Bill enforcing tax on online sales advances

Lawmakers have tentatively agreed to amend state law to position Hawaii to quickly begin collecting excise taxes from online sales if the U.S. Supreme Court authorizes the states to do so.

Legislatures across the country are watching to see how the court will rule in a case called South Dakota v. Wayfair Inc., which pivots on the question of when states or cities can require out-­ of-state sellers to collect local and state taxes from online sales.

The idea is that the court decision may allow states and cities to require online sellers to collect the appropriate taxes and forward that money to the jurisdictions where the taxes are owed.

The Supreme Court previously ruled that businesses can’t be required to collect those taxes in states where those businesses have no physical presence. In effect, that means a state could not require an online retailer to collect state taxes unless the retailer had a warehouse, storefront or some other in-state, brick-and-mortar location.

For Hawaii, that has meant the state isn’t able to collect its 4 percent general excise tax from many retailers such as QVC, Wayfair.com and Overstock.com, and Retail Merchants of Hawaii has complained this puts local merchants at a disadvantage.

“Many of our retailers statewide are already operating on a thin margin, especially mom and pop stores,” said Tina Yamaki, Retail Merchants of Hawaii president, in written testimony to lawmakers. “This measure would provide e-fairness by leveling the playing field for businesses in our community.”

Amazon announced last year it will begin charging tax in Hawaii, but Yamaki testified Amazon is only charging a 1 percent tax, and not the full 4 percent or 4.5 percent tax that merchants located in Hawaii must charge.

Wayfair argued in briefs before the Supreme Court last year that sorting out what taxes are required in each jurisdiction would be burdensome.

“The system of state and local sales taxes in the United States is highly complex,” lawyers for the company wrote. “There are 45 states, plus the District of Columbia, that have a sales tax, and thousands of local taxing jurisdictions. This dizzying array of jurisdictions results in thousands of different tax rates, taxable and exempt products and services, exempt purchasers” and other variables.

Now it appears the Supreme Court court may be poised to allow states and cities to impose their taxes on out-of-state online retailers, and Hawaii is preparing for that possibility.

Hawaii lawmakers tentatively agreed Monday to new language for Senate Bill 2514 declaring that any vendor who does more than $100,000 worth of business in Hawaii or has 200 or more transactions in Hawaii would be deemed to be engaging in business in the state, and therefore be required to collect and pay state taxes.

House Finance Chairwoman Sylvia Luke said the bill is an avenue to “clear the way” if a decision is handed down in the Wayfair case while lawmakers are not in session. This year’s session will end on Thursday.

“We’re anticipating that something is going to come down from the Supreme Court to overturn the prior decision about nexus and to allow for that marketplace discussion,” said Luke, (D, Punchbowl-Pauoa-Nuuanu). “We’re assuming that as soon as the court case comes down, our (tax) department and other states will get together to address how to deal with the marketplace situation in online sales.”