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Main Street Fairness?

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Once again, The Main Street Fairness Act has been introduced in the US Congress in the form of Senate Bill “S.1452” and House Bill “H.R. 2701.”  On Friday, July 29th, IL Democrat Senator Dick Durban and five congressional Democrat party colleagues resurrected this previously “introduced” legislation in an effort to bring some uniformity to the confusing world of sales tax nexus. The bills fall far short of this goal.  The proposed legislation contains contradictions, and loopholes that diminish its credibility.

The true purpose of the bills is to mandate sales tax collection by internet sellers.  The beneficiaries would be certain states who have been unable to force sellers to collect and remit because of the pesky limitations imposed by the by the U.S. Constitution (Due Process and Commerce Clauses) and the U.S. Supreme Court (Quill Corp. v. North Dakota, 504 U.S. 298 (1992)). Those negatively affected by the bill would be the typical online retailers who are currently able to sell into states where they have no physical presence (nexus), without having to collect and remit sales tax. 

The bills are not without inconsistencies.  Interestingly, wording in the early part of each bill reads, “Congress may facilitate such equal taxation consistent with the United States Supreme Court’s decision in Quill Corp. v. North Dakota.”  Obviously, a thorough reading of the Quill decision is in order here for the authors of the bills, since that case yielded the bright line standard of physical presence for sales tax nexus.  The Main Street Fairness Act completely obliterates that standard by requiring internet sellers without physical presence in states to collect and remit. The terms of the bill also are directed only to states who are members of the Streamlined Sales and Use Tax Agreement (SSUTA).  Any state not a member is completely unaffected. The legislation ends up being more of an addition to the SSUTA, rather than the sweeping legislation directed at all states it is being advertised to be. Supporters of the legislation claim that it “levels the playing field” between online sellers and traditional “brick and mortar” businesses.   That may be the case in some states, but certainly not all.  There is also a small business exemption (loophole) for sellers with less than $500,000 in revenue.

 If congress was really serious about tackling the nexus confusion that allows online sellers to undercut Main Street businesses, wouldn’t it make sense for them to first understand what Quill was all about, and then to draft legislation that truly applied to all states that impose sales taxes, with no loopholes?

John has been in the field of state taxation for over 20 years and has worked in both private and public tax environments. John's specialties include - income tax nexus, apportionment, business vs. non-business income, sales and use tax nexus, application of state sales and use tax rules - and all things state tax related.

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