AICPA Speaks Out Against Proposed Model Sales and Use Tax Statute

The AICPA testified at a hearing May 18 to voice its opposition to a model statute drafted by the Multistate Tax Commission (MTC) that would authorize states to require nonresident companies to report sales transactions with in-state consumers in an effort to increase use tax compliance. The MTC is an intergovernmental organization that promotes uniformity in state tax laws.

“Out-of-state businesses that are not required to collect and remit sales tax should not be required to police individual use tax noncompliance,” said Jamie Yesnowitz, vice chair of the AICPA’s State and Local Taxation Technical Resource Panel. “It’s asking a lot of companies that are not in the state.”

The AICPA offered several other reasons for its concern, including the fact that the model statute is based on a Colorado law that may get overturned in court. The Direct Marketing Association has sued Colorado over the law and successfully persuaded a U.S. district court to issue an injunction that stopped the state’s revenue department from enforcing it (The Direct Marketing Ass’n v. Huber, No. 10-cv-01546-REB-CBS (D. Colo. 1/26/11)).

The marketing association alleges that the law is unconstitutional by placing an undue burden on interstate commerce. The Colorado law (CO Rev. Stat. § 39-21-112(3.5)) requires retailers who sell products to customers in Colorado, but do not collect and remit Colorado sales tax on those transactions, to annually report certain purchase information to each customer and to the state revenue department for sales over $500. Retailers with less than $100,000 in gross annual sales in the state are exempt.

Yesnowitz also cited the fact that the costs of compliance with the statute could far outweigh the benefits received by the states. “It is not clear how receipt of information on thousands of Internet purchases will translate into revenue for the states,” he said, noting the currently strained resources of state tax agencies.

The MTC’s Executive Committee will meet in the first week of June to consider the testimony and recommendations offered by the hearing officer, MTC General Counsel Shirley Sicilian. The Committee has several options, including: (1) rejecting the entire statute and sending it back to the Uniformity Committee for further consideration, (2) adopting certain amendments, or (3) recommending it to the whole Commission as it is currently written. The full Commission will meet in late July.