With the U.S. Supreme Court set to hear an online sales tax case next month, there’s a lot of online sales action bubbling up on Capitol Hill. However, it isn’t clear whether any legislation will pass and, if it does, what shape it will take.
One faction of House Republicans is pushing its leadership to add legislation to a must-pass omnibus spending bill that would enable states to collect sales tax from online retailers that do not have a physical presence within their state. The bill, Remote Transactions Parity Act of 2017, would require most retailers that sell online to collect and remit sales tax to states, even if they don’t have a physical presence, or nexus, in a particular state.
The goal, according to a source familiar with the legislators’ plans, is to resolve the online sales tax issue before the U.S. Supreme Court rules in South Dakota v. Wayfair, which the court is expected to hear in April and decide on in June. South Dakota aims to drive the court to overturn its 1992 ruling in Quill Corp. v. North Dakota. The court in that case ruled that Quill, a catalog retailer, did not have to collect sales tax in North Dakota where it had no physical presence. Online retailers have used that decision to argue that they need not collect sales tax in states where they have no physical locations, allowing them to charge lower overall prices than bricks-and-mortar retailers that must collect sales tax.
Passing the Remote Transactions Parity Act would have dramatic consequences given that state and local governments could have collected up to $13 billion more in 2017 if governments had been allowed to require sales tax payments from online merchants and other remote sellers, according to a report from the Government Accountability Office, Congress’s non-partisan audit and research agency. Other estimates are even higher. All but five states impose sales taxes.
Rep. Kristi Noem (R-N.D.) is leading the charge behind the push to attach the Remote Transactions Parity Act to the omnibus bill because she believes that, without legislative guidelines, a Court decision that changes the current standards would make it incredibly difficult for a small retailer to comply.
“Out-of-state online retailers are aggressively exploiting a tax loophole, giving them a competitive advantage over local businesses,” she says. “Only Congress can fix this problem in a thoughtful way that equips small business owners with the tools needed to comply with existing law, shields local job creators from egregious out-of-state audits and levels the playing field.”
Her bill seeks to resolve those issues by:
- Allowing states to require remote sellers to collect sales tax from the buyer, according to the taxes owed in the buyer’s location.
- Requiring states to provide free software that can determine a buyer’s tax rate to businesses located within their borders.
- Protecting businesses using this software from most audits (instead, software providers would be subject to audits).
- Including a phase-in period to ensure businesses have time to comply.
However, Noem’s legislation has its share of critics, starting with Rep. Bob Goodlatte (R-Texas), chairman of the House Judiciary Committee. A House Judiciary aide familiar with Goodlatte’s thinking tells Internet Retailer that the Remote Transaction Parity Act doesn’t resolve the issue of states regulating companies outside their borders.
Goodlatte has his own proposed solution: the Online Sales Simplification Act, which would make it mandatory for states to collect taxes from businesses within their own jurisdictions.
“The fact that Congress thus far has not enacted a federal solution to the problem of the collection of state-use taxes on sales by remote vendors should not be seen by the Court as a reason to give up on Congress,” Goodlatte recently wrote in a Wayfair v. South Dakota amicus brief that urges the court to avoid overturning its Quill decision. “Rather, the Court should recognize that a lasting solution will require compromise, and respect and accommodate the ongoing, diligent efforts of Congress to find a fair solution consistent with Constitutional norms. The court also should recognize, as it did in Quill, that the only tool with which it might address this problem is a binary one, while Congress has not only the power to legislate, but the greater variety of tools needed to reach a compromise that takes into account the constitutional and practical nuances behind an acceptable compromise.”
Meanwhile, U.S. Sens. Jon Tester (D-Mont.), Ron Wyden (D-Ore.), Jeff Merkley (D-Ore.), Jeanne Shaheen (D-N.H.) and Maggie Hassan (D-N.H.) on Thursday introduced a resolution that stands against a nationwide online sales tax. The senators represent states that don’t have a sales tax, and they could build a coalition that could prevent an omnibus that included online sales tax legislation from passing.
“Passage of the Marketplace Fairness Act would harm the economy of the United States and place burdensome and bureaucratic policies on small businesses and entrepreneurs,” the resolution reads. “It should not be the role of small businesses and entrepreneurs to help shore up the finances of states and localities through an online sales tax.”