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SALT TALK: Is Wayfair a Pandemic?

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Mar 9, 2020 11:40:00 AM
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Riding the commuter rails this morning, it certainly felt like one of those holiday Mondays where everyone else has the day off and you still head to work. After taking a quick mental inventory of holidays past and future, I realized this was just any other day. Or so I thought.

Did I hear NYC’s very own Mayor de Blasio tell me to walk to work and not take the subway if this was in fact an option. I was sure to heed his advice and take the twenty-minute walk from Penn Station to my office. Although riding the LIRR, it appears others took it one step further and didn’t travel to work at all.

According to CNN, which today began calling the coronavirus outbreak a pandemic, the criteria for what qualifies is not universally defined. Apparently even the World Health Organization doesn’t agree on a definition. But turning to Wikipedia, we find that “a pandemic is an epidemic occurring on a scale which crosses international boundaries, usually affecting a large number of people.”

Substituting “state” for “international” in the above definition, it seems to me “Wayfair” is in fact a pandemic. What started out specifically as a sales tax nexus case (do I have enough presence in a jurisdiction to be required to collect that jurisdiction’s sales tax) has mutated into a state revenue grab that allows tax administration, rather than lawmakers, to get a bigger piece of the pie.

Case in point is the latest iteration of the Maryland Senate’s digital advertising tax bill that just made its way out of committee. If passed into law, revenue from digital ads would be taxed at a rate of up to 10%. A potential taxpayer would need to have total revenue of at least $100,000,000 globally and $1,000,000 attributable to digital advertising revenue derived from Maryland.

To make matters worse, the Bill provides no guidance in determining what revenue is derived from Maryland sources, but leaves it to the State Comptroller to adopt regulations to make this determination.

So where is the pandemic? Wayfair, whether or not one agrees with the result, simply abolished the physical presence requirement needed to compel one to collect sales tax. Feeling emboldened, states have moved quickly to eliminate physical presence from just about everything. Lawmakers have even stepped away from dealing with apportionment issues and left it to the tax departments to figure it out. Only the U.S. Congress can stop the spread.

If you have questions contact me at wberkowitz@berdonllp.com or your Berdon Advisor.

Wayne Berkowitz, a tax partner and co-leader of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.

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