The Executive Budget again proposes to require “marketplace providers,” such as entities that provide on-line sales venues for third party sellers, to collect New York State sales taxes on sales by third party sellers, even when such third parties have no New York “nexus,” i.e., no legal obligation to collect sales tax on behalf of the state.
In past years, The Business Council has opposed this type of legislation, as being contrary to legal standards for sales tax liability, and leading to a hodge-podge of inconsistent state-level standards.
We continue to raise those concern. Moreover, three states – Washington, Colorado and Minnesota – have recently adopted differing approaches to this issue of on-line sales.
The issue of sales tax collection on internet sales is a national issue, and the correct forum is Congress, which has the authority to address existing limitations and allow states to compel remote vendors to collect and remit sales tax. We do not support this proposal to share a single-state rule for sales tax nexus.
Some may scoff at the notion of Congressional action on a state-level tax issue, but they may be compelled to do so given ongoing judicial review.
Importantly, on January 12, 2018, the U.S. Supreme Court has agreed to hear a case, South Dakota v. Wayfair Inc., that could establish a new national standard for sales tax nexus, and pave the way for a national legislative approach for taxation of internet sales.
As stated by the Tax Foundation, a non-partisan think tank focusing on federal and state tax policy, “This [case] represents an opportunity for the Supreme Court to issue much-needed guidance on this issue while reasserting necessary limits on state taxing authority.”
The basic rule of sales taxes, established in the Supreme Court’s decision in Quill v. North Dakota, is that if a vendor has a physical presence in a state, it is required to collect and remit sales tax on taxable sales in that state. Vendors without a physical presence – including those using the services of a marketplace provider - are not required to collect sales tax. However, under most states’ statutes, these consumers are legally liable for paying a state-level “use tax” on taxable purchases when no sales tax was collected by the vendor.
The Executive Budget proposal defines a “marketplace provider” as a person who collects the customers’ payments (either directly or indirectly through a contracted service), as well as provides the forum, whether physical or virtual, where the transaction occurs. The Executive Budget would impose this sales tax collection mandate on marketplace providers that facilitate more than $100 million in sales in a calendar year.
As stated above, The Business Council opposes this state specific approach.
It would be prudent for New York to await the Supreme Court’s decision in South Dakota v. Wayfair Inc., to see if the court establishes a new national standard for sales tax nexus, and precipitates a consistent national approach to taxation of on-line sales.
For these reasons, we oppose adoption of S.7509 / A.9509, Part AA.