Have you been keeping up with the online sales tax debate? Are you curious which pieces of internet sales tax legislation are still circulating in Congress? Here’s a quick summary of the current bills we’ve been watching, and the pros and cons for each one.
The Marketplace Fairness Act of 2015
Unveiled in March 2015, this version of the Marketplace Fairness Act is similar to its 2013 predecessor with a few notable changes, requiring out-of-state companies to collect sales and use tax just like local businesses already do.
Pros
- It has a small seller exception (it does not apply to small businesses selling less than $1 million online).
- It creates an environment where the states would ultimately have to become more uniform in order to participate, thus creating some simplification.
Cons
- The implementation dates are confusing.
- It relies too heavily on Streamlined Sales Tax states.
- Conforming of non-Streamlined Sales Tax states would take a long time, and it’s unlikely there would ever be true conformity.
- It requires internet sellers to do a lot of research into sales and use taxes for online customers.
- It doesn’t address more complicated matters such as re-sales, audits, etc.
This new legislation massively expands the authority of states’ tax collection.
No Regulation Without Representation
Introduced in July 2016, this bill requires a person to be physically present in a state during the relevant tax period and limits how “physical presence” is defined.
Pros
- It does clearly define nexus (including a clear de-minimis standard), making it easier for companies to figure out if they should collect and remit sales tax.
- Physical presence in a state would be required before a state could assert nexus and thereby require sales tax collection.
Cons
- This bill makes it much more difficult for states to require sales and use tax from out-of-state companies, which is a con if you believe we need to be doing something at the federal level to help the states collect more sales taxes. This one depends on what side of the fence you’re on!
Online Sales Tax Simplification Act of 2016
Presented in August 2016, the Online Sales Tax Simplification Act sets a flat sales tax rate for each state and requires companies to remit the collected monies to their home state revenue office, just like they would for in-state sales. Then the states would turn the money over to a federal clearinghouse to distribute the money to the correct states.
Pros
- It allows companies to apply the in-state rules they’re (presumably) already familiar with, rather than needing to research and understand the sales and use tax laws in 45 states.
- It allows for easier rate computation.
- It’s a solution that’s a bit more innovative than some of the others that have been circulated. Congressman Goodlatte, the bill’s sponsor, has been working with this issue for many years and is trying to simplify a difficult issue.
Cons
- There isn’t an exception for small sellers.
- The federal government clearinghouse makes us skeptical. When has more federal intervention ever really simplified things?
- It’s not as simple to implement as it may seem. Proponents are selling the “elegant simplicity” of this bill, but it will still prove to be burdensome to small and middle market businesses.
As you can see, there are still a variety of approaches to the same problem: how do states collect sales and use tax from internet sales in a way that is practical for online retailers?
Stay tuned for more news regarding the online sales tax debate, and connect with me on LinkedIn to continue to see my thoughts on the latest headlines!
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. To learn more, contact us today at www.MilesConsultingGroup.com.
