2015 flew by with no federal action on remote sales tax. There were three new bills of remote sales tax legislation passed around the hill, however the subject wasn’t an action item for lawmakers. And yet, it’s an issue that can’t be ignored given action at the state level.
The Three Bills
1. MFA. Nobody bothered to form a 2014 version of the Marketplace Fairness Act (MFA) of 2013. This bill was approved by the Senate in May of 2013, then abandoned within the House. A 2015 version of the bill was introduced in early March. The bill, S. 698, was read twice before it was referred to the Senate Committee on Finance. And that is where it still might be.
2. OSSA. MFA 2015 joined the Online Sales Simplification Act (OSSA), the idea of House Judiciary Chairman Bob Goodlatte (R-VA) and Rep. Anna Eshoo (D-CA). Though OSSA was never introduced within the House, a draft version was passed around the Capitol in January of 2015. It differs considerably from MFA because it would source sales to the origin state instead of the destination state — businesses would collect and remit their home state’s sales tax for sales to customers in other states.
3. RTPA. In June, Congressman Jason Chaffetz (R-UT) introduced a recent version of the legislation. His Remote Transactions Parity Act was billed as a solution to level the playing field between remote and Main Street sellers “in a way that is generous to small remote sellers” and wouldn’t totally overhaul the existing state and local sales and use tax system. It’s considerably akin to MFA, however provides a more generous exception for small remote sellers and a catalog exception. Marketplace sellers wouldn’t be eligible for the small-seller exception.
Taking Advantage of the Gray Area
Rep. Goodlatte is firmly against regulation without representation. He has stated that “states are increasingly exploiting the gray area in the law to tax and regulate beyond their borders.” Several in Washington share that understanding, as well as former House Speaker John Boehner.
And many don’t agree. In this same hearing, ranking House member John Conyers, who’s served in Congress since 1965, spoke of the need to ascertain “a national framework that will empower the states to enforce collection by remote sellers.”
It’s easy to see how this ended in stalemate.
Ripple. Rippple. Ripppple.
One by one, states are enacting legislation that enables them to capture some tax income from out of state sales. In 2015 alone, these states instituted click-through or affiliate legislation requiring some remote sellers to collect and remit sales tax:
It’s similar to a ripple of water: Once a state adopts remote sales tax legislation, another considers it, and out it goes.
What’s planned for 2016?
So what’s expected in 2016? Presumably more debate among federal lawmakers, more bold moves from the states, and perhaps some legal action as well:
Federal. The House has a new Speaker, Paul Ryan (R) of Wisconsin. Mr. Ryan was quoted in 2013 as believing that the “concept” of remote seller legislation was “right” however later said that he didn’t support MFA 2013. His current position on remote sales tax is unknown.
States. Initiatives for Internet sales tax are growing in Oklahoma and Utah. Connecticut is stretching the definition of economic nexus in order to gather as much remote sales tax revenue as possible. Amazon will start collecting South Carolina sales tax on January 1st, 2016.
Alabama has publically challenged Amazon to sue the state over its new requirement for remote sellers. Since federal lawmakers are either unable or unwilling to act on the matter, Governor Bentley would like to see it brought before the U.S. Supreme Court.
Legal. There could also be support within the High Court for reconsidering two Supreme Court decisions that have underpinned the requirement for businesses to have a considerable presence in a state so as to be taxed by that state. In a 2015 judgement relating to the Colorado tax notification requirement, Justice Kennedy wrote:
“Because of Quill and Bellas Hess, States have been unable to collect many of the taxes due on [e-commerce] purchases. Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill. A case questionable even when decided, Quill now harms States to a degree far greater than could have been anticipated earlier… It should be left in place only if a powerful showing can be made that its rationale is still correct.”
Proponents of remote sales tax might think the Justice’s opinion is reassuring, however any legal challenge Quill would take years to unfold. Confronting remote sales tax within the courts wouldn’t be the best solution.
The game continues. Lawmakers at the state and federal level will work for and against remote sales tax legislation. Unless and until the issue is settled in Washington D.C., a lot of states are probably going to implement affiliate or click-through nexus policies. One by one, states are passing remote sales tax legislation of their own. Every time this happens, the environment in another state is affected. Ripple. Rippple. And Ripppple.
In this atmosphere, businesses have to be attentive. The first step is to learn how MFA – or the lack of it – impacts you. Avalara’s white paper, Back in the Hopper: The Marketplace Fairness Act, provides key background on unfinished legislation and advocates getting ahead of ever-changing laws. Automate compliance right now to avoid missteps in the future.
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