Rutgers’ Tax Department Readies for New Legislation—Before it is Signed into Law 

On June 21, 2018, the United States Supreme Court’s five-to-four ruling in the South Dakota v. Wayfair case upended long-standing law regarding individual states’ imposition of sales tax. The Court’s 1992 decision in Quill Corp. v. North Dakota prohibited states from collecting sales tax when the seller lacked a physical presence within the purchaser’s state. Years later, in the aftermath of the Court’s earlier call, several states—including South Dakota—enacted “kill Quill” legislation through which they sought to draw other sales tax-related distinctions that might survive Supreme Court scrutiny.  

When South Dakota’s law was ultimately upheld in Wayfair, the ruling resulted in a question that sellers to South Dakota residents had neither posed or answered previously: Do we generate more than 200 transactions or sales generating revenue in excess of $100,000 annually in this state? If the answer was “yes,” the sellers would find themselves liable for collecting and remitting South Dakota sales tax. 

Rutgers’ Controller’s Office is currently laboring to address this inquiry across South Dakota and the nation’s other 48 states—excluding the university’s home state of New Jersey, where its physical presence is very much felt—under the leadership of Glenn J. Christofides, J.D., LL.M., University Tax Director.  

The reason for this action rests in the Wayfair ruling. In the wake of the Supreme Court’s decision, more states have become emboldened to stretch their taxing powers over out-of-state sellers. This, however, was very predictable, according to Christofides. 

“Even before the pandemic, the internet sales revolution made this a desirable course for states. A lot of brick-and-mortar stores were suffering losses of sales. States saw decreases in sales tax revenue and received some heavy lobbying from in-state merchants to do something to equalize the situation,” he explained. 

On April 19, 2021, Florida governor Ron DeSantis signed a law into action that would require online sellers to assess six percent sales tax from the state’s consumers starting July 1, 2021. The third-largest state in the nation, Florida is not the first to follow in South Dakota’s footsteps, and it certainly will not be the last; “there is so much money to be had that most if not all states are going to follow South Dakota’s [lead],” Christofides said. 

Like its counterparts at most major universities, the Tax Department of the Office of the University Controller is the central university office charged with tax compliance. Christofides, working closely with the Associate Tax Director Anelia Dolan, attends to all facets of Rutgers University’s tax compliance efforts.  

Tax compliance is the cornerstone of the efficient administration of any institution of higher learning, he said, noting “for many people, taxes are the last thing that come to mind when they think of the operation of a not-for-profit entity.” But taxes are pervasive components of a university’s operations: “federal and state taxation of endowment investments, compliance with the federal tax laws governing the issuance of tax-exempt bonds, and employment and benefits taxes are just some the areas that require constant attention,” Christofides attested. 

As state legislatures return to their regular sessions, new South Dakota-style laws are on the horizon—and mean additional due diligence for Rutgers’ Tax Department. “We are now looking at creating new reporting systems and methods to track the university’s interstate sales,” said Christofides. 

Rutgers’ expanse poses a challenge for the establishment of such approaches; the university is home to three geographic campuses and numerous units and departments, after all. And although many of these units operate somewhat independently—and would likely not be subject to a South Dakota type of law—the measurement of revenues and transactions is done on the entity level, or in other words, by assessing Rutgers’ sales in sum, Christofides explained. 

As a result, the Tax Department must determine whether there are “departments that are making mail order sales, selling test kits, or something else that might not be on the radar because we have not previously had to account for it,” he said. “Really, we have to be in a position to, if required, prove a negative—that we don’t owe tax to a particular state.” 

Although it will take some time for all states to get legislation enacted, thereafter, the states can be expected to develop agreements to cooperate on interstate audits. “Except for the major online retailers, initially we probably are not going to be seeing a lot of audit activity. However, within a few years, it is very possible that interstate sales tax audits could be commonplace.”  Consequently, this is a project that Rutgers needs to be prepared for. 

For Christofides, an alumnus of Rutgers College (Henry Rutgers Scholar) and Rutgers Law School–Newark, the due diligence process is usually one of the more interesting parts of compliance.  “While I don’t revel in new tax reporting obligations, when one arises, it is usually a wonderful opportunity to go outside of the University Controller’s Office and learn about what is happening around the university. There are so many interesting programs and departments at Rutgers. Reaching out and communicating with departments and learning about the work they do always interests me. My belief in the importance of the research and teaching activities of Rutgers was the prime force that drew me back to my alma mater.” 

When asked about his take on all the effort and time this additional due diligence will require, Christofides remarked, “in the words of Max Baucus, ‘[t]ax complexity itself is a kind of tax.’”