Your Company Just Received a State Tax Notice … Now What?
A growing number of states are sending out notices to online and catalog companies based outside their jurisdiction requiring such companies to now comply with this or that new law or regulation (key word here: “outside”). Chances are, your company has received one or more of these notices even though you have no physical presence in their states! Other than selling goods to customers, you have no in-state business dealings at all.
These official looking notices seem like something you’d better heed. The penalties and consequences they mention certainly sound tough. But the reality is, the states could well be playing games with you.
In some instances, these are simply illegal. States are trying to trick you into believing that their long arm of regulation can touch your company, too. As tempting as it is to simply knuckle under and go about business, generally speaking we suggest you do not.
What’s Going On?
A number of states have banded together to orchestrate a coordinated campaign to dupe remote sellers into providing revenue the states aren't entitled to. The American Catalog Mailers Association (ACMA) and its True Simplification of Taxation (TruST) coalition partners are fighting these at every turn. However, companies that voluntarily comply with illegal requests actually undermine our work and also effectively shoot themselves in the foot. In hard-won injunctions, we're successfully protecting remote sellers from this abuse. But beware: states are exempting companies which have voluntarily complied previously with what has now been shown to be illegal requests.
Even the Big Four accounting firms aren't all up to speed. One company got incorrect advice from a well-known firm that would have triggered millions in unnecessary payments had this company not thought to check with the ACMA. We helped get to the bottom of the issue, including finding professionals with the required expertise.
As you can see, there's quite a bit of misinformation out there. Things are dynamic, and it's a struggle to stay on top of all the moving parts. Parsing out a confusing patchwork of different laws, claims and counterclaims can be baffling.
Not every official notice you may receive is illegal. Every company has different facts associated with how they run its business. We suggest you don't simply ignore these, but do a little research. Consulting your lawyers is a great start, but even they may not be fully aware of your tax and regulatory liabilities.
For the past five years, the ACMA has dug itself in deeply to first thwart the unworkable federal Marketplace Fairness Act, then more recently to fight off these rogue and mostly illegal state efforts — all designed to circumvent the 1992 precedent established in Quill v. North Dakota.
We urge any company — ACMA member or not — receiving these state notices to send them to us, then follow up with a call. We can quickly tell you whether we've seen this before, the status of any challenge (if we believe it to be illegal), and can refer you to professionals who specialize in the issue to definitively get to the bottom of things.
While we work toward a federal solution on this matter, online, catalog and all other remote sellers must keep informed and stay in communication as the challenges mount — and they will. With a strong industry response, this can ultimately be resolved in a fair and reasonable manner for all involved. Until then, what you don’t know or do may severely harm your company and its future.
Hamilton Davison is president and executive director of the American Catalog Mailers Association, a Washington-based advocacy group. You can reach him at 401-529-8183 or email@example.com.