Proposed Federal Laws Re: 2017 Sales Tax Changes
The US Congress is back in session for 2017 and seems very busy at the moment drafting legislation to carry out campaign promises. However, there are four pieces of legislation awaiting consideration that have to do with 2017 sales tax changes.
Read on for a summary of each proposed federal law.
Marketplace Fairness Act (MFA) of 2015
Several legislators closely modeled the MFA 2015 after the MFA 2013. At its core, MFA allows states who meet certain statutory requirements to require remote sellers to collect and remit sales tax on products bought by a customer residing in their state. What this means in practical terms is that the remote sellers will have to collect/remit taxes even though they have no physical presence in the state.
The MFA will not override local and state tax laws regarding products and services, tax holidays, or boundaries. The MFA will not supersede local and state exemptions or other rules.
The MFA permits the change with regard to remote sellers only if the states:
- comply with the Streamlined Sales and Use Tax Agreement; or
- are members of the Streamlined Sales Tax Organization; or
- adopt minimum simplification procedures.
The MFA is not intended to cover all remote sellers or every sales transaction.
The proposed MFA has caused a hot debate on both sides of the question and, even if passed in 2017, the law faces uncertainty in the form of constitutional objections.
Remote Transactions Parity Act of 2015 (RTPA)
This proposed law is similar to MFA inasmuch as it relates to requiring remote sellers to collect and remit taxes to a state when it sells products/services to a customer who lives in that state; however, RTPA exempts catalogue-only sellers from its jurisdiction and includes a broader exemption for small sellers than MPA. In order to come under its aegis of RTPA, remote sellers must sell:
- $10 million in the calendar year preceding the first year that a state may require the remote seller to collect and remit sales taxes under the RTPA;
- $5 million in the second subsequent calendar year the state can require the remote seller to collect and remit sales taxes under RTPA; and
- $1 million for the third subsequent calendar year that the state comes under the RTPA.
RTPA does not make any new taxes, does not affect sales conducted within each state, nor does it have any effect on the Mobile Telecommunications Sourcing Act passed in 2000.
Online Sales Simplification Act (OSSA)
Under the proposed law, sellers would collect state taxes for states where they maintain a physical presence (in other words, sales intrastate). In addition, however, another provision would permit states to require remote sellers to collect and remit state taxes to them if they sell products/services to a consumer who lives in that state. Because the issue of remote sellers collecting/remitting taxes is a hot potato among legislators, this legislation is still in draft form.
The draft says that the ability to require remote sellers to collect/remit taxes depends on three things:
- the state where the remote seller has the most employees the previous calendar year is the origin state;
- the tax applies using the origin state’s tax base that applies to non-remote sales; and
- the state is a member of the state tax clearinghouse.
We note that the state tax clearinghouse is something that the states must create. The clearinghouse would collect state sales taxes and use taxes and distribute them to the appropriate states. The states will also create audit requirements and reports. Participation in the state tax clearinghouse is not mandatory.
The sales rate charge is a single, state-wide rate decided by the customer’s destination state. In practical terms, that means that a remote seller in New York who sells to a customer in California would charge the California single state-wide rate. If the destination state does not participate in the clearinghouse, then the remote seller (in this example) would collect/remit the normal New York sales rate.
The origin state’s tax rules will determine whether a product is taxable or not and which products are exempt.
And One on the Other Side of the Issue: No Taxation Without Representation Act
Last summer in 2016, Congressman Jim Sensenbrenner proposed a fourth piece of legislation which would make it illegal for a state to require a seller to collect/remit taxes if the seller is a remote seller and does not have a physical presence in the state. This legislation codifies the “physical presence” rule from the 1992 U.S. Supreme Court decision, known familiarly as Quill Corp. v. North Dakota.
Stay tuned to see if any of these legislative proposals make it to the President’s desk.
To learn more about this topic, read Avalara’s white paper entitled “2017 Sales Tax Changes.”
To talk more about this, or anything else, please contact us. We look forward to helping you grow your business.