Ahead of Holiday Shopping Season, CCH Reviews Recent Federal, State Sales & Use Tax Activities
(RIVERWOODS, ILL., October 19, 2011) – In the last three months, both Democrats and Republicans have sponsored Federal legislation to compel online retailers to collect sales and use tax and several states have moved forward with their own legislation, based on a review of online nexus rules by CCH, a Wolters Kluwer business and the leading global provider of tax, accounting and audit information, software and services (CCHGroup.com).
“Whether legislatively compelled at the Federal or state level or through online retailers seeing it as inevitable, the trend is moving toward more online retailers collecting sales and use taxes,” said Daniel Schibley, JD, CCH Senior State Tax Analyst. “While it may not have significant implications for this holiday tax season, consumers should be prepared to start seeing sales tax collected on more and more of their online purchases in the years ahead as cash-strapped states look for more revenue sources.”
Overall, 45 states currently have a sales tax and 16 states have enacted or have legislation proposed to require online retailers to collect sales and use tax or, at the very least, to more strongly urge in-state customers to pay use tax. Sales tax generally has two parts – the sales portion paid by the retailer and the use portion paid by the consumer. Under existing rules, individuals are required to pay personal use tax in states with a sales tax if the retailer does not collect the tax. However, there is very little voluntary compliance among consumers.
Below, CCH reviews the two Federal bills and outlines the strategies states are taking independently under a variety of remote seller collection bills, also known as “Amazon laws,” to increase collection of taxes for online sales.
Marketplace Equity Act and Main Street Fairness Act
Under existing law, retailers are required to collect sales taxes for purchases made in states in which they have a physical presence, or nexus. In Quill vs. North Dakota, the Supreme Court, however, also ruled that sales tax structures across the United States are too complicated to require retailers to collect sales taxes if they have no physical presence and that Congress would need to determine if future systems put in place would be simple enough to compel remote retailers to collect sales taxes.
Toward that end, the bipartisan-backed Marketplace Equity Act (MEA) was introduced in mid-October into the House of Representatives. The bill was in response to the Main Street Fairness Act introduced in July.
The Main Street Fairness Act would give states following the Streamlined Sales Tax (SST) Agreement rules the authority to require retailers, with limited exceptions, to collect sales tax on online purchases, regardless of nexus. The SST effort is an initiative to simplify state sales tax so that there are common definitions for taxable products and uniform procedures across the states. To date, 24 states have passed laws to abide by SST rules. However, the Main Street Fairness Act was introduced in both the Senate and House with only Democratic sponsors.
The MEA, which has the support of the Retail Industry Leaders Association , was introduced with the hopes of gaining support among Republicans. It would not require states to join the SST Agreement or make the system changes required under SST. Rather under MEA, a state would be authorized to require remote sellers to collect tax for sales into that state so long as state law provided the following: