Weekly Legislative Update - June 25, 2018
Lobby Day Wrap Up
On June 20th, TIA members from around the country gathered in Washington, D.C. for a federal lobby day. Members from all sectors of the industry spoke to their legislators on the issues of repealing the Estate Tax, Infrastructure Funding, Online sales, Health Care, LIFO Repeal, Tariffs, Work Opportunity Tax Credit, Lawsuit Abuse, Retroactive Liability Provisions Superfund, Scrap Tires and Used Oil, National Energy Bill, Urge Strong Enforcement of the Magnuson - Moss Warranty Act, Support the Motor Vehicle Owner's Right to Repair Act, Comp Time, and RPM Act.
The timing was right, as Congress is hoping to address many issues before the end of the year.
We began the day with a federal agency briefing from Anthony Bedell, Deputy Assistant Secretary for Intergovernmental Affairs for DOT, George Riccardo, Senior Congressional Affairs Officer for DOT, Brian Barnard, Director of Governmental Affairs for NHTSA, Lisandra Garay-Vega, PhD, Chief, Vehicle Dynamics Division, Office of Crash Avoidance Standards for NHTSA, and Mary Versailles, Acting Director, Office of International Policy, CAFE & Consumer Program for NHTSA. We hope that this briefing leads to an open dialog about safety inspections and other industry issues.
Attendees then visited with their Congressional offices in a series of personal meetings to discuss industry specific issues impacting their business.
TIA then hosted a luncheon in the U.S. Capitol Visitor Center with several speakers including: a Magnuson Moss Warranty Act Update from Tom Tucker, State Relations Director, ACA. An Estate Tax Repeal update from Alex Ayers, Executive Director, Family Business Coalition, and a look at the 2018 Elections from Jim Hobart, Partner at Public Opinion Strategies. Over the past four election cycles, Jim has been a part of the polling team in some of the most competitive and important elections in the country and in 2013, he received the prestigious Rising Star Award from Campaign and Elections Magazine. He also made regular appearances on NPR, CNN, and the BBC to comment on campaign politics.
If you missed Jim's update on the elections you will have a chance to hear the recap at GTE this year! A week before the November elections Jim will be speaking to our group at the Tire Industry Honors as well as taking part in the Legislative Update seminar on Wednesday October 31st in the Convention Center at Noon. We hope to see you there!
Following the lunch, TIA hosted an "Industry Issues Seminar" in the Rayburn House Office Building where some Members of Congress lead a discussion on the current state of the industry and the prospects of infrastructure funding. Congressman Earl Blumenauer (D-OR-3) and Congressman John Garamendi (D-CA-3) addressed the group and called on Congressional action to solve some of the lingering transportation issues. Catherine McCullough from the Intelligent Car Coalition also joined in the panel to share her thoughts.
The day wrapped up with a reception in the Transportation and Infrastructure Committee Room of Rayburn where TIA members mingled with a variety of Senators, Congressman, and staff that attended. The keynote address was given by Democratic Whip Congressman Steny Hoyer (D-MD-5).
With so many small business issues on the table this year, it was important to share our positions with members of Congress. The timing was right. Especially seeing how issues like internet sales have gone since the lobby day.
It was a tremendous showing from all sectors of the tire industry, speaking in one voice on crucial industry issues. The attendance and support throughout the day was phenomenal.
A big thank you to all those who attended, together we made a difference! Your voice was heard!
Supreme Court Reverses Rule on State Sales Tax Collection Obligations for Out of State Vendors
On Thursday, June 21, 2018, the Supreme Court issued its widely anticipated decision in the case of South Dakota v. Wayfair, Inc. In doing so, the Supreme Court overturned its prior 1992 ruling and opened the door to allow states to require out of state vendors to collect and remit sales taxes on sales to individuals located in the state.
The Wayfair case centered on a South Dakota law that was enacted with the knowledge that it would be directly opposite to the prior Supreme Court ruling and would result in a challenge, thus teeing up this case. The South Dakota statute requires that any out of state seller that annually a) delivers more than $100,000 of goods or services into South Dakota or b) engages in 200 or more separate transactions in South Dakota, to collect and remit sales taxes on the transactions.
The prior rule that was stated by the Supreme Court in the case of Quill Corp. v. North Dakota was that states could only hold businesses with a physical presence liable for collecting and remitting sales taxes. Under this rule (known as the physical presence rule), out of state sellers, like the big online retailers, who did not have a physical presence in a state but who sold and delivered goods to recipients in the state, were not (and could not be) required to collect and remit states sales taxes, and instead, the state had to rely on the individual who purchased the item to report and pay taxes (which was largely not happening).
In overturning the physical presence rule, the Supreme Court reasoned that the rule, which had last been considered in 1992, had been established to prevent state tax laws from burdening interstate commerce, but had actually resulted in giving out of state sellers an advantage over local businesses. The Court noted that the rule no longer reflected the reality of the global online economy. Even the dissenters in the case acknowledged this, though believed that it was for Congress, not the Court, to address the issue.
Under the new ruling, states will be able to require businesses that have a "substantial nexus" with the state to collect and remit sales tax. This now opens up the question of what it means for a business to have a substantial nexus with a state such that the state can impose the tax collection and remission burden. The Supreme Court found that, the South Dakota law properly only applied to businesses with substantial connections to the state. This is because the law limited its application to sellers delivering $100,000 in goods and services or 200 transactions annually and therefore didn't apply to businesses that didn't have a physical presence in the state and did very limited business with anyone in the state. In light of the Court's conclusion that the South Dakota statute properly addresses the substantial nexus issue, we expect to see other states modelling their laws similarly (Louisiana has in fact already enacted a law like South Dakota's in anticipation of South Dakota prevailing in the case).
As the Supreme Court itself observed in its decision, we would also expect to see technological solutions coming onto the market to help businesses with interstate sales that don't have large compliance departments comply with the tax laws of the states where they are delivering goods and services in.
The potential impact of the Wayfair ruling on small businesses will likely depend on the nature of the small business and how states respond to the case. The decision was lauded by brick and mortar businesses who were finding it increasingly difficult to compete with out of state sellers whose sales prices did not include sales taxes. On the other hand, depending on how each state crafts its laws and defines which sellers will be subject to the new collection and remission laws we expect to see enacted, small businesses that rely on online sales may face challenges that the technological solutions may not move quickly enough to satisfy. eBay has already reached out to the sellers on its platform to encourage them to sign on to a petition urging Congress to pass legislation to prevent the application of laws like South Dakotas to small out of state businesses. Such legislation would likely take the form of setting a limit as to which businesses states could apply any new sales tax collection laws.
While the implications remain to be seen, this is a big commercial shift that is relevant for small businesses of all types.
TIA is very encouraged by the Supreme Court decision. This has been an issue that our members have worked on tirelessly for many years.
axation of online sales was one of the issues TIA members discussed with Capitol Hill staffers during Federal Lobby Day, which was held the day before the Wayfair ruling came down.
Proposed Regulations on Section 199A
It is no secret that pass-through businesses have been eagerly awaiting guidance on how the provisions of new tax law will be applied to them, specifically those set forth in Section 199A. [Section 199A provides a new 20% deduction on "qualified business income" under certain circumstances. The AICPA has identified in a 40 page letter to IRA areas in Section 199A that need clarification!] The IRS has heard this call and the interpretation of Section 199A has been identified as a top priority. Acting IRS Commissioner David Kautter recently stated that proposed regulations on Section 199A, which will focus "primarily on aggregation rules, antiabuse rules, the general rules, and then the definition of specified services" will be released in the next few weeks. These will just be proposed rules for notice and comment, and it will still be quite a while before final rules are issued. However, such proposed rules should help give businesses a sense of how the IRS plans to interpret and apply certain parts of 199A. We will be following this closely and will be reporting back to you as guidance emerges.