit-sharing deal and permit Alabama’s economic nexus law predates the 2018 city-corporate incentive agreements provided that the Wayfair ruling, but it is just now going into effect. The deals are transparent. state’s DOR issued a requirement in 2015 that remote sellers making more than $250,000 in sales annually Why selling through a marketplace does not fully ease SMBs’ tax frictions would have to register and collect taxes on those transactions by Jan. 1, 2016. Alabama officials were aware Marketplaces may become increasingly important to that the law flew in the face of an existing Supreme SMBs as the latter struggle to cope with eCommerce Court ruling and had intended to fight any challenges in sales tax laws, Avalara’s senior vice president of busi- court until Wayfair handled that fight for them. Alabama ness development, Greg Chapman, said in a recent held off on enforcing the law until the Wayfair ruling “re- PYMNTS interview. SMBs may have as few as 10 employ- moved the constituent impediments” to doing so, the ees, making it difficult to spare anyone to help navigate Alabama DOR said in a public notice. The state began new tax obligations. Businesses that sell across many implementing the policy for large sellers only in October states may therefore inadvertently fall afoul of tax laws 2018, while marketplace facilitators had to comply by if they cannot keep straight which states exempt them, January 2019. which require them to remit and which place tax collection responsibilities on marketplaces. Officials advised marketplaces and sellers to participate in the Simplified Sellers Use Tax (SSUT) program, which More than 30 states presently have marketplace facilita- enables remote businesses to pay a flat sales tax rate tor laws, which remove SMBs’ collection burden but keep regardless of municipality. Alabama promised sellers them responsible for knowing where and when they can that joined SSUT by Oct. 1 an amnesty for non-collected rely on platforms for tax collection. Chapman said he ex- taxes so long as they began collecting taxes following pects that SMBs may find it easier to rely on third-party registration. SSUT participants are required to stay in marketplaces to handle tax complexities once more the program for three years. states have established their policies and the rollout of

Florida considers digital sales tax law written by because it included no such safe-harbor provision for retailer lobbyists SMBs and was thus “inconsistent with Wayfair.” Florida is currently one of only two states with statewide sales tax laws, yet no economic nexus policy. Its leg- International online tax islature is currently considering changing that with SB 126, a new bill that the Orlando Sentinel says is primarily developments written or approved by major retail lobbyists from com- Indonesia drafts digital sales tax policy panies such as Amazon and Uber. A lobbyist from the Indonesian eCommerce companies could face new on- Florida Retail Federation emailed the bill to the chair of line sales taxes as well, as the country’s government the Florida Republican Party, state Senator Joe Gruters, is working to get a bigger cut of the overseas transac- who later filed it nearly word-for-word. The lobbyist said tions that fueled an 80 percent growth in its online retail in the email that the legislation was “reviewed and ap- market last year. Its bill would require both remote and proved by the interested member group.” Identities domestic eCommerce companies to collect and pay of these members have not been disclosed, but the value-added taxes (VATs) and is expected to go into Orlando Sentinel noted that major retailers including effect next year. Robert Pakpahan, tax director gener- Best Buy, Target and Walmart have pushed for online al at the Finance Ministry, anticipates the forthcoming sales tax policies — presumably to even the playing field law will not burden companies because they could pass against online competition — while others speculate that costs on to their customers. Google has already an- companies like Amazon seek to have clear eCommerce nounced that it will collect a 10 percent VAT on Google tax laws established to avoid responsibility for back tax- Ad accounts with Indonesian billing addresses next year. es. This is Gruters’ second attempt to pass such a bill. EU to launch bloc-wide digital services tax if no Kansas AG rejects DOR’s threshold-free economic global one emerges nexus law The European Union is also eager to enact online taxes, Kansas is also looking to introduce a new digital sales with its commissioner-designate for economic affairs, tax, but has run into hurdles as its DOR’s economic Paolo Gentiloni, recently stating that Europe will not nexus law, which was slated to go into effect on Oct. 1, wait for a global accord before implementing a digital ran afoul of its attorney general. The state passed an services tax. Gentiloni aims to explore the viability of a eCommerce sales tax law in August that required online “web tax” with wide international deployment that cov- sellers to pay taxes for even one sale of any value, which ers the members of the G20 or of the Organisation for breaks many states’ post-Wayfair economic nexus laws’ Economic Co-operation and Development (OECD). The choices to include exemption thresholds around sales’ EU will propose a European version should no worldwide dollar valuea or transaction quantities. Kansas’ AG re- accord be reached by 2020. cently determined that the DOR’s law should be invalid

