Counties should work with Congress to support legislation that would allow counties to enforce their existing sales tax laws regardless of whether a purchase is made in a store, online or through a catalog retailer.
On June 21, 2018, the U.S. Supreme Court ruled in South Dakota v. Wayfair that states and local governments can require vendors with no physical presence in a state to collect and remit existing sales taxes on remote or online purchases. This case asked the court to review its 1992 decision in Quill v. North Dakota, which upheld the “physical presence” standard established in 1967.
This ruling enables each state to decide whether to enforce sales tax collection on remote purchases. Under this framework, a state may pass legislation requiring remote sellers to collect these taxes, even if a vendor has no physical presence in the state. If state laws are challenged in court, each state supreme court would then determine whether the law is enforceable and consistent with federal law. For counties, lost revenue from online and remote sales means less money for basic services, such as roads and law enforcement officers.
In the 115th Congress, bipartisan bills have been introduced in both the Senate and the House addressing this issue: the Marketplace Fairness Act (MFA) in the Senate (S. 976) an the Remote Transactions Parity Act (RTPA) in the House (H.R. 2193). NACo supports both pieces of legislation, which would allow states and counties to enforce existing sales tax laws on remote purchases.
A bipartisan, bicameral bill was introduced on this issue for the first time in the 113th Congress. The Marketplace Fairness Act (MFA) of 2013 (S. 336 and H.R. 684) sought to grant state and local governments the authority to collect taxes on remote sales, which generally are sales that are conducted through any means other than in a physical store. On May 7, 2013, the U.S. Senate passed S.336 with bipartisan support (69-27). The efforts were led by Sen. Michael Enzi (R-Wyo.), Sen. Richard Durbin (D-Ill.), Sen. Lamar Alexander (R-Tenn.) and Sen. Heidi Heitkamp (D-N.D.). Unfortunately, the 113th Congress ended with no action from the House on the Senate-passed bill.
The Senate-passed legislation, if it were enacted, would have created two systems to facilitate multistate sales tax collection: the Streamlined Sales and Use Tax Agreement and an alternative in which states would collect taxes after adopting minimum simplification requirements for their sales tax laws and administration. The Streamlined Sales and Use Tax Agreement, supported by NACo and other state and local government organizations, is a multistate compact that seeks to reduce the complexity of state and local sales and use tax laws and would permit the collection of sales and use taxes from remote sellers. Although currently only 24 states are official members of the Agreement, many other states, as well as the District of Columbia, local governments and the business community, were involved in the cooperative efforts to simplify sales and use tax collection that led to the establishment of the Agreement.
The Agreement minimizes costs and administrative burdens on retailers that collect sales tax, particularly retailers operating in multiple states. It encourages remote sellers using the Internet and mail order to collect taxes on sales to customers living in the 24 member states and levels the playing field so that local stores and remote sellers operate under the same rules. The Agreement ensures that all retailers can conduct their business in a fair, competitive environment.
Here are a few notable differences between MFA and RTPA:
- The small seller exception (the threshold of gross annual sales under which a remote seller would not be required to collect) starts at $10 million in the first year, it goes to $5 million in the second year and it finishes at $1 million in the third year after enactment. In the fourth and subsequent years, there is no small seller exception. The MFA establishes a permanent exception at $1 million.
- Additional protections for remote sellers are included: states would need to certify multiple software providers so that remote sellers would be able to use the software of their choice, states would need to provide centralized registration so that remote sellers would not have to repeat the process, and states would not be allowed to audit remote sellers with gross annual sales below $5 million unless there is suspected fraud.
- The most significant difference is the inclusion of language for the definition of a remote seller that comes from legislation NACo opposes, the Business Activity Tax Simplification Act. Specifically, the RTPA establishes an exception for any seller that has an in-state physical presence for less than 15 days to conduct limited or transient business activity. This would run contrary to many states established nexus standards.
Now that the court has acted, counties should to work with state legislatures and Congress to ensure that local sales taxes are included in any legislation.
For further information, contact: Jack Peterson at 202.661.8805 or email@example.com