Remote sellers and consumers should expect action on the newest federal online sales tax bill “definitely” before 2019, according to the lawmaker behind it.
Rep. Jim Sensenbrenner (R-Wis.) told Bloomberg Tax Sept. 20 that he is “very confident” that the Online Sales Simplicity and Small Business Relief Act of 2018 (H.R. 6814) will be considered in the House before the end of the year. If he’s right, it would be the first time such a bill would receive consideration in either chamber since 2013.
“I think there will be a markup that will then send the bill to the House floor, but this will of course be up to Chairman Goodlatte,” Sensenbrenner said.
He said that questions about the timeline for a markup and floor vote would have to be forwarded to Rep. Robert W. Goodlatte (R-Va.), who chairs the House Judiciary Committee. Goodlatte’s office didn’t immediately respond to a request for comment.
Goodlatte is often considered the main roadblock behind the lack of consideration for the multiple online sales tax bills, but he will retire at the close of 115th Congress in January.
Sensenbrenner’s bill, introduced Sept. 13, is the latest federal response to the U.S. Supreme Court’s June 21 South Dakota v. Wayfair ruling—which tossed out Quill Corp. v. North Dakota, the Supreme Court’s 1992 physical presence threshold for when states could tax remote sales. The majority in the 5-4 ruling suggested strongly that South Dakota’s law would pass constitutional muster; the law includes economic nexus thresholds of $100,000 or 200 transactions a year.
Sensenbrenner’s bill would:
- ban states from retroactively imposing sales tax collection duties on remote online sellers;
- require all states to push back economic nexus implementation dates to Jan. 1, 2019; and
- establish a small-seller exemption, meaning a remote seller with gross annual receipts below $10 million in the U.S. isn’t required to collect and remit sales tax.
“This is a transition bill—it clarifies the items that were not specifically addressed by the Wayfair decision,” Sensenbrenner said.
Sales Tax Refunds?
Sensenbrenner said that if his bill is enacted, states that began collecting sales tax before Jan. 1, 2019, would have to refund the sales tax to the seller, who would then have to refund the tax to the purchaser or face potential legal battles.
“Every state that has a sales tax also requires the sellers to get sales tax collection permits, so the refund would not be very difficult,” he said. “The state doesn’t know who the purchasers were. An ethical seller would refund the sales tax to the purchaser, and if he didn’t refund it to the purchaser, then I think he would be subject to a lawsuit , probably in small claims court to force the refund to the purchaser.”
Sensenbrenner said the refund would be similar to, and as easy as, a credit card statement refund.
Of the 26 states that have enacted an economic nexus model, 19 currently have set implementation dates before Jan. 1, 2019. A complete list of states’ implementation dates is compiled below.
What About Use Tax?
Steve DelBianco, president and CEO of NetChoice, an e-commerce trade organization, defended Sensenbrenner’s bill, arguing that in the event the bill became law, any sales tax retained by a state before Jan. 1, 2019, could be retained to satisfy use taxes owed.
Use tax is a sales tax on purchases made outside one’s state of residence for taxable items that will be used, stored, or consumed in one’s state of residence and on which no tax was collected in the state of purchase, according to investopedia.
“Use taxes are the flip side of the coin, it’s the same tax, if you don’t owe sales tax you still owe use tax,” DelBianco told Bloomberg Tax. “The real intention of Sensenbrenner’s bill is to relieve businesses of far-too-soon state implementation dates. It’s a small thing to ask for states to wait until January.”
State Group Reaffirms Opposition
Jake Lestock, a policy specialist at the National Conference of State Legislatures (NCSL), said the organization and states are both concerned over unanswered questions present in Sensenbrenner’s bill.
“It would be great to assume a seller would refund a purchaser in the event the bill passes, but there is no language in the bill requiring this,” he told Bloomberg Tax. “I’ve talked with many attorneys about this legislation, and they all say it presents the case for a bunch of future lawsuits.”
“The faults in this bill show that it isn’t ready for the light of day yet, and the NCSL will continue to oppose this legislation,” he said.
The NCSL in a letter urged Congress not to advance federal proposals that seek to limit and delay the implementation of state economic nexus laws.
“As the states continue to ensure that remote sales tax implementation is done properly, we strongly urge you to respect these states’ efforts and not let legislation advance that would seek to hinder or halt implementation of the Wayfair decision by imposing federal requirements on remote sales tax collection,” the Sept. 18 lettersaid.
So why is Congress picking up speed in the online sales tax world now, after the high court already ruled on the issue?
Sensenbrenner said it is namely because of something the high court didn’t directly address: retroactivity.
“The Supreme Court decision did not talk about retroactivity, and there are some states that want to apply this retroactively, and for small sellers, this could subject them to audits in all 50 states,” Sensenbrenner said.
His bill would bar a state from imposing a sales tax collection duty on a seller before June 21, the date the Wayfair decision was issued.
Justice Anthony Kennedy only suggested in Wayfair that a state’s law was more likely to pass constitutional muster if the state didn’t push for retroactive taxes.
