Will Congress address remote sales tax before year end?
INSIGHT ARTICLE |
Following the June 21, 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, many states have been quick to enact legislation or regulatory measures to define and establish sales tax nexus for remote sellers. Similar to South Dakota, states are adopting activity threshold requirements to provide guidance on when a remote seller has sales tax nexus in the state, and provide relief for smaller remote sellers.
The Wayfair decision eliminated the long-standing sales and use tax physical presence nexus requirements established by Quill v. North Dakota, and creates a transitional period of uncertainty. With many issues remaining to be resolved such as the impact of Wayfair on interstate commerce and the increasing burden of compliance on businesses of all sizes, a number of federal proposals have been introduced which could affect the wave of state approaches to remote sales tax collection. While this article provides a high-level review of legislation introduced by the 115th Congress, a more comprehensive summary of the year’s state activity is available through RSM’s Online and Remote Seller Sales Tax Resource Center.
Federal remote seller proposals
The following bills include re-introductions of similar bills from previous congressional sessions and new bills aimed to address Wayfair implications. Note that Congress operates on a two-year session. Legislation introduced in 2017 and 2018 and not enacted upon by the end of 2018 will need to be re-introduced in the next session.
Marketplace Fairness Act of 2017
Introduced in April 2017 by Senator Michael Enzi (R-WY), the Marketplace Fairness Act of 2017 (MFA) is in its third iteration since the 2013 version was voted out of the Senate. The MFA grants qualifying states the authority to compel remote sellers with more than $1 million in annual remote sales to collect and remit sales tax on taxable sales delivered to in-state purchasers. The sale would be sourced to the location where the purchaser receives the product or service. The MFA builds on the Streamlined Sales and Use Tax Agreement for member states, and outlines requirements for nonmember states that want to collect sales tax from remote sellers.
The MFA of 2013 made the most headway of any federal remote seller proposal, but ultimately stalled in the House Judiciary Committee.
Remote Transactions Parity Act of 2017
Introduced in April 2017 by Representative Kristi Noem (R-SD), the Remote Transactions Parity Act of 2017 (RTPA) bares similarities to the MFA with some important differences. The RTPA utilizes a phased-in exemption threshold, under which states are permitted to authorize remote collection where gross receipts exceed $10 million in the first calendar year, $5 million in the second and $1 million in the third. Additionally, the phased-in exemption does not apply to businesses that sell through electronic marketplaces, such as Amazon.com.
Online Sales Simplification Act—Discussion Draft
In response to versions of the MFA and the RTPA, Representative Bob Goodlatte (R-VA), the House Judiciary Committee Chairman, released his own draft bill aimed to address remote sales tax collection, followed by a revised discussion draft in August of 2016, titled the Online Sales Simplification Act (OSSA).
The OSSA proposes a hybrid-origin sourcing solution where states participating in a “clearinghouse” would allow destination states to impose a sales tax on remote sellers using the tax base of the seller’s location and a tax rate based on a single “destination rate” in the destination state. The remote seller’s origin would be used to determine the tax base and rate for states not participating in the clearinghouse. In-state retailers would be subject to the tax base and rate of that state, as is currently the case. The draft bill also defines “physical presence” to exclude presence in a state for under 15 days and the presence of click-through affiliates—a popular nexus expansion tool enacted by over 20 states.
No Regulation without Representation Act of 2017
Introduced in June 2017 by Representative James Sensenbrenner (R-WI), the No Regulation without Representation Act of 2017 (NRWR) effectively codifies the physical presence standard established through the 1992 U.S. Supreme Court decision Quill v. North Dakota. The NRWR defines “physical presence” and imposes a 15-day threshold in order for an out-of-state entity to be deemed present in the taxing jurisdiction.
Stop Taxing Our Potential Act of 2018
Introduced in June 2018 by Senator Jon Tester (D-MT), the Stop Taxing Our Potential Act of 2018 (STOP) bares similarities to the NRWR in effectively codifying the physical presence standard established through Quill and imposing a 15-day threshold in order for an out of state entity to be deemed present in the taxing jurisdiction.
Protecting Businesses from Burdensome Compliance Cost Act of 2018
Introduced in September 2018 by Representative Rob Gibbs (R-OH), the Protecting Businesses from Burdensome Compliance Cost Act of 2018 (PBBCC) prevents collection of sales tax from remote sellers until January 2019 and requires states to make administrative efficiency provisions, such as uniform rates and limiting remittance to a single jurisdiction in the state.
Online Sales Simplicity and Small Business Relief Act of 2018
Introduced in September 2018 by Representative James Sensenbrenner (R-WI), the Online Sales Simplicity and Small Business Relief Act of 2018 prevents retroactive collection of sales tax on remote sellers for sales that occurred prior to June 21, 2018, and prohibits collection of sales tax from remote sellers until January 2019. The act also provides a small business remote seller exemption. As the latest congressional attempt to limit the impact of Wayfair on interstate commerce, the act calls for an interstate compact amongst states to define terms such as substantial nexus, and to simplify the compliance processes for sales tax collection of remote sellers.
Administration and congressional comments
On June 28, 2018 Senators Jon Tester (D-MT), Jeanne Shaheen (D-NH), Jeff Merkley (D-OR), and Maggie Hassan (D-NH) objected to the Wayfair decision in remarks during their introduction of the STOP act. All four senators are from “NOMAD” states (New Hampshire, Oregon, Montana, Alaska, and Delaware), five states that do not impose a general sales and use tax. The senators expressed concern about supporting the finances of other states and creating unnecessary complexity on NOMAD-state businesses due to the new nexus standard.
On July 24, 2018 the House Judiciary Committee held a hearing to examine the Wayfair decision. Committee Chairman, Representative Bob Goodlatte (R-VA), stated in opening remarks that the Court’s decision “has the potential to unleash chaos for consumers and remote sellers,” outlining concerns over new compliance burdens and retroactive enforcement of sales tax collection. Representative Goodlatte, who is retiring at the end of 2018, has led the committee for a number of years, although no remote seller bill has made it out of his committee to a floor vote.
In speaking to a senate panel in late July 2017, Treasury Secretary Steven Mnuchin indicated that the Trump administration was examining the issue of online sales taxes and expected to announce a position “soon.” The statement was made prior to the U.S. Supreme Court accepting and ruling on Wayfair. No official position has yet been announced.
On the day of the Wayfair decision, President Trump offered the following Tweet: “Big Supreme Court win on internet sales tax – about time! Big victory for fairness and for our country. Great victory for consumers and retailers.” (President Donald Trump, (@realDonaldTrump), Twitter (June 21, 2018, 1:46 PM)). The president has not provided any other recent indication on whether the administration would support any of the provisions of the proposed remote seller bills.
In light of contradicting views among Congress and also the administration, it is becoming increasingly uncertain that federal remote and online sales tax collection legislation will take any role in the near future. However, that does not preclude action occurring in the lame-duck session as industry groups are continuing to push for a delayed effective dates of state economic sales tax nexus provisions and a prohibition on retroactivity.
As states continue to lead the charge to address remote sales tax collections, businesses of all sizes will need to monitor the state-by-state sales tax developments and new requirements. Over half the states have addressed economic sales tax nexus laws and with the recent settlement of the Wayfair litigation, it appears mandatory physical presence as a sales and use tax nexus standard is not returning. For more information on Wayfair and economic sales tax nexus, please read our article Wayfair, sales tax, and economic presence laws.