New House Bill Rekindles Debate on Online Sales Tax
The ongoing debate about an Internet sales tax just intensified with the introduction of a House bill on June 15, called the Remote Transaction Parity Act.
Like boxers in a ring, lawmakers were taking sides on the bill within two days of its introduction, according to an article by The Hill.
Introduced by Rep. Jason Chaffetz (R-UT), chairman of the House Oversight and Government Reform Committee, HR 2775’s text and summary weren’t yet on the Library of Congress website as of Wednesday afternoon.
The text and information we’ll describe is taken from a draft of the bill on Chaffetz’s website.
Remote sales are described as transactions that begin in one state and are sourced to another where the seller would not be required to pay or collect sales taxes.
A post on Chaffetz’s website describes the bill as a modernization of “our nation’s outdated sales tax collection process … that will promote states’ rights and bring sales tax parity to e-retailers and brick-and-mortar stores.”
The draft bill includes the following provisos:
- States will enact legislation that allows the collection of the tax and specifies what the tax covers.
- A state administrator will be designated for remote sales tax collection and audits.
- States will provide a public downloadable tax and exemption table, and a rates and boundary database.
- National certified software providers will have access to the tables and databases, generate tax returns, remit taxes for the remote sales to the states, report transactions to the remote seller, respond to audits, and protect consumer privacy.
- Notices of over- or undercollection of taxes are subject to time limits and a statute of limitation.
- Sellers and software providers are not liable for incorrect tax collection or remittance if they get wrong information from each other or the state.
- States are allowed to collect remote sales taxes in the first year after enactment if the seller grosses more than $10 million in the calendar year preceding enactment; in the second year, the seller’s gross would be more than $5 million; in the third year, the gross would be more than $1 million.
- Determining the above threshold is based on sellers that meet subsections (b) and (c) of Section 267 or Section 707(b)(1) of the Internal Revenue Code.
- Remote sellers won’t be subject to any taxes other than sales and use taxes.
- The act doesn’t encourage states to impose new taxes.
- The act doesn’t apply to intrastate sales.
- States can’t collect remote taxes unless they establish a certification process for software providers and have certified multiple national software providers.
The matter goes far beyond political wrangling. There’s precedence in several US Supreme Court rulings regarding sales taxation and out-of-state sellers.
In 1967, the Supreme Court found in National Bellas Hess Inc. v. Illinois Department of Revenue that under the commerce clause, states can’t require businesses to collect use taxes (the equivalent of sales taxes for out-of-state purchases) if a business isn’t physically located in that state. Taxes are still due, but the customer must pay them.
In 1992, the Supreme Court upheld the physical-location requirement in Quill Corp. v. North Dakota.
But last March, Justice Anthony Kennedy issued a new challenge to those rulings.
In a concurring opinion in Direct Marketing Association v. Brohl, Kennedy wrote that the Quill decision was tenuous, “a holding now inflicting extreme harm and unfairness on the states.”
He noted that in 1992, the Internet was “in its infancy.” By 2008, e-commerce sales totaled $3.16 trillion annually in the United States.
“Today, buyers have almost instant access to most retailers via cellphones, tablets, and laptops. As a result, a business may be present in a state in a meaningful way without that presence being physical in the traditional sense of the term,” Kennedy wrote. “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.”
Kennedy called upon the legal system to find an appropriate case that would require the Supreme Court to reconsider its findings in Quill and Bellas Hess.
Between the skirmishes over Chaffetz’s bill and others, and Kennedy’s challenge, Internet sales taxation likely isn’t a topic to be resolved soon.
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Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.