Obstacle to online sales tax collection surfaces
Before Texas can tax online sales in the wake of a U.S. Supreme Court ruling, it needs to change its laws, according to a new report.
In June, the court ruled that states can require online retailers to collect sales taxes on internet purchases even if they do not have a physical presence in the state, overturning a 1992 decision. Texas relies heavily on sales taxes because it does not have a state income tax.
In a recent report, the conservative-leaning Tax Foundation examined which states may need to take action to ensure they are complying with the ruling in South Dakota v. Wayfair. Texas is among more than a dozen states that “should proceed only after making legislative changes,” the authors concluded.
The state is not a member of the streamlined sales and use tax agreement, or SSUTA, a multistate agreement on mutual sales tax collection that deals with definitions and centralized tax collection, the report notes. Legislation is required to join the agreement and a state’s definitions need to
align with those of the SSUTA, said Joe Bishop-Henchman, executive vice president at the Tax Foundation. The goal is to make it easier for sellers to collect taxes.
There are a few “big stumbling points” in Texas, he said.
“The Legislature only meets so often, so it’s difficult to act quickly on something like this,” Bishop Henchman said. “Texas might think it doesn’t need to be a member of a multistate agreement.”
Additionally, the state doesn’t provide look-up software apart from a website, the report states. Some states have PDF documents that allow sellers to look up rates and other information, but Texas doesn’t.
In a July memo, the state comptroller’s office said the agency is looking for input from legislators, taxpayer groups, retailers and others. Meetings with stakeholders are ongoing, said spokesman Kevin Lyons. The office is also assessing state rules that may need to be updated, with the aim of implementing the changes in early 2019, and will not retroactively enforce the new law.
“We want a smooth transition and a successful partnership with remote sellers who start collecting and remitting Texas taxes,” the office wrote in the memo. “We will provide ample notice to remote sellers as to when they need to start collecting and remitting.”
In the memo, the agency included several recommendations for the Legislature to consider, such as substituting a flat fee and more liability protection for platforms like Amazon that are used by third-party sellers.
While the comptroller’s office anticipates an uptick in tax collections after the court’s ruling, “the amount depends on several questions raised by the decision that are yet to be resolved relating to, for example, eliminating undue burdens on remote sellers,” it noted.
Specifics on the new tax dollars expected to flow to Texas, it said, will be released later.