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Remote Sales Tax: MFA Progress - or Simply Back to Square One?

author photo of Sylvia F. Dion

On Wednesday, September 18th, the Chairman of the U.S. House Judiciary Committee, Bob Goodlatte (R-VA) issued a press release which announced the Judiciary Committee’s Basic Principles on Remote Sales Tax. Essentially, these principles, which the press release indicates were developed in response to the Committee’s direct input from taxpayers, industry and trade groups, and representatives of state and local governments, are intended to guide a discussion on the “internet sales tax” issue and spark creative solutions.

The news wires have, of course, been crazily reporting this development. That’s not surprising, since the House was yet to make a formal statement on what action it would take even though it had been months since the MFA was referred to the Judiciary Committee following its overwhelmingly passage by the Senate.

Just last Monday, September 9th, I wrote a post giving an update on the MFA and noted that one reason not much had been heard about the MFA in recent weeks was because Congress had been on hiatus during its summer recess. (See my 9/9/13 post, “Marketplace Fairness Act – Next Step or No Step? Update & Resources,”) I also noted that being on "summer recess" meant that legislators had been back in their home districts and were likely meeting with constituents - both those that want to see legislation pass and those that don't. In that post, I also mentioned that with Congress reconvening that very day (September 9th), there could quite possibly be new developments in the days that followed.

Well I must admit, I didn’t realize we would be hearing about new developments so soon. But what do the basic principles really do? Do they signal progress, or are we simply back to square one?

Now, I mentioned a minute ago, that the media has been crazily reporting the announcement of the principles. And in the mix of reports are ones touting that the principles have created a “common ground for MFA combatants”. It seems that both proponents and opponents are cheering! But when I read the press release and the Committee’s Basic Principles on Remote Sales Tax, I have to say, my initial thoughts were that the debate may very well be back to square one.

You see, the Chairman never mentions the MFA. And he specifically states that “the aim of the principles is to provide a starting point for discussion in the House.” The Chairman also notes that, “he looks forward to hearing fresh approaches to this issue and continuing the discussion.” So while the Chairman's statements and the Principles indicate that some form of legislation is needed and that the House may finally ready to address the remote sales tax issue, they also seem to indicate the Chairman's belief that a fresh approach is warranted.

So what are the basic principles and how does the MFA match up?

The Judiciary Committee’s seven basic principles suggest that federal remote sales tax legislation should provide/embrace the following:

  1. Tax Relief – Using the Internet should not create new or discriminatory taxes not faced in the offline world. Nor should any fresh precedent be created for other areas of interstate taxation by States.
  2. 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.
  3. No Regulation Without Representation – Those who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement.
  4. 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.
  5. Tax Competition – Governments should be encouraged to compete with one another to keep tax rates low and American businesses should not be disadvantaged vis-a-vis their foreign competitors.
  6. States' Rights – States should be sovereign within their physical boundaries. In addition, the federal government should not mandate that States impose any sales tax compliance burdens.
  7. Privacy Rights – Sensitive customer data must be protected.

Now my purpose today isn’t to render an opinion on each and every principle, but I will highlight a couple simply to point out how the Judiciary Committee's principles could impact the future of the MFA.

Take, for instance, the principal of tech-neutrality, which requires that "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." Requiring remote sellers that do not meet the small-seller exception to greatly expand their sales tax collection and reporting duties to include every state that obtains collection authority would clearly violate this principle. Incidentally, the principles require that the laws be SO simple and the compliance burden SO insignificant that a small-seller exception will not be needed. But the principle of simplicity is one that given our current multi-state sales tax structure – where states and local jurisdictions have created non-uniform and often, ambiguous, rules - will likely never be achieved.

Yes, I have to admit, my take on the Judiciary Committee’s Principles are a sign that a completely fresh, start from square-one, approach is what Chairman Goodlatte and the Judiciary Committee is really looking for.

Back on May 6th, the date the MFA was passed by the Senate, Chairman Goodlatte issued a statement in which he said, “I do not believe the Marketplace Fairness Act is sufficiently simplified yet. While it attempts to make tax collection simpler, it still has a long way to go. There is still not uniformity on definitions and tax rates, so businesses would still be forced to wade through potentially hundreds of tax rates and a host of different tax codes and definitions. There is also concern that despite disclaimers the bill could create due process type concerns regarding the ability for affected businesses to sufficiently petition for relief from aggressive state actions and could open the door for states to tax or even regulate beyond their borders. I am open to considering legislation concerning this topic but these issues, along with others, would certainly have to be addressed.

Again, on June 6th, the Chairman reiterated that “the House Judiciary Committee is looking at alternatives that could enable states to collect sales tax revenues without opening the door to aggressive state action against out-of-state companies.

Looking at these prior statements, I have to ask once again, are the Principles for Remote Sales Tax really all that different from what Chairman Goodlatte has said in the past?

I often say "it ain't over till the fat lady sings," and in this case, I think it may be a while before she does. From a practical standpoint, sellers who could be impacted by the legislation will need to keep a close watch on developments. (And I'll continue to report on them as they arise. Also look for my next post on some significant behind-the-scenes work of the SST). But given that any proposal that comes before the House Judiciary Committee would be subject to these Principles, there may indeed be much more time to prepare.

If you are still reading, you obviously have an interest in this topic...

Did you know...

I’ve been covering the Marketplace Fairness Act of 2013 here at SalesTaxSupport’s Issues, Insights and Ideas blog this entire year? If you missed any of my prior MFA blog articles, you can access them all under the “Other recent Internet Tax / E-Commerce posts by Sylvia F. Dion” section below.

In addition to covering the MFA, I’ve also been covering Internet Sales Tax issues and developments (e.g., all of the prior Federal Internet Sales Tax Proposals, State Amazon laws) for SalesTaxSupport since July 2011. You can see a full list of my Internet Sales Tax blog articles, as well as my short bio, at my Contributor Page.

I’ve also recently expanded my blogging responsibilities here at SalesTaxSupport and blog about U.S. Sales Tax for Foreign Sellers.

What's up next? A post on significant "behind the scenes" work of the SST's Federal Legislation Implementation Committee.

And finally, if you have questions, comments, suggestions…I would love to hear from you!

About the Author: Sylvia F. Dion, MPA, CPA, is the Founder and Managing Partner of SALT Consulting firm, PrietoDion Consulting Partners LLC. Sylvia has been covering Internet Sales Tax developments for SalesTaxSupport’s Issues blog since 2011. Sylvia is also the “U.S. Sales Tax for Foreign Sellers” contributor for SalesTaxSupport’s Industry blog and the “Massachusetts Sales Tax” contributor for SalesTaxSupport’s State blog. You can follow Sylvia on twitter and on Google+ and can contact Sylvia via e-mail at sylviadion@prietodiontax.com or at 978-846-1641.

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. Other contact options (and Consultation Requests) are also available on Sylvia's associated Firm Profile page.

Other recent “Internet Tax / E-Commerce” posts by Sylvia F. Dion, CPA:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

1 Responses to Remote Sales Tax: MFA Progress - or Simply Back to Square One?

  • Posted by nick on June 2, 2017 1:09pm:

    If a business in another state is purchasing a product from my business in California and is having us drop ship to their customer also in California but that customer has a CA resale do I need to charge sales tax to the purchaser out of state.

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