Wayfair’s Complex, Ongoing And Unexpected Effects On Retailers

The 2018 South Dakota v. Wayfair ruling is reshaping the amended marketplace facilitator laws, and even more business landscape, forcing companies to consider its states are slated to implement remote seller tax laws in long-term effects. Wayfair’s case enabled cities and the next few years. states to pass economic nexus laws that require out-of- American businesses had more tax minimizing op- state sellers to collect and remit taxes on local residents’ tions prior to the ruling, as retailers selling all across the sales, and it permitted these jurisdictions to implement country were taxed on their physical presences. States’ marketplace facilitator laws necessitating that eCom- definitions vary, so companies could formerly reduce merce platforms collect and remit taxes on third-party their exposures by basing their operations in locations merchants’ sales. with minimal tax rates and avoiding activities in other As of Sept. 23, 43 states had adopted economic nexus states that would trigger those jurisdictions’ particu- laws, and five more states began enforcing such pol- lar definitions of what counts as a “physical presence.” icies on Oct. 1. An additional 12 states have added or That might mean not hiring contractors or employees in

some states or declining to attend trade shows, open Unexpected tax obligations storefronts and store inventory in others. Sellers that respond to economic nexus laws by reg- New remote seller laws hinder sales tax avoidance, and istering with DORs may discover they owe more taxes states are using the Wayfair ruling to apply additional than expected because those that thought they were tax forms to these sellers. Businesses must therefore re- only remote sellers may legally qualify as having phys- adjust to comply and avoid penalties in this new world of ical presences. Arizona regards businesses as having ongoing tax policy changes. physical presences if they store product inventory there — such as products held in fulfillment centers owned and More than sales taxes operated by Amazon — or if representatives are pres- Economic nexus and market facilitator laws have ent in the state for more than two days each year. Texas’ pushed sellers to learn how individual states tax dis- “physical presence” definition could obligate businesses crete product categories. Some do not tax groceries or that take orders or sales during an in-state convention or clothing, for example, while others tax groceries at lower trade show to file taxes, even if a business only attended rates or only tax clothing if prices exceed certain thresh- a single, one-day event in a given year. olds, in the way that New York taxes only clothes priced Accounting specialists recommend that businesses at $110 or more. carefully research any unpaid tax obligations before reg- Those are not the only new taxes facing remote sellers, istering with the local DOR so that they can use states’ and the Wayfair ruling may force businesses to reas- voluntary disclosure programs. States may choose to sess far more than just their digital sales. The Supreme forgive fees and interest for businesses that make vol- Court decision also appears to enable states to require untary disclosures rather than simply wait and see if businesses to file income taxes for revenue shares the states find out about their outstanding obligations. generated there. The Massachusetts legislature has Businesses interested in mergers must also address un- proposed a regulation that would obligate remote sellers paid back taxes or risk them complicating and delaying above a certain sales volume to file, and Pennsylvania agreement closings. has already issued a similar demand. Merchants in San Merchants may struggle with the new tax landscape, as Francisco that surpass a certain threshold of gross re- a recent survey of technology companies’ chief financial ceipts will face mandatory payroll expense taxes, and officers found that 68 percent expressed high or mod- Texas is among the states to hit remote sellers with a erate worry regarding tax changes in 2019 and that 10 franchise tax. Businesses therefore must pay attention percent of that worry stems from the Wayfair ruling. to sales tax rates where they sell, as well as all kinds of Many uncertain businesses have not taken proactive local tax rates. steps, waiting to act until tax authorities contact them over their obligations — a problematic approach.

18 | © 2019 PYMNTS.com All Rights Reserved International sellers Many online sellers worldwide were — and continue to U.S.-based entities are not the only ones reconsidering be — surprised by the South Dakota v. Wayfair ruling’s responsibilities and strategies after the Wayfair ruling. impacts. Businesses face new obligations not only International sellers without permanent American phys- for sales taxes but also income taxes, franchise taxes ical presences that reach U.S. consumers online are and more. Marketplaces have not finished adjusting to typically exempt from federal taxes, but they must com- Wayfair, either, as changes continue to roll out. ply with localities’ new sales and use tax laws. These Arizona, for example, is phasing down its SMB exemp- transactions make up a significant space, as 40 percent tion threshold to only affect those selling less than of Amazon’s top sellers are based in China — a figure $100,000 in 2021. Florida — one of only two states with that rose from 26 percent in 2017. sales taxes but no remote seller tax policies — is con- Tax advisors have had to explain this new environment sidering a bill that would introduce economic nexus and to their overseas clients and reports suggest that there marketplace facilitator policies. Businesses are careful- have not been significant issues with overseas retailer ly studying their changing tax obligations as states and noncompliance despite some initial confusion and reluc- cities continue to explore the possibilities the Wayfair tance. Large European eTailers, for instance, are used to ruling has unleashed. coping with the EU’s somewhat comparable VATs and so appear to be adjusting more readily.

