Hb 61 - Revenue and Taxation
| Citation | Vol. 35 No. 1 |
| Publication year | 2018 |
HB 61 - Revenue and Taxation
Taylor N. Armstrong
Georgia State University College of Law, tarmstrong11@student.gsu.edu
Caitlin E. Correa
Georgia State University College of Law, ccorrea2@student.gsu.edu
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| Code Sections: | O.C.G.A. §§ 48-8-2, -30 (amended). |
| Bill Number: | HB 61 |
| Act Number: | 365 |
| Georgia Laws: | 2018 Ga. Laws 259 |
| Summary: | The Act amends Georgia's sales tax statute to shift the burden for the collection of sales taxes on online sales from the purchaser to the retailer. |
| Effective Date: | January 1, 2019 |
History
The rise of the Internet has fundamentally shifted the way people conduct retail business on a state and national level. Currently, 89% of Americans have Internet access, and today, the world's largest retailer—Amazon—is primarily an online seller.1 In 2017, e-commerce grew four times faster than the rate of traditional retail.2 The exponential growth of Internet commerce has had an undeniable effect on state revenue and, by extension, "the Internet's
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prevalence and power have changed the dynamics of the national economy."3
In Quill v. North Dakota, the Supreme Court of the United States limited a state's ability to collect sales and use tax from retailers who do not have a physical presence in the state.4 The physical presence standard required retailers to have a physical presence in the state in order for the state to require the retailer to collect and remit the sales tax on goods sold.5 Because many online retailers are not located within the state where they are supplying products, states lack the authority to require these retailers to collect and remit the sales tax that the purchasers owe.
In 1951, Georgia became the thirtieth state to implement sales and use tax.6 Historically, consumers in Georgia were required to pay sales tax on every purchase. However, many consumers were unaware that the tax applied to online purchases.7 Today, tax collection for online purchases is extremely difficult due to the vast number of potential purchasers.8
Additionally, the inability to collect from online retailers is harmful to businesses that have a physical presence in Georgia because they are placed at a competitive disadvantage.9 The local businesses pay wages, ad valorem tax, and sales tax, which all benefit Georgia.10 In most cases, the cost of collecting and remitting
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sales tax increases the purchase price by 7%, making products purchased in state more expensive than the same product purchased online.11 In 2017, sales and use tax accounted for 26.4% of Georgia's net revenue collections.12 However, with Quill's physical presence standard in place, Georgia was unable to collect on approximately $479,000,000 in taxes at the state level.13 In 2013, Congress introduced the Marketplace Fairness Act, which would allow state governments to collect sales tax from retailers with no physical presence in the state, but the legislation is still pending.14
In response to the still-pending legislation, the National Conference of State Legislatures ("NCSL") accepted Justice Anthony Kennedy's challenge to "find an appropriate case for the court to reexamine Quill" and drafted model legislation.15 Several states have followed the model language set forth by the NCSL to construct their own sales tax legislation to recoup the lost revenue.16 These states include Alabama, Georgia, Indiana, South Dakota, Tennessee, and Wyoming. South Dakota's version of the bill was before the United States Supreme Court during the passage of HB 61.17 Prior to 2018, many states had existing laws regarding online sales tax collection; as of 2018, eight other states have joined Georgia in proposing similar legislation.18 These states include Hawaii, Idaho, Iowa, Kansas, Nebraska, New Mexico, New York, and Oklahoma.19
According to the NCSL, the movement of states enacting online sales tax legislation arose out of the Great Recession's effects on state revenue.20 After the recession, most sales tax revenue never
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rebounded, even though Americans were buying more.21 A partial reason for this disparity is due to customers buying online.22 According to Max Behlke, who handles budget and tax for the NCSL, "[w]hen Americans are buying more but the tax revenue is not rebounding, that's just a measure of where young people are shopping."23
Accordingly, House Bill ("HB") 61 was designed to compensate for this drastic growth in Internet sales and level the playing field between "brick and mortar" companies and Internet sellers.24 The new legislation shifts the burden of collection from the consumer to the retailer.25 HB 61 was introduced with the purpose of recovering the lost revenue from the online sales tax because there was no prior mechanism to collect this enforceable tax.
