The Unsteady State of Sales Tax Nexus

Post by Mark W. Siler

Since 1992, the question of whether a state could require a business to collect and remit sales tax has been governed by the United States Supreme Court’s ruling in Quill v. North Dakota, 504 U.S. 298 (1992). Bills being considered by both houses of the United States Congress may change that for certain remote sellers.

Under Quill, a business must have a certain minimum contacts with a state in order for a state to be allowed to require that business to collect and remit sales tax to the state. Since Quill was decided, businesses have generally operated under the impression that such minimum contacts required the business to have a physical presence in the state seeking to enforce its tax laws.  There are open questions regarding what constitutes a physical presence for a business, however, it is well established that a remote seller who does nothing more that advertise via catalogs, flyers and telephone calls and delivers products into a state via common carrier does not have nexus for the purpose of sales tax enforcement. This physical presence requirement has been extended to remote sellers who advertise their products via the internet. If bills in front of both houses of the U.S. Congress pass, this physical presence test will no longer apply to most remote sellers.

The United States House of Representatives is considering the Marketplace Equity Act of 2011 (H.R. 3179) and the United States Senate is considering the Marketplace Fairness Act (S. 1832). Both bills have bi-partisan sponsors. The reasoning behind the bills is the desire of the two houses to level the playing field between brick and mortar stores and remote sellers. This is because remote sellers who are not required to collect and remit sales tax are gaining a competitive advantage due to their ability to charge less for their products because the prices of those products do not include tax. The bills would give states significant freedom in drafting their laws concerning collecting sales taxes from remote sellers who make sales of products which are shipped into the state, regardless of the location of the seller. The impact of these bills will be far-reaching. While there are exemptions for certain small sellers, ($100,000 per state and $1,000,000 nationally under the House bill and $500,000 nationally under the Senate bill), there is nothing limiting the bills’ collective impact to internet sellers. Therefore, any laws passed by states may also impact brick and mortar sellers who also happen to sell their products remotely via catalog or other advertising method.

The effect of the bill would be to make physical presence irrelevant for purposes of determining whether a business has nexus for sales tax purposes. However, an interesting quirk of both bills is that they only impact nexus for sales tax purposes and do not impact nexus with respect to any other tax such as income or franchis e taxes. This may create record keeping issues for both remote sellers and states.

Overall, it is important to note that neither of these bills is the law and, assuming they each pass their respective house, there will be a conference committee that hammers out exactly what the new law will include. However, it is becoming more and more likely that remote sellers will face new sales tax collection and reporting requirements in multiple states in the coming years. Stay tuned for further updates.

Why Succession Planning Is Patriotic

Post by Sandy Swartzberg

If you have been reading my blog “Conversations with Sam,” you now that I come from a family that is passionate about business.  My family was also passionately patriotic.

My grandfather, Sam, talked about the importance of succession planning in business.  In fact, he talked about the importance of refreshing the management team in order to keep the business from becoming stale.  He had a friend, Aaron, who owned a wholesale clothing business.  Once when I was with Aaron, he talked passionately about walking into his business and seeing all of the people that were employed in good-paying jobs.

In future blogs, I will talk about what it takes for a business to stay on top.  Right now, my concern is that as the baby boomers age, it is imperative that they put succession plans into place that allow their businesses to continue.

In today’s world, if a successful business is allowed to die because of lack of a succession plan, those jobs will simply not go to another business in southeastern Wisconsin or to another business in the United States.  Those jobs may disappear altogether or go to a foreign company.  The workers who held those jobs may be unemployed or have to take lesser jobs.

When I decided that my law firm needed to merge with a larger law firm, I worked very hard to make sure that everyone in that law firm had continuing employment.

As I talk to business owners, I think it is imperative that they work and create succession plans.  It is especially important that these plans give the business a fighting chance to continue.  As a lawyer, I know the time to start working on a succession plan is many years before the event.  A succession plan could be many things.  It could be a plan to transfer the business to a younger generation, a plan to sell the business to a strategic buyer, plan for a management buyout or an employee buyout in the form of an ESOP (Employee Stock Ownership Plan).

What all of these plans benefit from is the gift of time.  If one waits too long and a plan has to be executed under the pressure of illness or some other catastrophic event, the chances of success decline markedly.

One mistake that business owners often make is thinking they know what their options are.  As a lawyer, I have often worked with a team of professionals to work on a succession plan, sometimes called an exit plan.  Many times, the business owner is stunned to find out that they have more options than originally thought.  The business owner also learns quickly that the best plan is one that is put in place many years before the anticipated event.

As a child, I had the privilege of listening to my grandfather and my Uncle Jack work for years on his succession plan.  In the case of my Uncle Jack, the timely sale of his business allowed him to free up his time and his money to pursue his many charitable pursuits.

I urge every business owner to think and plan for their eventual exit.  You will benefit, your family will benefit, and your community will benefit.

Disclaimer

The comments and opinions expressed in this blog are intended for informational purposes only and do not constitute legal advice. Reading or using the information in this blog does not create the existence of an attorney-client privilege. Due to the changing nature of the law, the blog posts may contain dated material. For an update on the current law and the application of the law to your particular facts and circumstances, consult a legal advisor. The information contained herein is not a substitute for obtaining legal advice from a qualified attorney licensed in your state.