Updated: SB 45 has been taken off the agenda. That is probably for the best. It leaves more time to focus on the Internet Tax.
On Wednesday, February 3, at 10:00 AM the SD Senate State Affairs committee will take on 2 bills. This is compiled using the agenda at the time of composing this post. Agendas can and do change!
Most of this post will look at the proposed Internet Sales Tax. It is maybe not fair calling it that, because it looks to apply to all goods that are sold to and shipped into SD.
SB 45 (SoDakLiberty Posts) – Revise certain provisions of the building South Dakota fund programs.
SoDakLiberty Stance: Undecided
Prime Sponsors: The Committee on State Affairs is the prime sponsor at the request of the Governor’s Office of Economic Development.
This bill is on my watchlist. Here is what I said when the bill was prefiled:
The Building South Dakota fund was created via SB 235 in 2013 with the goal “of building and reinvesting in South Dakota’s economy and to create high quality jobs”. Personally I’ve seen it more as a slush fund for the legislative branch to interfere in the market… but I digress.
This bill changes how the 25% that goes to the South Dakota housing opportunity fund is handled. It also makes some other changes I would rather not comment on until I hear testimony during the committee meeting. At this time I have a feeling some of the proposed changes gives the GOED office even more flexibility, something that doesn’t seem to be a problem…
SB 106 (SoDakLiberty Posts) – Provide for the collection of sales taxes from certain remote sellers, to establish certain Legislative findings, and to declare an emergency.
SoDakLiberty Stance: Opposed
Prime Sponsors: Sen Deb Peters (R, Dist 9) and Rep Roger Hunt (R, Dist 25) are the prime sponsors.
The state going after more sales tax revenue.
Section 1 of the bill is worth looking at:
Notwithstanding any other provision of law, any seller selling tangible personal property, products transferred electronically, or services for delivery into South Dakota, shall be subject to chapters 10-45 and 10-52, and the seller shall collect and remit the sales tax. The seller shall follow all applicable procedures and requirements of law as if the seller had a physical presence in the state, if the seller meets either of the following criteria:
(1) The seller’s gross revenue from delivery of tangible personal property, any product transferred electronically, or services into South Dakota in the previous calendar year or current calendar year exceeds one hundred thousand dollars; or
(2) The seller sold tangible personal property, any product transferred electronically, or services for delivery into South Dakota in two hundred or more separate transactionsin the previous calendar year or the current calendar year.
So this would impose sales tax on goods being shipped to SD. It would only apply if that seller has over $100,000 in sales or 200 or more transactions in a calendar year.
Section 2 of the bill would allow the DOR to go after people they think are breaking this law:
Section 2. That the code be amended by adding a NEW SECTION to read:
Notwithstanding any other provision of law, and whether or not the state initiates an audit or other tax collection procedure, the state may bring a declaratory judgment action under § 21-24-1 in any circuit court against any person the state believes meets the criteria of section 1 of this Act to establish that the collection obligation is applicable and valid under state and federal law. The circuit court shall act on this declaratory judgment action as expeditiously as possible and the circuit court shall proceed with priority over any other action presenting the same question in any other venue.
I’ve said before that internet sales tax won’t work because it would allow the state to go outside of its taxing jurisdiction. The state is trying to give itself that power here….
Section 3 acknowledges that even the authors of this Act realize this might not be constitutional:
Section 3. That the code be amended by adding a NEW SECTION to read:
During a pending action provided in section 2 of this Act, and upon determining that a question is presented regarding the constitutionality of this law the court shall on the state’s motion or the court’s own initiative enjoin the state from enforcing the obligation in section 1 of this Act against any taxpayer who does not affirmatively consent or otherwise collect the tax on a voluntary basis. The injunction does not apply if there is a previous judgment from a court establishing the validity of the obligation in section 1 of this Act with respect to the particular taxpayer.
If a law appears to have constitutional issues, it might be a good idea to kill it…
Section 4 is trying to say that only the SD Supreme Court can handle any appeals:
Section 4. That the code be amended by adding a NEW SECTION to read:
Any appeal from the decision with respect to the cause of action established by this Act may only be made to the State Supreme Court. The appeal shall be heard as expeditiously as possible.
