Published June 29, 2020

Legal Thoughts is a podcast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, litigation, and immigration legal matters.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Mayra Torres, the Public Relations Associate of Coleman Jackson, P.C.   The topic of discussion is “Liability of Remote Sellers to Collect, Remit and Report Texas Sales Taxes After Wayfair?” You can listen to this podcast by clicking here:

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TRANSCRIPT:

ATTORNEY:  Coleman Jackson
Legal Thoughts
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY:  Coleman Jackson

Welcome to Tax Thoughts

• My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation and immigration law firm based in Dallas, Texas.
• Our topic for today is: “Liability of Remote Sellers to Collect, Remit and Report Texas Sales Taxes After Wayfair?”
• Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz, Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
• On this “Legal Thoughts” podcast our public relations associate, Mayra Torres will be asking the questions and our Immigration Legal Assistant, Reyna Munoz will be reading answers that I previously wrote in response to the questions on this important tax topic: “Liability of Remote Sellers to Collect, Remit and Report Texas Sales Taxes After Wayfair?”

Interviewer:  Mayra Torres, Public Relations Associate

Question 1:

Hello, Good morning Coleman. My name is Mayra Torres, for everyone who hasn’t met me yet, I am the Public Relations Associate at Coleman Jackson, P.C. Umm… todays first question is regarding Wayfair. What Businesses Located Outside of Texas are Required to Collect and Remit Sales Taxes to the State of Texas after Wayfair. Who is “Wayfair”?

Attorney Answers Question 1:

Wayfair refers to a united states supreme court decision decided by the court on June 21, 2018 in a case that is called south Dakota vs Wayfair, Inc. The case involved a sales tax dispute between south Dakota and Wayfair, Inc.

Interviewer:  Mayra Torres, Public Relations Associate

Question 2:

Well what was the dispute about?

Attorney Answers Question 2:

Wayfair, Inc. Was not located in south Dakota and had no physical presence within The state.

Wayfair, Inc. Sold goods from its remote location to customers who lived in South Dakota. The question in this case was: “when can an out-of-state seller be required to Collect and remit sales tax to a state where they have no physical presence.”

Interviewer:  Mayra Torres, Public Relations Associate

Question 3:

So, why was that even in doubt that South Dakota could make Wayfair an out-of-state Seller collect taxes on purchases of goods and services by south Dakota Residents?

Attorney Answers Question 3:

• That is an excellent question. I am going to explain the concerns with respect to States imposing legal duties on out of state residents as it relates to sales Taxation: the issue here is the free flow of interstate commerce!
  1. The constitution of the united states gives congress the power to regulate Commerce in article 1, section 8, clause 3.
  2. The concern of the framers of the constitution was division within the United states where states are fighting among themselves imposing economic Burdens on the free flow of commerce.
  3. The commerce clause limits the states regulation of commerce
• The U.S. Supreme Court will allow a State tax on Commerce so long as it meets all of these conditions:
  1. The tax applies to an activity with a substantial nexus with the taxing State;
  2. The tax is fairly apportioned;
  3. The tax does not discriminate against interstate commerce; and
  4. The tax is fairly related to the services the State provides.
• Condition Number 1 is the only one in question in the Wayfair Case: the tax applies to an activity with a substantial nexus with the taxing State:
• In those states that have a sales tax statute, before Wayfair, sellers had to have a physical presence within a state in order for that state to impose a liability on a merchant to collect sales taxes on purchases of goods and services. That is known as the Quill physical presence test from the U.S. Supreme Court decision in 1992 called Quill Corporation vs. North Dakota.
• After Wayfair, which involves South Dakota, out-of-state sellers can be held responsible for collection and payment of sales taxes to a state by selling a product or service to customers within the state. The Court said that physical presence in a State can be established merely by selling goods and services to customers in the State. No employees or offices or other physical presence is required in order to establish substantial nexus in the taxing state. So now mere shipping goods and services into a state may bring remote sellers within the scope of out-of-state sales tax statutes. The Supreme Court in Wayfair said that imposing this sales tax collection, remittance and reporting requirement in some circumstances did not violate the Commerce Clause of the United States Constitution, Article 1, Clause 3.

Interviewer:  Mayra Torres, Public Relations Associate

Question 4:

Okay…. What Texas… Who is a remote seller selling goods and services to people who live in Texas? Are they liable to collect, remit, report, and keep records of Texas taxable sales?

Attorney Answers Question 4:

1. A remote seller is defined in Texas Tax Code Rule 3.286(a)(4)(l) and (J) as any seller whose only activities in Texas are the remote solicitation of sales, which includes activities such as solicitation by catalogs, flyers, radio, television, telephone or internet.
2. Sellers outside of Texas who sell goods and services to Texas residents are required to collect, remit and report Texas sales and use tax effective October 1, 2019 if they made total sales of $500,000 into Texas for a prior 12-month period. If the appropriate sales tax is not properly collected the Use tax must be submitted to the Texas Comptroller of Public Accounts.
3. And yes, remote sellers must keep proper books and records of all Texas taxable sales transactions and have them available for inspection and examination in compliance with 34 Texas Tax Code Section 3.281. The TAC specifically identifies the types of records that all sellers of taxable goods and services must maintain for 4 years.
4. Texas Comptroller Auditors are permitted to estimate taxable sales in the event a seller fails to maintain and present the required records for inspection at the request of the Texas Comptroller.

Interviewer:  Mayra Torres, Public Relations Associate

Question 5:

What are the Texas Sales and Use Tax Rate?

Attorney Answers Question 5:

1. The current sales tax rate is 6.25 percent State rate and each local taxing authority can charge up to 2.0 percent. The maximum allowable sales tax rate in Texas is 8.25 percent.
2. As for remote sellers, Texas permits them to charge a flat rate of 1.75 percent instead of the local rate which changes from county to county, city to city and school district to school district throughout the State. Remote sellers make this election by filing form 01-799, Remote Seller’s Intent to Elect or Revoke Use of Single Local Use Tax Rate with the Comptroller’s Office. If the remote seller does not make this election, they must compute, collect and remit the local tax based on the local tax applicable to the location to which they shipped the goods or performed the service.

Interviewer:  Mayra Torres, Public Relations Associate

Question 6:

So, who administers the Limited Sales, Use and Excise Tax laws in Texas?

Attorney Answers Question 6:

The Texas Comptroller of Public Accounts.

Interviewer:  Mayra Torres, Public Relations Associate

Question 7:

Are all remote sellers required to do this now?

Attorney Answers Question 7:

• No; these requirements do not apply to all remote sellers.
• A remote seller whose total Texas revenue from sales into Texas in the preceding 12 calendar months are less than $500,000 is not required to obtain a sales tax permit and they are not required to collect and remit any sales tax to Texas. The sales are computed on gross revenue not net revenue.
• As of April 1, 2020, remote sellers must combine sales made through all mediums with delivery into Texas to determine whether they must collect, remit and report Texas Sales.

Interviewer:  Mayra Torres, Public Relations Associate

Question 8:

Wow, it seems like a somewhat complex issue.

Attorney Answers Question 8:

• Yes, we have just a brief outline here of the issues and sales tax laws applicable to remote sellers since the Wayfair decision of the U.S. Supreme Court.
• Listeners should stay tune and follow our podcast and read our blogs as we might revisit this topic in the future.

Attorney’s Concluding Remarks:

This is end of “legal thoughts” for now!

• Thanks for giving us the opportunity to inform you about how the Texas Tax Code requires remote sellers to collect, remit and report sales taxes on sales made to Texas residents to the Texas Comptroller. If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tune! We are here in Dallas, Texas and want to inform, educate, and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.