Two New Texas "Wayfair" Laws
May 30, 2019
HB 2153 and HB 1525 both became Texas law in May 2019. The two new laws were in response to last year’s U.S. Supreme Court ruling allowing states to tax out-of-state sellers even if they do not have a physical presence in Texas, but sell their products here.
It allows the Texas comptroller to identify a single tax rate to apply to remote sellers. Because local taxing jurisdictions in Texas have varying sales tax rates, ranging from 6.25 to 8.25 percent, the bill is intended to simplify online vendors’ sales tax calculations.
But there is another part to this Wayfair puzzle and the comptroller referenced it in his letter to the state’s top leaders. HB 1525 requires marketplaces such as Etsy, Ebay and Amazon to collect sales tax on third-party, out-of-state sellers and is expected to yield more than half a billion dollars for the state.
If a Texan purchases an item online from a seller in another state using a “marketplace,” a definition that includes websites and software applications, the marketplace would be responsible for collecting and paying sales tax on those transactions.
Also see: Texas Comptroller resources.
Wayfair - Background
In June 2018, the U.S. Supreme Court ruled 5-4 in South Dakota v. Wayfair that states can mandate that businesses without a physical presence in a state with more than 200 transactions or $100,000 in-state sales collect and remit sales taxes on transactions in the state. This decision overturned the Court’s 1992 decision in Quill v. North Dakota and 1967 decision in National Bellas Hess.
- HB 2153, the legislation to deal with the South Dakota v. Wayfair decision, passed the Texas House on April 11 and has now been sent to the Senate. There is a companion bill in the Senate (SB 70), but the Senate will likely move forward with the House bill. Read an analysis of the bill. (4-16-19)
- Proposed legislation was filed by the chair of the Texas House Ways and Means Committee and the chair of the Texas Senate Finance Committee. HB 1525 and SB 890 (which are identical) detail the rules that would apply to out-of-state marketplace providers who sell to Texans and have no in-state physical presence. The bills expand the state’s authority to collect use taxes on such sales as provided under Wayfair. (2-2019)
- Comptroller Circulates Draft of Rule Revision in Response to Wayfair (9-7-18) | DRAFT: Proposed Amendment Texas Sales Tax (Wayfair) (9-2018)
- Comptroller Mulls Wayfair Implementation (8-21-18)
- Sales Taxes After Wayfair—Challenges and Opportunities for CPAs (7-19-18)
- Wayfair and the Ability of Texas to Require Remote Sellers to Collect Sales and Use Taxes (7-5-18)
- Tax Strategy: What’s at Stake for Retailers and Their Tax Advisors from Wayfair (8-1-18)
- Texas Comptroller Issues Initial Guidance (6-27-18)
- Supreme Court Overturns Physical Presence Requirement (6-21-18)
By John Sharbaugh, CAE
Managing Director of Governmental Affairs
The Wayfair ruling could have a major effect on the ability of states to collect sales taxes from companies selling via the internet. In its decision, the U.S. Supreme Court overturned two previous rulings that had required a company to have a physical presence, such as an employee or building, in a state before it could be liable for remitting sales tax.
The Supreme Court remanded the case for further proceedings, which means the case is not final, and there could be other litigation on the question of when a state or local jurisdiction can require remote sellers to collect and remit sales and use taxes.
The decision also noted that prior Supreme Court cases impose two key limits on state authority regarding the taxation of interstate commerce, which are still good law: 1. States may not discriminate against interstate commerce, which essentially means states may not treat out-of-state sellers worse than in-state sellers; and 2. States may not impose undue burdens on interstate commerce, the meaning of which is an open question.
Hegar also weighed in on this Supreme Court decision, issuing a memorandum about it. He notes that his office is proceeding “carefully and deliberately” to understand the decision while seeking input to help implement the new law. He also said the legislature should consider action in the next legislative session to update and make modifications to existing statutes to help with the implementation. Hegar’s office is working now on developing recommendations to the Texas Legislature for its consideration.
In terms of the potential fiscal impact, Hegar cautioned that the possible revenue gains from implementing sales tax on internet sales will probably be less than was estimated a few years ago. An estimate developed in 2014 by then Comptroller Susan Combs projected that up to $840 million in annual state sales tax would be uncollected by remote sellers through all channels, including catalogs, emails and phone.
But Hegar noted that there have been significant changes in the online marketplace during the last four years that will likely mean less additional revenue from this stream. For example, Amazon and other big online retailers, including Wayfair, are already remitting the tax on direct sales to Texans. So, this Wayfair decision may not be the significant windfall for the state that many would assume.