Maryland considers online sales tax
- Mar 15, 2017 | Gail Cole
Maryland’s proposed Main Street Fairness Act of 2017, introduced last month, would require out-of-state vendors who sell or deliver tangible personal property or taxable services to Maryland customers to collect and remit Maryland sales and use tax. This obligation would apply to vendors who, during the preceding four quarterly periods, had cumulative gross receipts greater than $10,000 or made sales or deliveries in at least 200 separate transactions.
This economic nexus legislation mirrors a South Dakota policy that was recently deemed unconstitutional by a state circuit court. South Dakota is defending its law and hopes to be granted the opportunity to argue its case before the Supreme Court of the United States. If that happens, the court could reconsider its decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which holds that a state can only require business with a substantial physical presence in the state to collect and remit sales and use tax (South Dakota happy its law is unconstitutional).
When can a state require an out-of-state business to collect sales tax?
The Comptroller of Maryland already takes the position that “the U.S. Constitution does not require an out-of-state vendor to have a substantial physical presence in the taxing state for the state to require that vendor to collect sales and use tax. All that is required is for the out-of-state vendor to demonstrate more than a ‘slightest presence’ in the taxing state.” However, the physical presence precedent set by the Supreme Court makes it difficult for the state to enforce its position; as the fiscal note to the Main Street Fairness Act of 2017 explains, "It is very difficult for the Comptroller to compel any remote seller to actually collect State sales tax." The proposed economic nexus legislation, if enacted, would give the state more teeth.
It would also likely embroil the state in a legal battle, as it has in South Dakota and other states with similar policies (e.g., Alabama, Oklahoma), and litigation would affect if and when revenue could be collected. Officials in Tennessee, Vermont, and other states that have adopted or are considering economic nexus policies understand and embrace the risk of litigation. Indeed, their laws are intended to challenge the status quo.
Federal solution preferred
Many states, including Maryland, would prefer a federal solution to the ongoing problem of untaxed internet sales. As the Supreme Court justices wrote in Quill, “the underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve.”
Congress has several possible solutions on the table:
- Marketplace Fairness Act (MFA, most recent version introduced in 2015)
- Online Sales Simplification Act (OSSA, discussion draft circulated in 2016)
- Remote Transactions Parity Act (RTPA, introduced in 2015)
- No Regulation Without Representation Act (introduced in 2016)
All these bills are gathering dust in the House. House Minority Whip Steny H. Hoyer says the floor of the House would likely approve remote sales tax legislation if the Judiciary Committee would move a bill forward (that committee is headed by Republican Rep. Bob Goodlatte of Virginia, coauthor of OSSA). House Speaker Paul Ryan is reportedly interested in resolving the issue in 2017, but it has received no attention thus far.