Congressional House Committee Hears (and Broadcasts) Hot Takes on Wayfair

Last month, the U.S. House Judiciary Committee held a hearing to assess and analyze the potential impacts of sales tax reporting primarily on small retailers following the  U.S. Supreme Court’s South Dakota v Wayfair ruling in June. The court’s 5-4 decision over-ruled two previous rulings (Quill Corp. v. North Dakota and National Bellas Hess, Inc. v.  Department of Revenue of Illinois) and described Quill’s physical presence rule as “unsound and incorrect.” This paves the way for states to collect sales tax revenue on transactions conducted by remote sellers based in other states.

The live-streamed hearing had a we-said/they-said feel to it. Leading tax, legal and retail experts along with members of Congress and at least one small business owner took turns expressing both positive and negative views on the Wayfair ruling and its many implications. Leaders from the American Legislative Exchange Council, MultiState Associates Inc., the National Taxpayers Union and the National Retail Federation, among other groups, submitted their comments ahead of time and then shared them during the hearing. (Those comments are available along with a video recording of the proceedings here.)

Those comments are worth a look, considering what they might portend on a number of post-Wayfair fronts, including whether (or not) Congress finally takes action of its own on the issue by enacting legislation. Two Senate bills and two House bills – each of which covers the same matters the Supreme Court just addressed in Wayfair – are “pending” (my quotation marks nod to Congress’ inability to address digital-era physical presence standards for approximately two decades).

The testimony of Mayer Brown Partner Andrew Pincus, a strong critic of the Wayfair ruling, is certainly worth a close read. Pincus asserts that Wayfair “replaces relatively clear rules with tremendous uncertainty.” He goes on to assert that small businesses are “being forced to choose between complying with costly sales tax collection obligations that could well be unconstitutional or suffering onerous penalty if they decide not to comply and the obligations are later upheld by a court.”

Pincus also offers legal analysis on several other issues not addressed in the Wayfair opinion, many of which could be a concern for remote sellers in the wake of a final decision. (Remember, Wayfair is on remand to the South Dakota Supreme Court for some additional constitutional analysis.) He also adds some comments on the risk of states expanding their sales and use tax base on services and how Wayfair might factor into states’ income tax reporting.

This still-intense disagreement over an issue the Supreme Court appeared to resolved settle with its groundbreaking decision in June, in reality suggests more questions are yet to come that will be settled through administrative rulings, legislation or more litigation. Luckily for us, we all have a front row seat and the orchestra is still playing. Stay tuned. 

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Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.

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New Sales Tax Landscape for Online Sellers

The recent U.S. Supreme Court ruling in South Dakota v. Wayfair overturning the long-held Quill decision will dramatically change the landscape for online sellers when it comes to sales tax.

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