If you haven’t heard yet, there’s a new proposed Internet sales tax solution in the House: the Remote Transactions Parity Act (RTPA).
About the RTPA
Like the Marketplace Fairness Act (MFA), another proposed Internet sales tax solution, the RTPA would give remote sellers authority to collect taxes from in-state customers, as well as purchases out-of-state consumers make via the Internet. There are a few key differences between the RTPA and the MFA, such as how a “small seller” is defined, however the broad idea is the same: the concept of Internet sales tax isn’t going away anytime soon. Our colleague, Sylvia Dion, recently penned a blog post comparing the two pieces of proposed legislation in detail.
Why the RTPA is a Bad Idea
Why exactly is the RTPA a bad idea? These are our top reasons!
- Anything with “parity” in the title is likely to be a misnomer. The word, “parity,” means equal, yet with the wide variety of businesses of different sizes across the country, it would be impossible to regulate Internet sales tax in a way that is truly equal.
- Despite being a federal law, it would end up requiring states to enact various new legislation, such as:
- A state-level entity to administer the Internet sales tax laws.
- An audit for all state and local taxing jurisdictions.
- A sales and use tax return for online sellers to use for filing, which includes a requirements these sellers don’t need to file returns more often than brick-and-mortar sellers.
- A uniform sales and use tax base for the state and all its local taxing jurisdictions.
- The RTPA makes it harder to be defined as a small seller. Whereas the MFA bases the size of the business on the gross receipts from remote (or Internet) sales, the RTPA defines a business as a small seller based on their gross receipts from both remote and non-remote sales. So if they make too much revenue from in-store sales, they could lose their small seller designation, meaning they would have to collect sales tax across the country sooner. A small seller that uses an online marketplace (such as Amazon or eBay) to sell their products is completely excluded from the small seller definition, too! That just seems crazy to us!
- The RTPA includes a gradual phase out of the small seller exception. Although the first year would exempt sellers with gross annual receipts of $10 million or less, in the second year it’s reduced to $5 million, in the third year it’s reduced to $1 million, and by the fourth year the exception is completely gone. This is where the “parity” truly ends. Small sellers need some kind of exemption. The compliance burden would be far too great if a seller were required to begin collecting sales on the very first sales out of state.
As you can see, the Internet sales tax debate is far from over. We’ll continue to update you with additional news as it continues to unfold. And, because it’s what we do, we’ll also continue to share with you when we think it’s a bad proposal – like the RTPA, in our opinion!
Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects, including the new California Competes Tax Credit. To learn more, contact us today at www.MilesConsultingGroup.com.
