Senate Finance airs post-Wayfair sales tax burdens

By Paul Bonner

Small business owners told the Senate Finance Committee on Tuesday how the interstate reach of state and local sales taxes authorized by the Supreme Court in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), has imposed new costs and other burdens.

The committee also heard from an official of the U.S. Government Accountability Office (GAO) studying the issue; the executive director of the governing board of the Streamlined Sales Tax (SST) consortium of states; and a CPA, Diane L. Yetter, who is president and founder of the Sales Tax Institute and a careerlong practitioner in state and local sales tax compliance. The session was titled "Examining the Impact of South Dakota v. Wayfair on Small Businesses and Remote Sales."

The business owners' testimony received unanimous, bipartisan sympathy from the senators, beginning with a statement from committee Chair Ron Wyden, D-Ore., that although his home state lacks a sales tax, Wayfair now requires its resident retailers selling remotely to navigate a "complex web of laws" across the 45 states with a sales tax and thousands of local jurisdictions.

"Congress should step in and get some concrete, actual relief to these small businesses that are hurting," Wyden said, adding that he cosponsored the Online Sales Simplicity and Small Business Relief Act of 2019, S. 2350, which would limit state sales taxes on remote sellers.

John Hennessey, president and CEO of Littleton Coin Co. in Littleton, N.H., described the travails of the new sales tax landscape for his business dealing in collectible coins. The coin company has been in business since the mail-order catalog era but, like most such retailers, had migrated to online ordering and sales when Wayfair "immediately required us to become the tax collector for up to 12,000 different state and local jurisdictions, with no way to calculate and collect the taxes from our customers," Hennessey said.

The business initially spent $225,000 to purchase software, hire legal and tax experts, and manage other compliance tasks, Hennessey said. It continues to incur tens of thousands of dollars in expenses and hundreds of personnel hours annually to maintain its compliance, he said. It also has encountered more types of possible state and local tax exposure beyond sales and use, including business and occupation taxes, franchise taxes, and in California, an assertion, which the company contests, that it should be paying state income tax.

"The sheer complexity is a risk to our business," Hennessey said.

If all the various sales tax instructions to its customers under the economic nexus rules enabled by Wayfair had been printed in the company's former printed catalog, they would have required about 40 additional pages, Hennessey said, holding up a printout.

Michelle Huie, whose business is selling support socks, VIM & VIGR Compression Legwear, in Missoula, Mont., told of the bewildering variety of sales tax regimes she suddenly found that her business was subject to. All had differing rates, applicable thresholds by sales amounts or number of sales, and rules about which products and their uses were taxable.

"I didn't start my business to be a sales tax expert, but I wanted to be compliant," Huie said.

Two witnesses who are primarily sales tax experts said they, too, identify with entrepreneurs' plight, while also recognizing how state revenue expectations in the modern merchandising era of online, cross-border sales have been upended, leading to the Supreme Court's holding that its previous standard under Quill Corp. v. North Dakota, 504 U.S. 298 (1992), requiring sales tax nexus to be based on a retailer's physical presence in the state, was no longer clear or easily applied.

Craig Johnson, executive director of the Streamlined Sales Tax (SST) Governing Board, spoke of how the consortium of 24 states has worked to make state sales tax collections simpler and more uniform. More than 18,000 sellers have voluntarily registered through SST's system for centralized collection and remittance of the taxes, he said.

"We recognize that the Wayfair decision brought about significant changes for remote sellers nationwide, so we work to assist them in complying with their collection and remittance obligations," Johnson said.

Yetter, who also heads Yetter Tax and has spent 38 years in the sales tax field as a state auditor as well as in a corporation managing sales and use tax and in public accounting, said rules for sales tax collection should be equitable for sellers, with uniform and clear requirements and guidance by states.

While sales tax collection and remittance are a business owner's obligation, Wayfair has made compliance harder for some businesses and imposed significant costs on them, Yetter said. Those compliance burdens have persisted since the ruling was issued four years ago, but Congress and the states can reduce them, she said.

James McTigue Jr., director for strategic issues with the GAO, said remote sales tax now accounts for about one-third of all state revenues in the 45 states and District of Columbia that have a sales tax. All have adopted an economic nexus regime on remote sellers, but thresholds, rules on small business exceptions, categories of taxable products, and applicability of local taxes all vary.

Later on Tuesday, the GAO issued a report incorporating McTigue's testimony and detailing more findings, Remote Sales Tax: Initial Observations on Effects of States' Expanded Authority (Rep't No. GAO-22-106016).

In answer to a question from Sen. John Thune, R-S.D., Huie spoke of another type of cost that business owners may experience besides paying for software, consultants, legal services, and employee time to manage compliance.

"Another cost that is not documented is fear and concern about, 'Am I doing something incorrectly? Am I reaching nexus in a state that I'm not aware of?' " Huie said. "And an impending or potential letter from the department of revenue. No small business owner wants to receive that."

To comment on this article or to suggest an idea for another article, contact Paul Bonner at

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