The MFA Domino Effect
- Sales and Use Tax
- December 22, 2015 | Gail Cole
The year 2015 came and went without federal action on remote sales tax. In spite of the fact that three new pieces of remote sales tax legislation were passed around the hill, the topic was notably absent from lawmakers’ action items. And yet, it is an issue that’s impossible to ignore given action at the state level.
Talk, talk, talk — 3 bills
MFA. No one bothered to make a 2014 version of the Marketplace Fairness Act (MFA) of 2013, which was approved by the Senate in May 2013 and then left to gather dust in the House. A 2015 version was introduced in early March. The bill, S. 698, was read twice and then referred to the Senate Committee on Finance. Which is where it may well still be; it isn’t anywhere else.
OSSA. MFA 2015 joined the Online Sales Simplification Act (OSSA), the brain child of House Judiciary Chairman Bob Goodlatte (R-VA) and Rep. Anna Eshoo (D-CA). Although OSSA was never formerly introduced in the House, a draft version was passed around the Capitol in January 2015. It differs significantly from MFA in that it would source sales to the origin state rather than the destination state — businesses would collect and remit their home state’s sales tax for sales to customers in other states.
RTPA. In June, Congressman Jason Chaffetz (R-UT) introduced a fresh version of the legislation. His Remote Transactions Parity Act was billed as the solution that would level the playing field between remote and Main Street sellers “in a way that is generous to small remote sellers” and would not completely revamp the existing state and local sales and use tax system. It is substantially similar to MFA but provides a more generous exception for small remote sellers and a catalog exception. Marketplace sellers would not be eligible for the small-seller exception.
Read more about the 3 remote sales tax bills that went nowhere in 2015.
Exploiting the gray area
Into this vacuum come the states.
Rep. Goodlatte firmly opposes regulation without representation. He has said that “states are increasingly exploiting the gray area in the law to tax and regulate beyond their borders.” Many in Washington share that view, including former House Speaker John Boehner.
And many do not. In that same hearing, ranking House member John Conyers, who has served in Congress since 1965, spoke of the need to establish “a national framework that will empower the states to enforce collection by remote sellers.”
It is easy to see how a stalemate has occurred.
Bump. Bump. And bump.
One by one, states are enacting legislation enabling them to capture some tax revenue from out-of-state sales. In 2015 alone, the following states instituted click-through or affiliate nexus legislation requiring certain remote sellers to collect and remit sales tax:
It’s akin to a line of falling dominoes: every time one state adopts remote sales tax legislation, another considers it.
What’s slated for 2016?
So what can you expect in 2016? Most likely more debate among federal lawmakers, more bold moves from states, and maybe a little legal action as well:
Federal. The House has a new Speaker in the House, Paul Ryan (R) of Wisconsin. Mr. Ryan was quoted in 2013 as saying the “concept” of remote seller legislation was “right” but later clarified that he did not support MFA 2013. His current position on remote sales tax is unknown.
States. Momentum for Internet sales tax is growing in Oklahoma and Utah. Connecticut is stretching the definition of economic nexus in order to collect as much remote sales tax revenue as possible. Amazon will start collecting South Carolina sales tax on January 1, 2016.
Alabama has thrown down the gauntlet and publicly challenged Amazon to sue the state over its new requirement for remote sellers. Since federal lawmakers are unable or unwilling to act on the matter, Governor Bentley would like to see it brought before the United States Supreme Court.
Legal. There may be support in the High Court for reconsidering two Supreme Court decisions that have underpinned the need for businesses to have a substantial presence in a state in order to be taxed by that state. In a 2015 concurring opinion regarding the Colorado use tax notification requirement, Justice Kennedy wrote:
“Because of Quill and Bellas Hess, States have been unable to collect many of the taxes due on
[e-commerce] purchases. Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill. A case questionable even when decided, Quill now harms States to a degree far greater than could have been anticipated earlier… It should be left in place only if a powerful showing can be made that its rationale is still correct.”
Proponents of remote sales tax may find the Justice’s opinion encouraging, but in truth, any legal challenge Quill would take years to unfold. Tackling remote sales tax in the courts would not be the fast track to a solution.
So the game continues. Lawmakers at both the state and federal level will continue to work for and against remote sales tax legislation. Unless and until the issue is settled in Washington D.C., more states are likely to implement affiliate or click-through nexus policies. One by one, states are passing remote sales tax legislation of their own. Each time this happens, the atmosphere in another state is affected. Bump. And bump. And bump. So what happens when the dominoes all fall?
In this environment, businesses need to be vigilant. The first step is to understand how MFA — or the lack of it — impacts you. Back in the Hopper: The Marketplace Fairness Act provides key background on pending legislation and advocates getting ahead of changing laws. Automate compliance now to avoid missteps in the future.