Chairs of CA Assembly & Senate taxation committees react to recent SCOTUS decision on South Dakota v Wayfair, Inc.

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Sacramento, CA – On June 21, 2018, the United States Supreme Court issued its long-anticipated decision in South Dakota v. Wayfair, Inc.  In this case, the Court was asked to revisit the issue of sales and use tax remittance by out-of-state retailers.

In two earlier decisions, the Court had held that an out-of-state retailer’s obligation to collect tax was based on a retailer’s “physical presence” in the taxing state.   For over 25 years, this “physical presence” test has complicated California’s efforts to collect its use tax.  For example, when a California consumer would buy a laptop from an out-of-state retailer through a catalog or online store, the consumer’s use of the computer in California would trigger a use tax liability.  If the out-of-state retailer lacked a “physical presence” in California, however, California was barred from requiring the retailer to collect the tax.  If the consumer then failed to remit the tax, the purchase would completely escape taxation. 

The Wayfair decision has now reset the stage, by explicitly overturning the “physical presence” test.  The Court noted that by giving some online retailers an arbitrary advantage over their competitors, the physical presence rule has limited states’ ability to seek long-term prosperity and has prevented market participants, both large and small, from competing on an even playing field.

Some have called for modifications to state law expanding the universe of retailers required to collect California’s tax.  Others have called for maintaining the status quo.

“Whatever we do, it must reflect a thoughtful and deliberative process that takes into account the interests of all stakeholders, including local governments, California retailers, and the e-commerce sector, while simultaneously promoting a balanced marketplace for California’s consumers and protecting small businesses,” stated Assemblywoman Autumn Burke (D- Inglewood), Chairwoman of the Assembly Committee on Revenue and Taxation.  “That is why, in the weeks and months ahead, Chairman McGuire and myself will be convening a series of stakeholder meetings to analyze the Wayfair decision, its implications and the best path forward.”

“The United States Supreme Court finally established tax fairness for mom and pop businesses in every corner of America and repealed the antiquated physical presence requirement for out-of-state retailers,” remarked Senator Mike McGuire (D- Healdsburg), Chairman of the Senate Governance and Finance committee. “We are committed to carefully analyzing the decision with Chairwoman Burke and we look forward to working with her to advance a potential implementation plan. Fundamentally, this decision should help millions of California’s small businesses who have always collected tax, but were put at a competitive disadvantage to out-of-state online juggernauts who never paid a dime in taxes.”

Senator Steven Glazer (D-Orinda) has authored Senate Constitutional Amendment 20 which would require that online sales tax revenue is distributed to the community where the purchaser resides.  “The collection and distribution of sales taxes from online transactions is an important issue for California consumers and local governments.  The Wayfair court decision will help level the playing field for California’s brick and mortar businesses.” said Senator Glazer. “We need to make sure the decision is implemented fairly and in a way that is sensitive to the growing problem of cities and counties competing for online sales tax revenue by rebating a share of taxes collected from consumers back to the retailers rather than spending that money on the public services for which it was intended” he concluded.

The question now becomes: “How will California respond to this landmark ruling?”

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