BOISE — To comply with the U.S. Supreme Court’s South Dakota vs. Wayfair Inc. decision, which allows states to collect internet sales and use tax, legislation was introduced on Tuesday that could bring an additional $30 million to a new Idaho tax relief fund.
The bill, sponsored by Majority Leader Mike Moyle, R-Star, is meant to set up the process requiring internet sellers to collect and remit state sales taxes on online retail and e-commerce, much like local retailers. It was unanimously introduced in the House Revenue & Taxation Committee, clearing the way for a full hearing later.
“With the decision by the Supreme Court, Idaho can now collect that tax that is due in Idaho through a use tax,” Moyle said. “It’s actually, I think, a positive thing for our taxpayers because it keeps them from breaking law.”
The overarching issue stemmed from whether internet retailers are required to collect sales tax for online purchases.
In June 2018, the U.S. Supreme Court ruled 5-4 in favor of South Dakota in the South Dakota vs. Wayfair Inc. case, overturning the 1992 Quill v. North Dakota decision, which said sellers don’t have to collect and remit state taxes unless they have a physical presence in the state. In the decision, Justice Anthony Kennedy wrote, “The physical presence rule of Quill is unsound and incorrect.”
Now, with the new decision, economic activity in a state can cause a sales tax obligation, which could impact out-of-state online sellers with affiliate retailers in Idaho.
If the bill passes, it could bring in an additional $30 million in sales tax revenue in its first year, fiscal year 2020, Moyle estimated. That revenue would be funneled into a state tax relief fund, which would then be set aside for whatever lawmakers decide.
“That revenue is available next year to hopefully alleviate either eliminating the sales tax on groceries or lower income taxes, or whatever the Legislature decides,” Moyle said. “It isn’t specific to a certain tax. ... We make sure it doesn’t go through the distribution formula. It goes straight into that fund until we decide what to do with those revenues.”
The bill would only apply to internet retailers and marketplace facilitators with $100,000 a year or more in sales. Once they hit the $100,000 threshold, they’ll need to start paying the tax. The tax rate would remain at 6 percent and doesn’t include local option sales tax districts.
With the bill, online retailers selling to Idaho customers would only begin remitting tax once it becomes law, not retroactively. When a company remits tax, they’re essentially paying into the state. Online retailers should have already been doing this, but there hasn’t been statute in place to directly enforce it, according to Mark Warbis, public information director for the Idaho State Tax Commission.
To become law, the bill would need to pass the House and Senate and then receive the governor’s signature.
“What this does is provides a way to collect a tax that’s already due, it’s not a new tax,” Moyle said. “It provides a way to put that tax revenue into a special fund and use that for future tax relief, and it also provides a way to protect our Idaho citizens who don’t know they’re supposed to pay use tax now from being caught later on when they’re audited.”