Did Wayfair Stop Short?
Delaware embraces sales tax pirates to drive tourism.
Yesterday, the U.S. Senate Committee on Finance conducted a hearing on the impact of the 2018 Wayfair decision on small businesses and remote sales. The session included several senators and five witnesses. If you’re interested in sales tax, the discussion was honestly more engaging than expected given the setting and the topic.
Two of the witnesses run businesses impacted by Wayfair.
John Hennessey is the President and CEO of the Littleton Coin Company (LCC) based in Littleton, New Hampshire. As a result of Wayfair, LCC finds itself not only burdened by the administration of having to file sales tax reports in 45 states but is also being subjected to retroactive taxes ($140k so far from 3 states) and potential audit responses from the states where LCC files. He made a very compelling case for simplification.
The second witness was Michelle Huie, the Founder, and CEO of VIM & VIGR Compression Legwear (V&V) in Missoula, Montana. As a much smaller company than LCC, Ms. Huie gave several examples of just how difficult it can be for a small business to navigate sales tax post-Wayfair. The identification of economic nexus required consultants who determined that V&V is “present” in 22 states, and the software and labor to support the sales tax process require roughly $50k per year. That’s equivalent to one full-time employee. It’s a lot.
For all of their differences in product, size, and geography, Mr. Hennessey and Ms. Huie do share one critical similarity: they are from states that do not impose a sales tax. The Wayfair decision created an administrative burden that was completely new to these organizations.
These are real issues.
For anyone thinking there is no doubt that Wayfair has gone too far and needs to be reigned in, allow me to introduce the first witness called by the committee: James McTigue, the Director of tax policy and administration for the Government Accountability Office (GAO).
The documentation he provided shows that the 2021 state remote sales tax revenue collections have risen TWENTY BILLION dollars in the 4 years since 2018 (from $3B to $23B). It may onerous, but Wayfair was pretty damn effective.
What does that have to do with pirates?
Nothing. The pirates yesterday preferred to be called Senator.
As noted above, the witnesses that run businesses came from states without a sales tax. The Chairman of the Senate Committee on Finance is Ron Wyden of Oregon. He too comes from a state without a sales tax. In fact, half of the Senators asking questions were from non-sales-tax states. It was during the Q&A when one of the states embraced piracy and made me wonder if Wayfair, for all of its rules and administration, maybe hasn’t gone far enough?
According to research by Forrester, if a picture says a thousand words, then this video is worth roughly 2 million of them.
He’s not wrong… Delaware is small.
I guess if you’re that small and want to “punch above your weight”, encouraging tax evasion in other states is a small price to pay.
The “selling” of tax evasion is nothing new for Delaware. As I wrote last year, Delaware has long encouraged tax avoidance. But the hubris to come out and provide instructions on how to avoid your home state taxation, and specifically how to thwart the compliance established by neighboring states as a result of the Wayfair decision, DURING a Wayfair committee meeting, would engender the awe of Blackbeard himself.
Instead of easing compliance, Senator Carper is ironically making an argument for increased legislation. I think it’s reasonable that Pennsylvania and other states not only ask Delaware to stop encouraging their citizens to avoid taxes but also expect Delaware to enact policies to help limit the damages they inflict on their neighbors.
As an aside: it would be nice to see that the Senators on the Finance Committee understood the concept of sales and use tax if they are going to hold meetings and consider a legislative change. Buying a piece of furniture in Delaware has no impact on the tax owed by residents of neighboring states, even if encouraging tax evasion does drive tourism to tiny Delaware.
In subsequent articles, we’ll provide some thoughts on solutions to encourage compliance, while streamlining the administration surrounding it. There is a better way.
