Rolling for Initiative is a weekly column by Scott Thorne, PhD, owner of Castle Perilous Games & Books in Carbondale, Illinois and instructor in marketing at Southeast Missouri State University.  This week, Scott Thorne looks at the latest developments in regulations for online retailers collecting sales tax.

Things have been pretty quiet on the Internet sales tax front since the Wayfair vs. South Dakota ruling last June, in which the SCOTUS overturned the previous Quill ruling that exempted online retailers from state sales tax laws requiring the collection of sales taxes from customers if the retailer did not have a physical presence in the state.  The South Dakota law required Internet retailers doing more than $100,000 per year or with more than 200 customer contacts per year to collect sales tax from their customers.  Legally, customers are supposed to figure and remit their sales taxes on online purchase but, as the Supreme Court decision noted, "Consumer compliance rates are notoriously low, however, and it is estimated that Bellas Hess and Quill cause South Dakota to lose between $48 and $58 million annually."  The ruling also took into consideration the ruling in 1997’s Complete Auto Transit Inc. vs. Brady which found that "taxes should be collected and remitted if it "(1) applies to an activity with a substantial nexus with the taxing State, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to the services the State provides."

Since the decision, several legislators at the federal level have introduced legislation that would either codify the Courts ruling into national standards or overturn it altogether , returning online tax collection to the status quo.  However, given that it is Congress, I would doubt we see any legislation at the national level until 2019 or 2020.  Most likely, we will see each state setting up its own rules until online retailers call for some national regulation.  So far, eleven states have announced legislation requiring collection of sales taxes by online retailers.  The new laws range from fairly straightforward regulations such as those in Alabama and Indiana, which hew fairly closely to those set by South Dakota, to much more complex laws defining what constitutes an Internet retailer subject to the law proposed by California and Hawaii.

The National Conference of State Legislatures proposed a set of principles regarding best practices in relation to state enforcement of the collection of sales tax from online retailers.  Among those practices are:

  1. States should make sure they are fully prepared to enforce implementation of collection of online sales taxes before actually moving to implement collection.
  2. States should delay collection of sales taxes from all retailers that fall under their newly codified rules until 1/1/19 at the earliest.
  3. States should not implement retroactive collection of sales taxes from newly regulated online retailers, even though they may now be liable for it.
  4. States should develop a streamlined regulation procedure for retailers now required to collect sales tax.  Ideally, states should coordinate with the already existing  Streamlined Sales Tax Governing Board (SSTGB) to allow all sellers to register to collect tax via the Streamlined system at no charge to the seller.
  5. States should adopt a set of liability protections for sellers that use Certified Software Providers to assist them in collecting and remitting sales taxes.
  6. States should Provide a publicly available taxability and exemption table, as well as other important regulations and databases which can be downloaded in an easily usable format.

Larger online retailers, already assuming that more states, in the wake of Wayfair, will adopt legislation requiring them to collect and remit sales tax, have already followed Amazon’s lead and started collecting sales tax, when legally required, and remitting it to the states.  Even Wayfair, whose lawsuit against South Dakota brought about the overturning of Quill, has already implemented online sales tax collection and, if the retailer that brought the lawsuit already has come into compliance, I imagine others will as well.

The opinions expressed in this column are solely those of the writer, and do not necessarily reflect the views of the editorial staff of ICv2.com.