Update on Proposed Internet Sales Tax Legislation
Internet Sales Tax—What is it?
Presently, catalog and online sellers must collect sales and use taxes only in states where they have a physical presence. In states where sellers don’t have a physical presence, the responsibility falls on consumers to pay a use tax directly to the states in which they reside. Since the vast majority of consumers don’t do that, legislation called The Marketplace Fairness Act has been proposed to shift the responsibility from consumers to sellers by allowing states to collect taxes from out-of-state “remote sellers” that have no physical presence in their state.
Where does the proposed law stand now?
In May 2013 the Senate, but not the House, passed the Marketplace Fairness Act. The Act contains an exemption for small businesses and calls for states to provide free software to aide online sellers in tax collection. Under it, states cannot collect taxes from “remote sellers with annual gross receipts in total U.S. remote sales not exceeding $1 million in the preceding calendar year.” In response, Rep. Bob Goodlatte (R-Va.), the Chair of the House Judiciary Committee tasked with overseeing this proposal in the House, signaled his gross disapproval of the Senate’s bill and issued his Seven Principles to guide drafting the House Bill. In December 2014, Goodlatte reaffirmed his position.
What does this mean for my business?
Two of Goodlatte’s principles are relevant for members:
Tech Neutrality: “Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses.
Simplicity: “Governments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary.”
Both of these principles would eliminate the Senate’s $1 million exemption for small businesses and require all remote sellers to collect taxes.
When is Congress going to consider this proposed law again?
In December 2014, House Speaker John Boehner (R-Ohio) promised his caucus that he would revisit the measure early next year. Keep in mind, variations of this bill have been under consideration for a couple of years. When the new 114th Congress convenes, it has several must-pass pieces of legislation it will prioritize. And with the 2016 presidential election around the corner, typically no one wants to be seen as raising taxes. But, we can’t predict when and how this will play out.
What will the ABAA do about this law?
The ABAA does not have an official position on this law for two reasons: 1) The membership and board are diverse in their sentiments and there has been no consensus; 2) Based on its tax status, there are limitations on how the ABAA can involve itself in political activities. What we will do is continue to inform the membership on the status of this and other proposed laws that could impact the membership.
What can I do about this law?
Members who would like to express their approval, disapproval, or suggest changes should consider contacting their Congressional Representatives*: http://www.opencongress.org/people/zipcodelookup
*Be advised that this has not yet been updated to reflect midterm election results.