Pushing the Limits
Currently, no state has formally pursued retroactive back taxes, but Massachusetts and Rhode Island have danced around retroactive pursuits.
The Massachusetts “cookie nexus” regulation that was promulgated on Sept. 22, 2017, and applies to vendors making internet sales in Massachusetts was prospective as of its effective date, Oct. 1, 2017.
The state didn’t impose collection obligations before the law’s effective date, and the state therefore emphasized to Bloomberg Tax that it isn’t applying its law retroactively, though a retail group suing over the law in Virginia court has made those allegations.
Prompted by inquiries from taxpayers, the Massachusetts Department of Revenue issued a technical information release (TIR) this week, which stated that the standards for sales and use tax collection by remote sellers that were announced in the 2017 regulation continue to apply and aren’t affected by the Wayfair decision.
Rhode Island’s law requiring out-of-state vendors to either collect and remit or notify buyers took effect Aug. 17, 2017—well before the June 21 Wayfair decision. But it is an elective regime, requiring affected retailers either to (1) register and collect and remit or (2) comply with notice requirements. The state has therefore emphasized to Bloomberg Tax that its law isn’t imposing retroactive tax liability.
At one point Hawaii said it would go retroactive, but then changed its stance.
Other Online Sales Tax Bills
Sensenbrenner was also the lawmaker behind the No Regulation Without Representation Act of 2017 (H.R. 2887) (NRRA), which sought to codify Quill’s physical-presence standard. Sensenbrenner said the NRRA isn’t technically considered “dead” until the 115th Congress formally ends on Jan. 3, 2019.
The NRRA received a House Judiciary subcommittee hearing in July 2017.
Other active federal bills include:
- the Protecting Businesses from Burdensome Compliance Cost Act (H.R. 6724), which includes measures its sponsor said are designed to “ease the burden for out-of-state vendors” working to comply with sales and use taxes in other states;
- the Stop Taxing Our Potential (STOP) Act (S. 3180), which says a state may not impose an obligation on a seller to collect and remit sales tax unless a physical presence is established by a person’s business activities;
- the Marketplace Fairness Act of 2017 (S. 976) (MFA), which would allow states to require out-of-state sellers and online vendors to collect tax on in-state sales. The MFA overwhelmingly passed the Senate in 2013, but hasn’t seen action since; and
- the Remote Transactions Parity Act of 2017 (H.R. 2193) (RTPA), which would allow states to require out-of-state sellers and online vendors to collect tax on in-state sales.
None of the bills have advanced in the 115th Congress.
The implementation dates and nexus thresholds of 26 states that have enacted economic nexus statutes are below:
- Alabama (Oct. 1, 2018), $250,000 in in-state sales;
- Connecticut (Dec. 1, 2018), 200 transactions and $250,000 in in-state sales;
- Georgia (Jan. 1, 2019), 200 transactions and $250,000 in in-state sales;
- Hawaii (July 1, 2018), 200 transactions or $100,000 in in-state sales;
- Illinois (Oct. 1, 2018), 200 transactions or $100,000 in in-state sales;
- Indiana (Oct. 1, 2018), 200 transactions or $100,000 in in-state sales;
- Iowa (Jan. 1, 2019), 200 transactions or $100,000 in in-state sales;
- Kentucky (Oct. 1, 2018), 200 transactions or $100,000 in in-state sales;
- Louisiana (Jan. 1, 2019), 200 transactions or $100,000 in in-state sales;
- Maine (Implementation date not yet announced), 200 transactions or $100,000 in in-state sales;
- Massachusetts (Oct. 1, 2017), 100 transactions and $500,000 in in-state sales;
- Michigan (Oct. 1, 2018) 200 transactions or $100,000 in in-state sales;
- Minnesota (Oct. 1, 2018), 100 transactions or $100,000 in in-state sales in at least 10 transactions;
- Mississippi (Dec. 1, 2017), $250,000 in in-state sales;
- North Dakota (Oct. 1, 2018, or 60 days after a remote retailers meets the state’s threshold—whichever is later), 200 transactions or $100,000 in in-state sales;
- Ohio (June 30, 2017), $500,000 in in-state sales;
- Oklahoma (July 1, 2018), $10,000 in in-state sales;
- Pennsylvania (April 1, 2018), $10,000 in in-state sales;
- Rhode Island (Aug. 17, 2017), 200 transactions or $100,000 in in-state sales;
- South Carolina (Nov. 1, 2018), $100,000 in in-state sales;
- South Dakota (Nov. 1, 2018), 200 transactions or $100,000 in in-state sales;
- Tennessee (currently on hold due to litigation), $500,000 in in-state sales;
- Utah (Jan. 1, 2019), 200 transactions or $100,000 in in-state sales;
- Vermont (July 1, 2018), 200 transactions or $100,000 in in-state sales;
- Washington (Oct. 1, 2018), 200 transactions or $100,000 in in-state sales;
- Wyoming (Oct. 1, 2018), 200 transactions or $100,000 in in-state sales.