NCSL Digital Goods Policy Becomes Proxy Fight Over Wayfair

Law360 | by James Nani

Law360, Nashville, Tenn. (August 8, 2019, 5:53 PM EDT) — Lawmakers at a National Conference of State Legislatures meeting voted Thursday to support federal legislation standardizing the taxation of digital goods, with New Hampshire and Delaware legislators opposing language added about the Wayfair ruling.

Lawmakers from 47 states, Puerto Rico and Washington, D.C., voted to support a resolution urging Congress to pass the Federal Digital Goods and Services Tax Fairness Act, S.B. 3581, which according to the resolution would address the taxation of digital goods and services, including online streaming services, and prevent double or discriminatory taxation. But discussion on the resolution turned primarily on the U.S. Supreme Court’s Wayfair decision last year.

The measure was taken up at the NCSL’s annual summit in Nashville, Tennessee. While NCSL resolutions have no binding effect on lawmakers, the policies can guide the group’s advocacy in Washington and influence lawmakers on policy ideas.

The federal bill, originally introduced in 2015, was reintroduced in October 2018 by Sen. John Thune, R-S.D., and Sen. Ron Wyden, D-Ore. Its provisions include language that attempts to prevent multiple taxation across state and local lines on sales of digital goods and services by requiring that tax be imposed on end users where they live, regardless of where the service may be subsequently used.

Although an NCSL task force unanimously voted to support the legislation in 2018, language was added to the resolution this year updating it for the newest Congress and recognizing the Wayfair decision.

Opposition to the resolution came from two of five states that don’t impose a statewide sales and use tax, stemming from the addition of language about the Wayfair decision.

The resolution’s preamble said in part, “The U.S. Supreme Court ruled in South Dakota v. Wayfair that businesses need not be physically present in a state before their sales can be taxed, granting states the ability to collect taxes from out-of-state retailers, and providing an opportunity for state tax modernization.”

New Hampshire state Rep. Susan Almy, D-Grafton, chairwoman of the House Ways and Means Committee, said the Wayfair language shouldn’t have been added to the resolution. Her state has been clamoring for a way to fight back against the Wayfair ruing.

She said the NCSL and the Streamlined Sales and Use Tax Agreement weren’t doing enough to help mitigate the damage to small businesses from the Wayfair decision. Almy said a large swath of the population in thousands of sales tax jurisdictions live in states that aren’t part of the Streamlined agreement. The Streamlined group estimates 33% of the U.S. population adheres to its standards.

“The more complex the sales, diverse the inventory or widespread the customer base, the more expensive the software and the audit are for these businesses,” Almy said.

Almy said creating order out of all of those taxing jurisdictions was necessary to help businesses navigate the landscape. She said that at a minimum there should be a public website with all states’ independent taxing jurisdictions, rates and exemptions listed. And she said that the NCSL needed to get involved.

Joining her in opposition to the resolution was Delaware Rep. John Kowalko, D-Newark.

“I think we’re opening up a can of worms here and we should be more cautious, especially involving those states that do not have a sales tax,” Kowalko said.

But other state representatives at the summit pushed back on opposition to the resolution.

The chairman of the Wisconsin House Ways and Means Committee, Rep. John Macco, R-Ledgeview, said the Supreme Court was “very clear” in Wayfair about minimums in sales dollar amounts and transactions when it came to sales by out-of-state retailers. That will protect small businesses from collection burdens, he said.

Maryland Senate Finance Chair Delores G. Kelley, D-Baltimore, said that the NCSL went through the issues surrounding the Wayfair decision for years and that the Supreme Court had blessed the sales and use taxation of out-of-state retailers by states.

“We struggled for decades on this issue. The courts have blessed it, including the Supreme Court, and I say let’s move on,” Kelley said.

Rhode Island House Speaker Pro Tempore Brian Kennedy, D-Hopkinton, who is also president of the Streamlined sales tax organization’s governing board, said it wasn’t the responsibility of his group to gather the tax information from states that aren’t part of the Streamlined agreement. He also said there are companies that offer software for businesses to help collect sales and use tax, and marketplace facilitator bills cropping up in the nation can also help those businesses.

“Streamline cannot force any state to join; it is up to the legislatures in every one of those states,” Kennedy said. “And while we have gone out and pursued other states to join, they have decided not to.”

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