The Tar Heel State’s effort to legislate economic nexus for the purpose of collecting its 4.75 percent sales tax on remote sales has stalled in the House Committee on Finance. Senate Bill 81 passed in the Senate in mid-June, but failed to make it through the House before the end of the session.
According to the bill text, the measure’s purpose is to define a retailer as a person who facilitates sales in North Carolina, and to establish the basis for sales tax collections by remote sellers.
More specifically, “a person who facilitates the sale of tangible personal property, digital property, or a service on behalf of a third party,” is considered to be a retailer subject to taxation when it has remote sales sourced to buyers in North Carolina, during the retailer's previous taxable year, of $100,000, or when the number of separate transactions exceeds 200.
By “facilitating” a sale, lawmakers mean any of the following:
- Making available the forum or platform in which, or by means of which, the retail sale takes place.
- Making available the forum or platform in which, or by means of which, the offer of sale is accepted.
- Making available, or having another party make available, a mobile phone application or other applications to assist with the sale of products.
- Collecting payment from the consumer and transmitting that payment to the retailer, regardless of whether the person receives compensation or consideration in exchange for its services.
Other taxing efforts
Although North Carolina’s lawmakers may take up the legislation when they return, passage of the bill would likely create a new headache for them. As we have written before, as recently as earlier this month, the American Catalog Mailers Association (ACMA), and Netchoice, the e-commerce trade association, have already filed a number of lawsuits challenging similar statutes, and the litigation is ongoing; these busy plaintiffs have promised to do the same in Indiana. The Hoosier state’s Gov. Eric Holcomb signed HB 1129, which is much like North Carolina’s Senate Bill 81, into law on April 28, 2017.
Indiana’s HB 1129 requires a retailer that does not have a physical presence in the state to act “as an agent for the state” by collecting and remitting the 7 percent sales tax when gross sales to buyers inside Indiana exceed $100,000, or when the number of separate transactions exceeds 200.
On April 30, 2017, Netchoice sent Gov. Holcomb a letter asserting that HB 1129 “will be seen by Indiana consumers as a new tax and could erode your ability to protect Indiana businesses from out-of-state tax collectors” because it “encourages other states to create similar laws that would impact Indiana sellers.”
Netchoice asserted that Indiana’s HB 1129 would also
- Rely on new revenue extracted from Indiana residents – not from out-of-state businesses.
- Generate only minimal new tax revenue.
- Establish a new tax regime that is anything but equal, consistent, or fair.
Citing its own poll of Tennessee residents on a similar tax there, Netchoice contended that 56 percent of those residents said that “requiring them to pay tax on online purchases from out-of-state businesses would be a statewide tax increase.” Netchoice opined that it would “likely see similar results in a poll of Indiana citizens.”
Bolstering its position with a reference to the case South Dakota v. Wayfair Inc. et al, Netchoice promised that the same outcome, the court’s dismissal, would occur, which would not only prohibit Indiana from enforcing the law on out of state retailers, but force Indiana to “fritter away tax dollars on an unnecessary lawsuit” that it is bound to lose anyway.
Furthermore, Netchoice declared, the new tax would not actually generate new revenue, because most of the top e-retailers, like Amazon, already collect in Indiana, and what little new revenue would come in is not enough “to justify the legal costs and erosion of state sovereignty.”
Nor does a remote sales tax law level the playing field between retailers located within and outside the state, argued Netchoice. Instead, “HB 1129 foists disproportionate collection burdens on catalog and online retailers. When a customer enters a gift shop in Indianapolis, the store does not ask for that customer’s home address so she can look-up the tax rate and later remit the tax to the customer’s home state.”
Ultimately, Netchoice made a threat which, given its activity in this area, is not so empty: “We ask that you remove the remote seller tax collection language from HB 1129 and protect Indiana businesses from out-of-state tax auditors, protect Indiana citizens from a new tax, and avoid costly litigation the state is likely to lose.”
Washington is another state that has just passed remote sales tax legislation; Gov. Jy Inslee signed House Bill 2163 late last week. The analysis contained in the House Bill Report provides that it requires marketplace facilitators, referrers, and their sellers to collect and remit sales or use tax, or comply with notice and reporting requirements, and expands the economic nexus for Business and Occupation (B&O) tax purposes. The sales tax rate is 6.5 percent, before the added local sales and use tax rates, which vary from 0.5 percent to 3.9 percent, depending on the location. The B&O tax rate is between about 0.471 percent, for retailing, and 1.5 percent for other activities, depending on the classification at issue.
Washington’s HB 2163 is an expansion on the state’s 2015 click-through nexus law. This imposed the tax collection requirements on remote sellers who had a specific kind of relationship with Washington residents, and that generated at least $10,000 in gross sales.Spokane Public Radio reported that there is already speculation that Netchoice will challenge Washington’s new tax, which is expected to generate more than $1 billion in revenue over the next four years.