Bill Tracking of HB 61
Consideration and Passage by the House
Representative Jay Powell (R-171st) sponsored HB 61 in the Georgia House of Representatives.26 The House read the bill for the first time on January 23, 2017, and a second time on January 24, 2017.27 HB 61 was committed to the House Ways & Means Committee on January 24, 2017.28 The Ways & Means Committee favorably reported the bill by Committee substitute on February 9, 2017.29
The Committee substitute included all the introduced bill's text and merely added to or modified the text of a few subsections.30 The
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Committee changed Section 1 to add a definition for "[d]ealer."31 The Committee substitute also revised Section 2 to amend subsection (c.1).32 The only substantive revision to subsection (c.1) was the addition of subsection (2), which provides for an expedient appeal for constitutional challenges.33 Finally, the Committee revised new subsection (c.2) revised to include a definition for "[p]urchaser."34 The House read the bill for the third time and passed the Committee substitute on February 15, 2017, by a vote of 157 to ll.35
Consideration and Passage by the Senate
Senator Chuck Hufstetler (R-52nd) sponsored HB 61 in the Georgia Senate.36 The Senate first read HB 61 on February 16, 2017, and assigned it to the Senate Committee on Finance.37 The Senate Committee substitute did not include any substantive changes to the bill and merely changed the effective date from January 1, 2018, to January 1, 2019, to account for the delay in passage.38
The Senate Committee favorably reported the bill by Committee substitute on February 1, 2018.39 The Senate read the bill for the second time on February 5, 2018.40 The Senate engrossed the bill and the read it for the third time on March 27, 2018.41 The Senate then passed the Committee substitute of HB 61 by a vote of 49 to 3.42
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The Senate transmitted the bill to the House on March 27, 2018.43 The House agreed to the Senate's version of the bill, as amended, on March 29, 2018, by a vote of 138 to 29.44 The House sent the bill to Governor Nathan Deal (R) on April 5, 2018. Governor Deal signed the bill into law on May 3, 2018.45
The Act
The Act amends Article 1 of Chapter 8 of Title 48 of the Official Code of Georgia Annotated relating to Georgia's sales and use tax.46 The overall purpose of the Act is to collect sales and use tax that is owed to the State of Georgia and to level the playing field for retailers located in Georgia by requiring online retailers to either collect and remit sales and use tax or provide notification of the sales and use tax to purchasers and the state.47 Georgia lawmakers modeled the Act after the NCSL draft legislation for state collection of online sales tax.48 However, the Georgia legislature was more conservative in drafting the Act to account for potential court scrutiny.49
Section 1
Section 1 of the Act amends paragraph (8) of Code section 48-8-2 by adding definitions for "[d]ealer."50 The Act adds two new subsections, (M.1) and (M.2).51 These subsections define a dealer as a person who either "[o]btains gross revenue, in an amount exceeding $250,000.00 in the previous or current calendar year, from retail sales of tangible personal property" or "[c]onducts 200 or more separate retail sales of tangible personal property in the previous or current
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calendar year to be delivered electronically or physically to a location within this [s]tate to be used, consumed, distributed, or stored for use or consumption in this [s]tate."52 The Act increases the threshold set in the draft legislation that South Dakota implemented, which only requires $100,000 worth of business or two hundred sales.53 However, now that the Supreme Court has approved the $100,000 threshold as sufficient to establish an economic nexus, the Georgia legislature may reexamine the current threshold in the next legislative session.54
Section 2
Section 2 of the Act revises subsection (c.l) of Code section 48-8-30 and adds a new subsection.55 Subsection (d)(1) provides a tax liability of 4% on "every purchaser of tangible personal property" from a dealer located outside the State of Georgia when the property "is to be used, consumed, distributed, or stored for use or consumption in [Georgia]."56 The Act provides that the purchaser shall pay the tax to the retailer who shall remit the tax to the commissioner.57 The Act further establishes a tax liability of 4% for any dealer who sells tangible personal property outside the State of Georgia that will be delivered...
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