US Supreme Court Reviews Sales Taxes

By Global Tax Weekly

For better or worse, BEPS has permeated deep into the fabric of the world’s tax regimes. You can tell this by the sheer volume of tax developments that are related to, directly or indirectly, the issues discussed in the OECD’s BEPS report each week. And the remainder of those tax developments that aren’t exclusively about BEPS likely still reference them in one way or another.

From Liechtenstein to Luxembourg, from Andorra to Anguilla, the list of jurisdictions now incorporating new international standards on tax avoidance and tax transparency tells you all you need to know about how far the BEPS project’s tentacles have spread into the tiniest jurisdictional nooks and crannies.

Combined with tax reform in the United States and elsewhere, for tax commentators, this is boom time – a fiscal Klondike Gold Rush, if you like, with a rich, golden seam of events to get your teeth into every day. It’s a far cry from old, pre-BEPS/congressional deadlock days, when tax developments tended to ebb and flow. Now they just flow, thanks to the Paul Ryans, the Pierre Moscovicis, and the Pascal Saint-Amanses of this world, among many others. If only they’d tell a few jokes now and again. Because the downside is that the densely technical nature of many of these changes does make things challenging from the point of view of injecting a bit of humor into proceedings.

The courts are also playing their part too, as we saw in the US last week, with a potentially game-changing decision by the US Supreme Court.

Nobody ever seems to mention it, but there’s something very appropriate about the name of the Supreme Court precedent, which had set the rules of the sales tax game in the United States. That is, until last week. It’s called Quill, as in those ink pens made from a feather that they used back in ye olden days. And for all the use it’s been recently, Quill may as well have been decided in 1792 rather than in 1992.

It was hoped that the Supreme Court’s new decision in the Wayfair v South Dakota case, decided last week, would bring some much-needed clarity to the sales tax landscape in the US, following several years of confusion over the ability of states to tax the rapidly rising number of purchases made by consumers from remote out-of-state retailers via the internet. And while it may take some more time for the latest ruling to be fully digested by state authorities, businesses, tax advisers, and taxpayers, many will welcome the fact that the highest court in the land has at last taken account the vastly different, digitalized retail landscape that would have been unrecognizable to most back in the early ’90s.

However, this might not be the end of the story. While the ruling suggests that state governments now have carte blanche to devise laws along similar lines to the one contested in South Dakota, I suspect that not everyone concerned is going to take that prospect lying down, least of all the remote retail sector. But more important perhaps, is how this ruling is received in Washington. The Supreme Court has long held the view that it is for Congress to ultimately decide this issue with federal legislation, but lawmakers have been sharply divided on the matter – even within party ranks – between those pressing for a level sales tax playing field and those arguing that e-commerce growth should not be impeded with what amounts to new taxation. Judging by recent comments by President Trump, he probably falls into the former category. But there are plenty of Republicans who belong to the latter camp.

Maybe the new decision will provide Congress with the jolt it needs to act and close this matter. Either way, while the Supreme Court’s review was welcome, perhaps we haven’t seen the last chapter of this saga yet. That the Supreme Court itself was divided – in a 5-4 decision – suggests that we haven’t heard the last of this issue yet.

The Supreme Court’s decision wasn’t the only new take on an old idea last week.

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