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Multi-State Tax Report: 50 Years Later and Sales Tax Debate Continues

author photo of Annette Nellen

In 1964 and 1965, the “Willis Commission” issued a four-volume, 1,200+ page report on multistate problems and possible solutions. The commission was named for its chair, Congressman Edwin Willis (D-LA). It was created as part of P.L. 86-272 (9/14/59), more famously known for providing a rule for when a business that sells tangible personal property will have income tax nexus in a state. In 1962, legislation extended the due date of the report and expanded it beyond income tax.

Much of this report reads like it could have been written today. For example, part of the conclusion reads: “It has been found that the present system of State taxation as it affects interstate commerce works badly for both business and the States.”

A few observations made in the report about sales and use tax follow:

  • At the time, only 38 states and about 2,300 local governments assessed sales tax.
  • Rates, definitions, exemptions and administrative procedures varied among states.
  • It was difficult to get information about the state and local tax base and rates (no Internet and apparently even the commercial tax services could not track it all down).
  • Evasion occurred as many cities had insufficient enforcement resources.
  • States wanted businesses to take a national view of their sales tax obligations, yet States had taken no responsibility for helping to create the type of system needed for “nationwide liabilities.”
  • Congress needed to step in to resolve the issues.

Recommendations for improvement included:

  • Many mail order companies sell unique items that don’t compete with local businesses so don’t bother trying to collect the tax from them. (I don’t think this sounds good today, but the dollars and number of remote sellers in the 1960s was much less than we have today.)
  • Have business customers handle sale and use tax on their own (direct payment approach). (This would be similar to a VAT system and would certainly take the burden off vendors of getting correct exemption certificates from business customers.)
  • Consider a permanent establishment approach to nexus. This “has the effect of requiring collection only in cases where sales are being made in circumstances very similar to those of local companies and where an apparent tax advantage would be most resented.”
  • Devise a uniform tax base with exemptions only possible for food or prescription drugs. If a state wants more, it can “grant refunds to purchasers.”

Since at least 1994 (two years after the Quill physical presence rule), some version of the Marketplace Fairness legislation has been introduced in Congress. Will a version ever be agreed to? Will any state take on Justice Kennedy’s statement in his 2015 concurring opinion in Direct Marketing Association v. Brohl, Executive Director, Colorado Dept. of Revenue (USSC 3/3/15)? He suggested it would be good to revisit Quill, noting it was “questionable even when decided.”

And, of course, the issues are more complex today due to there being more remote vendors, issues of collecting sales tax on services and digital items in some states, and figuring out cloud computing.

What do you think will be different by the 60th anniversary of the Willis Commission report (or perhaps sooner)? Do any of the 1965 suggestions sound good today? Please submit your comments below.

Other recent “Sales Tax Policy - Tales & Trends” posts by Annette Nellen, CPA, ESQ:

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