On August 25, House Judiciary Committee Chairman Robert Goodlatte (R-Va.) released his much anticipated remote sales tax legislation discussion draft, entitled the Online Sales Simplification Act of 2015 (OSSA). While the draft is an unexpected development this late in an election year, it is still another step in the decades-long debate on how to address the remote sales tax issue. It remains unclear when, or if, the draft will be formally introduced or if there is enough time on the legislative calendar for Congress to act in 2016.
The discussion draft reflects principles and concepts that Chairman Goodlatte has endorsed since he became Judiciary Committee Chair in 2012. Although the bill does seek to resolve how remote sales should be taxed, the approach is substantially different from previous legislation, like the Senate’s Marketplace Fairness Act (MFA) (S. 698) and the Remote Transactions Parity Act (RTPA) (H.R. 2775), introduced by Rep. Jason Chaffetz (R-Utah).
Both MFA and RTPA use a destination-based system to source the sale, i.e. whether a remote sale is taxable and the applicable rate are both determined by the customer’s home state. Additionally, both MFA and RTPA would provide two options for states seeking collection authority — states can either participate in the Streamlined Sales and Use Tax Agreement or implement requirements outlined in the legislation. Either option would require states to adopt minimum tax law simplification requirements. Neither MFA nor RTPA would require states to adopt a single, statewide tax rate for remote sales. NACo policy supports both MFA and RTPA.
Chairman Goodlatte’s discussion draft (OSSA), however, diverges from MFA and RTPA by using a hybrid-origin system to determine the tax on a remote sale. Under this system, the tax base of the seller’s state is coupled with the tax rate of the buyer’s state to determine the tax applicable to the remote sale. In other words, the seller’s state (origin) would determine whether the sale is taxable and the buyer’s state (destination) would determine the rate that will apply. OSSA would require states to adopt a single statewide tax rate for remote sales, which would eliminate the ability of local governments to decide their own sales tax policy. OSSA differs in other ways such as:
States wishing to collect would need to enter into a distribution agreement with a new federal clearinghouse established under the bill (although specific details of the clearinghouse remain unclear).
The clearinghouse would have other duties, including establishing a mechanism for remote sellers to report sales, establishing a uniform compliance certificate and establishing a method to audit remote sellers in non-sales/use tax states.
OSSA would not provide for a small seller exception whereas MFA is permanently set at $1M in annual remote sales and RTPA would phase out its exception over four years.
Only the origin state may audit for remote sales under OSSA.
Sellers in states that do not have a sales or use tax would have the option of either reporting a remote sale to the clearinghouse or remitting tax to the clearinghouse using an alternate base and the destination rate.
Despite the Senate’s strong bipartisan passage of a prior version of MFA in 2013, Chairman Goodlatte has not been supportive of either the Senate bill or RTPA. At this point, the biggest takeaway from the discussion draft is that Chairman Goodlatte continues to acknowledge that remote sales tax is an issue that needs to be resolved.
Enacting remote sales tax legislation would not only create a level playing field for local businesses, it would also grant state and local governments the ability to enforce existing sales tax laws and stop the loss of billions of dollars in uncollected sales taxes in e-commerce every year.
NACo will continue to monitor developments of this issue and engage with congressional champions and leadership to ensure that county concerns are addressed in legislation that moves forward.
Contact: Mike Belarmino at firstname.lastname@example.org or 202.942.4254