Hawaii withdraws plan for retroactive tax collection

WASHINGTON — Hawaii has backed down from its plan to ask out-of-state retailers to reimburse the state for its general excise tax on online transactions retroactively from Jan. 1 of this year.

Hawaii's Department of Taxation had announced on June 27 that a new state law slated to take effect four days later on July 1 would be applied for the entire 2018 calendar year on out-of-state online retailers with at least 200 transactions or $100,000 in sales in the state.

Hawaii Gov. David Ige had signed the legislation on June 12. It uses the same standard as the South Dakota law. The Supreme Court supported that state's law and ruled against its opponents in South Dakota v. Wayfair, Inc. on June 21.

A spokeswoman for the governor told The Bond Buyer in an email on Thursday that the state was going ahead with implementing the new law.

But Thursday evening the spokeswoman updated that information with a copy of a Tuesday announcement from the state's Department of Taxation that essentially withdrew the plan to retroactively collect the tax.

“To avoid any constitutional concerns, the department will not retroactively administer Act 41,” the announcement said. “Accordingly, taxpayers who lacked physical presence in Hawaii prior to July 1, 2018, but who met the $100,000 or 200 transaction threshold in 2017 or 2018, will not be required to remit GET for the period from Jan. 1, 2018 to June 30, 2018.”

State and local governments were advised Thursday to avoid imposing burdens on out-of-state e-commerce retailers that could spark a new round of litigation as they begin implementing the Supreme Court’s ruling on sales taxes in the South Dakota case.

During a webinar moderated by the National League of Cities, officials pointed out that the South Dakota case has been remanded by the U.S. Supreme Court back to the South Dakota Supreme Court.

“The court has emphasized that the undue burden on businesses has not yet been resolved,” said Emily Brock, director of Government Finance Officers Association's federal liaison center.

George Isaacson, the attorney who represented e-commerce retailers before the Supreme Court, suggested at a July 10 congressional forum that Congress should enact legislation both to prevent states from attempting to collect sales tax retroactively and give them a transition period through the end of this year.