PYMNTS.com is where the best minds and the best Avalara helps businesses of all sizes get tax content meet on the web to learn about “What’s Next” compliance right. The company works in partnership in payments and commerce. Our interactive platform is with leading enterprise resource planning, accounting, reinventing the way companies in payments share rel- eCommerce and other financial management system evant information about the initiatives that make news providers to deliver cloud-based compliance solutions and shape the future of this dynamic sector. Our data for various transaction taxes, including sales and and analytics team includes economists, data scien- use, value-added, goods and services, excise, tists and industry analysts who work with companies communications, lodging and other indirect tax types. to measure and quantify the innovations at the cutting Avalara is headquartered in Seattle and has offices edge of this new world. across the U.S. and around the world in Belgium, Brazil, Canada, India and the U.K.

20 | © 2019 PYMNTS.com All Rights Reserved We are interested in your feedback on this report. If you have questions, comments or would like to subscribe to this report, please email us at [email protected].

Disclaimer

The Next-Gen Sales Tax Tracker® may be updated periodically. While reason- PYMNTS.COM SHALL NOT BE LIABLE FOR ANY DAMAGES WHATSOEVER, able efforts are made to keep the content accurate and up-to-date, PYMNTS. AND, IN PARTICULAR, SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, COM: MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS CONSEQUENTIAL, OR INCIDENTAL DAMAGES, OR DAMAGES FOR LOST PROFITS, OR IMPLIED, REGARDING THE CORRECTNESS, ACCURACY, COMPLETENESS, LOSS OF REVENUE, OR LOSS OF USE, ARISING OUT OF OR RELATED TO THE ADEQUACY, OR RELIABILITY OF OR THE USE OF OR RESULTS THAT MAY BE CONTENT, WHETHER SUCH DAMAGES ARISE IN CONTRACT, NEGLIGENCE, TORT, GENERATED FROM THE USE OF THE INFORMATION OR THAT THE CONTENT WILL UNDER STATUTE, IN EQUITY, AT LAW, OR OTHERWISE, EVEN IF PYMNTS.COM HAS SATISFY YOUR REQUIREMENTS OR EXPECTATIONS. THE CONTENT IS PROVIDED BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. “AS IS” AND ON AN “AS AVAILABLE” BASIS. YOU EXPRESSLY AGREE THAT YOUR USE OF THE CONTENT IS AT YOUR SOLE RISK. PYMNTS.COM SHALL HAVE NO SOME JURISDICTIONS DO NOT ALLOW FOR THE LIMITATION OR EXCLUSION LIABILITY FOR ANY INTERRUPTIONS IN THE CONTENT THAT IS PROVIDED AND OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, AND IN DISCLAIMS ALL WARRANTIES WITH REGARD TO THE CONTENT, INCLUDING THE SUCH CASES SOME OF THE ABOVE LIMITATIONS DO NOT APPLY. THE ABOVE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR DISCLAIMERS AND LIMITATION`S ARE PROVIDED BY PYMNTS.COM AND PURPOSE, AND NON-INFRINGEMENT AND TITLE. SOME JURISDICTIONS DO NOT ITS PARENTS, AFFILIATED AND RELATED COMPANIES, CONTRACTORS, ALLOW THE EXCLUSION OF CERTAIN WARRANTIES, AND, IN SUCH CASES, THE AND SPONSORS, AND EACH OF ITS RESPECTIVE DIRECTORS, OFFICERS, STATED EXCLUSIONS DO NOT APPLY. PYMNTS.COM RESERVES THE RIGHT AND MEMBERS, EMPLOYEES, AGENTS, CONTENT COMPONENT PROVIDERS, SHOULD NOT BE LIABLE SHOULD IT EXERCISE ITS RIGHT TO MODIFY, INTERRUPT, LICENSORS, AND ADVISERS. OR DISCONTINUE THE AVAILABILITY OF THE CONTENT OR ANY COMPONENT Components of the content original to and the compilation produced by PYMNTS. OF IT WITH OR WITHOUT NOTICE. COM is the property of PYMNTS.COM and cannot be reproduced without its prior written permission.