Comptroller issues guidance on remote seller sales tax ruling

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Texas Comptroller Glenn Hegar recently issued initial guidance on the implications of the recent U.S. Supreme Court decision in Wayfair v. South Dakota, commonly referred to as Wayfair.

“As is often the case with Supreme Court decisions, the principles can be applied broadly on a nationwide basis, including here in Texas,” Hegar said. “But it’s up to my office to implement those principles 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.”

The United States Supreme Court has sided in favor of states collecting online sales tax in the South Dakota v. Wayfair decision. The Court has ruled that states are allowed to collect tax from online retailers even if companies don’t have a physical presence in the state.

The case made its way all the way to the Supreme Court, supported by 40 other states. While South Dakota argued that states were losing out on billions of dollars worth of sales tax, Wayfair argued that implementing a mandatory tax could hurt their business, or potentially kill business altogether.

Ultimately, the Supreme Court decided in a 5-4 vote to overturn the decision from Quill, agreeing that e-commerce has completely changed the way Americans spend money.

Under its existing legal authority, the Comptroller’s office has started reviewing rules that may need updating. Hegar stressed, however, that this would not include any retroactive application of the new law to remote sellers that have no physical presence in Texas.

“We’re looking forward to working with those affected businesses to ensure this is a smooth transition and a successful partnership,” Hegar said.

Early 2019 is the target effective date for rule amendments; however, that could change pending issues that arise during the rulemaking process. Agency staff intends to meet regularly to solicit input from interested parties, including retailers, remote sellers, trade associations and the Comptroller’s Taxpayer and Business Advisory Group.

The agency also will consult with local taxing entities on potential impacts to local collections and allocations.

The Comptroller’s office also expects the Texas Legislature to play an important role in addressing key issues when they return in January 2019.

“We have started reaching out to state leaders and legislators and will ensure they’re kept fully briefed on our progress,” Hegar said.

The agency anticipates that the state and local governments will see tax collections increase, but the amount depends on the implementation and resolution of several significant issues raised by the Supreme Court’s ruling.

Gains from the ruling are likely to be lower than previous estimates of taxes uncollected by remote sellers. In the past year, for example, some remote sellers have volunteered to collect in anticipation of the Wayfair decision or for other reasons.

Wayfair, the named plaintiff in the recent Supreme Court case, already collects Texas sales and use taxes.

Also, in order to avoid imposing an undue burden on interstate commerce, the state will likely relieve some out-of-state sellers from collection responsibilities. More specific estimates will be available as the implementation and legislative process continues.

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