But what if it is brought as a federal case?
Section 5 seems OK.
Section 5. That the code be amended by adding a NEW SECTION to read:
No obligation to collect and remit the sales tax required by this Act may be applied retroactively.
Does that mean they won’t go after people who shipped things to SD before the enactment of this bill?
Section 6. That the code be amended by adding a NEW SECTION to read:
If an injunction provided by this Act is lifted, the state shall assess and apply the collection obligation only from that date forward with respect to any taxpayer covered by the injunction.
The state is going to be nice when there was an injunction.
Section 7 of the bill is basically a resolution to be placed into codified law:
Section 7. That the code be amended by adding a NEW SECTION to read:
The Legislature finds that:
(1) The inability to effectively collect the sales or use tax from remote sellers who deliver tangible personal property, any product transferred electronically, or services directly to the citizens of South Dakota is seriously eroding the sales tax base of this state, causing revenue losses and imminent harm to this state through the loss of critical funding for state and local services;
(2) The harms from the revenue losses are especially serious in South Dakota because the state has no income tax, and sales and use tax revenues are essential in funding state and local services;
(3) Despite the fact that a use tax is owed on tangible personal property, any product transferred electronically, or services delivered for use in this state, many remote sellers actively market sales as tax free or no sales tax transactions;
(4) The structural advantages of remote sellers, including the absence of point-of-sale tax collection, along with the general growth of online retail, make clear that further erosion of this state’s sales tax base is likely in the near future;
(5) Remote sellers who make a substantial number of deliveries into or have large gross revenues from South Dakota benefit extensively from this state’s market, including the economy generally, as well as state infrastructure;
(6) In contrast with the expanding harms caused to the state from this exemption of sales tax collection duties for remote sellers, the costs of that collection have fallen. Givenmodern computing and software options, it is neither unusually difficult nor burdensome for remote sellers to collect and remit sales taxes associated with sales into South Dakota;
(7) As Justice Kennedy recently recognized in his concurrence in Direct Marketing Association v. Brohl, the Supreme Court of the United States should reconsider its doctrine that prevents states from requiring remote sellers to collect sales tax, and as the foregoing findings make clear, this argument has grown stronger, and the cause more urgent, with time;
(8) Given the urgent need for the Supreme Court of the United States to reconsider this doctrine, it is necessary for this state to pass this law clarifying its immediate intent to require collection of sales taxes by remote sellers, and permitting the most expeditious possible review of the constitutionality of this law;
(9) Expeditious review is necessary and appropriate because, while it may be reasonable notwithstanding this law for remote sellers to continue to refuse to collect the sales tax in light of existing federal constitutional doctrine, any such refusal causes imminent harm to this state;
(10) At the same time, the Legislature recognizes that the enactment of this law places remote sellers in a complicated position, precisely because existing constitutional doctrine calls this law into question. Accordingly, the Legislature intends to clarify that the obligations created by this law would be appropriately stayed by the courts until the constitutionality of this law has been clearly established by a binding judgment, including, for example, a decision from the Supreme Court of the United States abrogating its existing doctrine, or a final judgment applicable to a particular taxpayer; and (11) It is the intent of the Legislature to apply South Dakota’s sales and use tax obligations to the limit of federal and state constitutional doctrines, and to thereby clarify that South Dakota law permits the state to immediately argue in any litigation that such constitutional doctrine should be changed to permit the collection obligations of this Act.
Finally, Section 8 of the bill would declare an “emergency” so the DOR can start going after people on April 1:
Section 8. Whereas, this Act is necessary for the support of the state government and its existing public institutions, an emergency is hereby declared to exist, and this Act shall be in full force and effect on and after April 1, 2016.
This is a bad bill, and not just because of the constitutional issues. I’ll wait and see if this bill makes it through committee to do a post explaining why I think it is bad. Hopefully State Affairs kills it!