Local jurisdictions in state with no sales tax prepare to tax remote sales – Wacky Tax Wednesday

Alaska is an anomaly. Although there’s no general sales tax in the Last Frontier, more than 100 cities and boroughs levy a local sales tax. Some of them are banding together to tax remote sales.

States won the right to tax remote sales on June 21, 2018, when the Supreme Court of the United States overruled a longstanding physical presence rule in its opinion on South Dakota v. Wayfair, Inc. Yet the decision didn’t mention local jurisdictions taxing remote sales — especially jurisdictions located in states with no statewide sales tax.

So …

At the state level, nothing. This is important.

There’s no move to require remote sellers to collect state sales tax because there’s no state sales tax. A statewide sales tax is proposed periodically in Alaska, but the idea has yet to stick.

The situation at the local level is different. The city members of the Alaska Municipal League (AML) have been discussing the possibility of taxing remote sales since shortly after the June 2018 Wayfair ruling, if not before.

From the outset, the AML recognized the need to minimize the burden on remote sellers. In the Wayfair ruling, the Supreme Court underscored three aspects of South Dakota’s tax system that appeared designed to minimize the burden and cost of remote sales tax collection:

• South Dakota provides safe harbor for small businesses (a small-seller exception)
• South Dakota can’t retroactively enforce its remote sales tax law
• South Dakota is a member of the Streamlined Sales and Use Tax Agreement (SST) and has put sales tax simplification measures in place to make remote sales tax compliance less burdensome and costly

Knowing this, the 43 states (and Washington, D.C.) that have adopted remote sales tax laws or rules since Wayfair have largely modeled their policies on South Dakota’s: Most provide a small-seller exception; most enforce remote sales tax laws prospectively; and 24 states are SST members. Inspired by the SST, several non-member states are also working to ease the burden of remote sales tax compliance.

The AML is looking to do the same, to the extent that it can.

To that end, the AML has created the Alaska Intergovernmental Remote Seller Sales Tax Agreement, which enables Alaska’s cities and boroughs to “implement a single-level, statewide administration of remote sales tax collection and remittance.” It’s to be overseen by the new Alaska Remote Seller Sales Tax Commission.

Again, although the agreement references a “single statewide intergovernmental entity,” this initiative has nothing to do with state government or a state sales tax. The Alaska Remote Seller Sales Tax Commission would be comprised of one representative from each member (i.e., each municipality or borough that adopts the agreement).

Like South Dakota and most other states, the AML would only require remote sellers and marketplace facilitators with a certain amount of economic activity in the state (economic nexus) to collect and remit sales tax in Alaska. And like most other states, it would provide a small-seller exception.

The proposed economic nexus threshold is either $100,000 in annual sales or 100 annual transactions in Alaska during the current or previous calendar year. For simplicity’s sake, the threshold would be based on a remote seller’s or marketplace facilitator’s sales into Alaska rather than into each individual jurisdiction.

As of November 18, 2019, 15 local jurisdictions have joined the Alaska Remote Seller Sales Tax Agreement:

That means dozens of cities and boroughs have yet to sign on, and at least one — Nome — is blazing its own trail.

As of September 1, 2019, Nome requires remote sellers to collect and remit Nome sales tax if, in the current or previous calendar year:

• The seller’s gross revenue from sales of property, digital products, or services delivered into the state is $100,000 or more; and
• The seller sold property, digital products, or services into Alaska in at least 100 separate transactions.

Scott Peterson, Vice President of Government Relations at Avalara, says, that "there is still tremendous doubt whether a city, such as Nome, can enforce Wayfair on its own.” Equally unclear is whether what the AML is proposing will pass muster. If it does, “it would be easy to see a court saying only those who have signed on can get collection authority.”

No matter what happens with Nome, the AML is moving forward with its plan. The Alaska Intergovernmental Remote Seller Sales Tax Agreement needs to be approved by only seven signatories to be in force and effective, so it’s in force and effective today. It will remain in effect until membership falls below seven.

According to Nils Andreassen, Director of the Alaska Municipal League, the Commission must next finalize the remote seller sales tax code. Once that’s done, it must be approved by the municipalities. “As it’s adopted, it will go into force for those who have passed it.”

Check the Alaska Municipal League for the most up-to-date list of members, as well as answers to frequently asked questions.

Learn more about remote sales tax laws in different states in this seller’s guide to nexus laws and sales tax collection requirements.