The Judiciary Committee hears testimony from eight citizens on the fallout from the U.S. Supreme Court's decision in South Dakota v. Wayfair, which overturned Quill and may permit states to require out-of-state merchants to collect and remit local taxes on residents' online orders.

The U.S. House of Representatives Judiciary Committee heard testimony today spanning the spectrum of opinion on the potential fallout of the U.S. Supreme Court’s decision regarding online sales tax.

Rep. Bob Goodlatte (R-Virginia) chairs the Judiciary Committee and held today’s hearing, titled “Examining the Wayfair decision and its Ramifications for Consumers and Small Businesses.” Goodlatte is the legislator behind the Online Sales Simplification Act, one of a handful of Congressional bills meant to address the online sales tax issue that stalled in Congress in recent years. Congress’ indecision on the issue propelled multiple states to pass their own online sales tax collection laws, challenges of which eventually put the case in front the U.S. Supreme Court.

The June decision by the court in South Dakota v. Wayfair Inc. overruled the decision in Quill Corp. v. North Dakota, which stated that Quill, a catalog retailer, did not have to collect sales tax in North Dakota because it had no physical presence in the state. The court’s decision, which five justices signed on to, states that the Quill decision was “unsound and incorrect.”

The decision has far-reaching consequences for online retailers. The decision allows states and local governments to force online retailers to collect sales tax even if they don’t have a physical presence, or nexus, in the state. In the wake of the decision, states and revenue offices have been scrambling to figure out how to begin collecting, and online retailers have been trying figure out if they have to comply with a patchwork of rules at the state and local levels. Many have demanded Congress act to come up with a framework.

Goodlatte did not want the Supreme Court to rule on the Wayfair case, preferring Congress enact legislation that dealt with the issue. “The Court’s close and incomplete decision in Wayfair has the potential to unleash chaos for consumers and remote sellers, particularly small business sellers,” he said. “With so many unanswered questions, both sellers and states need time to figure out how to proceed.”

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The testimony

Eight citizens provided testimony before the committee, including online sellers, a representative of state legislatures and tax reform proponents.

Chad White, owner of Class-Tech Cars, an online merchant of reproduction automotive parts since 2001, said he is concerned about how the Supreme Court’s decision will impact his business, and whether it will stop other entrepreneurs from establishing online businesses. “As confusion sets in after the Wayfair decision, I worry about what comes next for my business,” he said. “I worry about compliance, about cost and about out-of-state audits. I have had other small business entrepreneurs ask me if it is even worth it to start an online small business in light of these new tax burdens.”

Lary Sinewitz, executive vice president of BrandsMart USA, testified on behalf the National Retail Federation, a retail trade group that applauded the Supreme Court’s decision. BrandsMart operates 10 stores selling appliances and electronics in Florida and Georgia and gets 5% of its sales online. Sinewitz’s testimony provided a counterpoint to many merchants’ concerns about the cost of collecting and remitting tax in multiple jurisdictions.

Sinewitz detailed how BrandsMart was close to choosing a software—he did not name the software provider—that would automate the work. “Having participated in discussions with different software companies, I can tell you that there are different ways that the companies priced their services, but it was very clear that they were interested in developing a plan that was economically successful for both the retailer and the software company,” he said.

Sinewitz said the software package BrandsMart is finalizing will cost “less than one-tenth of 1% of our remote sales in the first year, because there are start-up costs, and will be less in subsequent years.” This cost would include calculating and remitting taxes and file returns in 34 states where BrandsMart has at least 200 online transactions annually. States are setting their own revenue and transaction thresholds as a baseline for requiring sales tax collection by remote sellers; 200 transactions a year is the most common threshold.

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Others provided testimony on tax reform and challenged the right of government to tax businesses and individuals not in their jurisdiction and thus have no say in decisions made by those governments. They also cited how the Supreme Court decision has the potential to give states greater abilities to impose obligations on businesses out of their jurisdiction on a range of issues.

“The Supreme Court’s Wayfair decision significantly changes the legal landscape governing states’ power to require tax collection. But it replaces relatively clear rules with tremendous uncertainty,” said Andrew J. Pincus, an attorney and partner with Mayer Brown.

“Even though the Supreme Court did not find the South Dakota statute constitutional—and specifically left a number of constitutional questions to be resolved on remand—states are moving to enforce tax collection obligations on out-of-state sellers,” Pincus said. “Many jurisdictions already had tax collection laws on their books that could not be applied to out-of-state sellers pre-Wayfair, because they did not require physical presence. With the physical presence requirement eliminated, a number of these states are moving to force out-of-state sellers to comply with those laws.”

Tax reform proponent Grover Norquist of Americans for Tax Reform demanded Congress find a way to stop states from collecting in the near term. “Congress should at the very least block tax collection in the wake of Wayfair until legislation is passed,” he said.

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Find DigitalCommerce360.com’s ongoing coverage and resources about the online sales tax change here.