NCSL signals support for federal remote seller and digital goods bills
INSIGHT ARTICLE |
Recently, the National Conference of State Legislatures (NCSL) adopted two resolutions at its 2016 Legislative Summit supporting and urging the enactment of federal bills impacting state sales and use taxes. The first resolution addresses support for the Remote Transaction Parity Act of 2015–legislation introduced to address remote sales tax collection. The second resolution addresses support for the Digital Goods and Services Tax Fairness Act of 2015–introduced to preempt state and local jurisdictions from imposing multiple or discriminatory taxes related to digital goods and services.
Remote Transaction Parity Act of 2015
In June of 2015, the Remote Transaction Parity Act of 2015 (RTPA), H.R. 2775, was introduced in the House of Representatives by Congressman Jason Chaffetz to address remote sales tax collection as an alternative to the Marketplace Fairness Act of 2015. Rep. Chaffetz has been an outspoken proponent of a federal solution to remote sales and use tax administration in an ever-growing e-commerce environment.
Similar to the MFA, the RTPA provides a sales tax procedure and system of administration for remote sellers with no physical presence in the state where taxable goods are sold. Also similar to the MFA, the bill provides for a small seller exemption of $1 million in gross annual receipts, but unlike the MFA, that exemption is phased in over a three-year period. Additionally, the RTPA’s small seller exemption does not apply to businesses that use “electronic marketplaces,” like Amazon.com. Moreover, the RTPA prohibits states from auditing remote sellers with less than $5 million in gross annual receipts unless fraud is suspected. While several other differences between the MFA and RTPA exist, the legislation is strikingly similar and intended to cure lost state tax revenue due to the proliferation of the e-commerce economy.
According to the NCSL resolution, tax erosion from the states’ inability to collect sales and use tax on e-commerce sales is estimated to impact state coffers to the tune of almost $340 billion dollars over the ten year between 2015 and 2025. The resolution also noted that the RTPA, unlike similar bills introduced to address remote sales tax collection, does not impose new taxes on consumers, fundamentally change how states raise revenue, establish tax havens, or jeopardize the viability of consumption taxes as a revenue source for states; and does not preempt or impose new requirements on states that would choose not to participate in the remote seller collection system.
Digital Goods and Services Tax Fairness Act of 2015
The Digital Goods and Services Tax Fairness Act of 2015 (DG&S Act), H.R. 1643, was introduced in June of 2015, intending to prohibit state or local jurisdictions from imposing multiple or discriminatory taxes on the sale or use of a digital good or service delivered electronically to a customer. The intention of the DG&S Act is to ensure that customers of digital goods or services are not subject to multiple sales and use taxes on their digital purchases, such as purchases of cloud-based services or digital products. The DG&S Act accomplishes this by enacting sourcing rules, based on the address of the customer, and uniform definitions of digital goods and services.
The NCSL resolution explains that 258 billion digital applications are expected to be downloaded in 2017 with an expected total digital commerce revenue topping $46 billion. The resolution further notes the “outdated and ill equipped” state and local laws are unable to address issues of the current and future digital economy. Furthermore, the resolution identifies the necessity of establishing a national framework that preserves state sovereignty because the decision of state and local jurisdiction to impose a tax, or not impose a tax, on digital commerce remains undisturbed by the DG&S Act.
Considering the 2016 election cycle involves both a presidential election and all 435 congressional races, it has become increasing unlikely that either bill will receive much attention in Congress this year. However, such broad support from a well-known national policy group like the NCSL may be an encouraging sign for Congress to renew their efforts with the start of the 115th Congressional session in early 2017.