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The Supreme Court Wayfair Case Continues To Make Headlines – California And Texas



Monika Miles - The Wayfair Case Continues To Make Headlines

It’s been over three months since the Supreme Court handed down its landmark decision in South Dakota v. Wayfair Inc., which made it easier for companies to create nexus in states. In turn, this made it easier for states to collect sales tax revenue from companies doing business in the state.

The Supreme Court’s ruling did not automatically make this the law of the land for all 50 states. The high court’s decision was that South Dakota’s economic nexus law was constitutional. Since this ruling, states have been jumping on the economic nexus bandwagon by enacting similar legislation. As we describe in a recent blog, economic nexus is based upon the amount of sales or number of transactions in the state. If a certain threshold is met, nexus is deemed to be created.

More States Enacting Economic Nexus Laws

There has been a flurry of activity among states enacting economic nexus laws. Over 20 states have already passed this type of legislation. If they have not already done so, states are lining up to enact economic nexus laws all the way through 2019.

California and Texas, two of the biggest states, have not yet enacted economic nexus laws. But, is that changing? Read on to find out about any upcoming economic nexus legislation laws coming out of these two states.

The Lone Star State Jumps Slowly on the Bandwagon

So far Texas is one of the larger states that has not yet adopted economic nexus legislation. Surprising? Texas has recently indicated plans to enact economic nexus legislation during its next legislative session, but is proceeding cautiously.

Texas Comptroller Glenn Hegar explains, “It’s up to my office to implement the principles of the Wayfair decision in the way that best serves the state of Texas, our citizens and the businesses operating here. We’re going to make sure we do this carefully, deliberately and with ample input from the public, the legislature and the business community.”

Just like South Dakota’s economic nexus law prohibits retroactive enforcement, Texas’ law will do the same. In the new law, Texas is also considering a flat sales tax rate for remote sellers. Currently, the state has approximately 1,500 local taxing entities, and local sales tax rates. A flat rate could be a tough sell to local governments, who rely on local tax revenue to fund essential services, as indicated by the comptroller’s recent release.

The Comptroller’s office expects the Texas legislature to play an important role in addressing this legislation when they return in January 2019.

The Golden State Seeks to Help Smaller Businesses

California also wants to ride the economic nexus bandwagon. Similar to Texas, California is taking its time to enact  legislation. California was an early adopter of “click through” and affiliate nexus legislation, but has not yet moved forward with “Wayfair-like” legislation.

Governor Jerry Brown has circulated a proposal seeking “to modernize CA law consistent with the holding of Wayfair and to ensure that small businesses are not unduly burdened by the default expansion of the duty to collect use tax due to Wayfair.”

In the spirit of alleviating some burden on smaller businesses, the Golden State is looking at taxing any retailer that, in the current or preceding calendar year, has more than $500,000 in total cumulative sales of tangible personal property to California purchasers (versus South Dakota which has a $100,000 threshold).

Additionally, the proposal would include marketplace facilitators in the definition of “retailer.” Those that meet the $500,000 threshold would be required to collect and remit California use tax on behalf of marketplace sellers not already registered to collect and remit California tax.

There’s no guarantee that the above proposal will be adopted. So, far it is just proposed legislation and is bound to be amended, as much legislation often is during the legislative process in Sacramento.

A spokesman for the California Department of Tax and Fee Administration (CDTFA) explained, “Now that the Supreme Court has issued its ruling, the CDTFA is currently evaluating the next steps in a thoughtful manner that supports California taxpayers.” Stay tuned!

Texas and California are obviously popular states in which to do business, and in response to the Wayfair decision, they are two big states that have not yet enacted economic nexus legislation. However, as we’ve reported many states are already on board, creating a lot of angst among smaller and middle market companies, as they seek to be in compliance in multiple states.

Stay tuned to future blogs on the enactment of the proposed legislation in Texas, California and other states. We are here to help answer your questions.

Contact Monika Miles.

 

 

Monika founded Miles Consulting Group in 2002. The firm focuses on multi-state tax consulting—helping their clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for over 11 years in Big 4 Public Accounting and 1 year in industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

One thought on “The Supreme Court Wayfair Case Continues To Make Headlines – California And Texas

  1. Lloyfd says:

    I continue to believe that the states are penalizing sellers not resident in their state nor having any tangible presence by conscripting them to collect their use tax . No other business arrangement that I ever experienced is structured on this fashion. The non-connected out-of-state vendors are being forced to register and collect the states tax because the states cannot manage their own in-state purchasers. This is absurd. The non-connected out of state vendors are not compensated for their services. Instead they can be penalized with a variety of outrageous penalties plus interest should they inadvertently miss a taxable item. In the states never ending unquestionable thirst for revenue they have gone too far. Industry (Both in and out) come together to make this right.
    Lloyd J. Looram, CPA & President of The Looram Consulting Group, Inc.

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