Congress Considers Internet Sales Tax Bill

Internet Sales Tax Draft Bill, the “Main Street Fairness Act”

by Joseph M. Wallin                                                                                        

If you are interested in knowing what Congress is up to with respect to allowing states to require out-of-state internet retailers to collect and remit sales tax, the latest bill making the rounds, the “Main Street Fairness Act” (the “Act”), is attached. You can find a summary of the bill here.

The highlights of the proposed Act are:

• Once ten states, comprising at least 20% of the total population of all states imposing a sales tax, have become Member States under the Streamlined Sales and Use Tax Agreement (the “SSUTA”), the states that implement the SSUTA are authorized to require remote sellers to collect and remit sales and use taxes (with or without physical presence or the Quill standard having been met). A state’s authorization terminates if the state falls out of compliance with the SSUTA, or the SSUTA as amended no longer meets the minimum simplification requirements in the Act.
• The minimum simplification requirements include, among other things: a centralized, one-stop, multistate registration system that a seller may elect to use to register with the Member States.
• Nothing in the Act is to be construed as subjecting sellers to franchise taxes, income taxes, or licensing requirements of a state or political subdivision of a state.
• No obligation imposed by the authority granted under the Act is to be considered in determining whether a seller has nexus with any state for any other tax purpose.

It is unclear how much traction this bill may garner. Prior attempts to change the federal law to allow states to collect and remit sales tax from out-of-state retailers with no physical presence in a state have failed. However, with state and local governments under threat of significant budget deficiencies, and a Congress apparently unwilling to fund more without offsetting tax increases or other budget cuts, a bill like this may become law.

What would this mean for startup Internet retailers with no physical presence except in their home state? At least with respect to Member States they would be required to collect and remit sales tax in those states even if they had no physical presence there. As you will see from reading the bill, its provisions are complex and more difficult to understand than the simple physical presence rule from Quill. Would this be unfortunate for startups? I believe so. More complexity makes life more difficult for startup companies, and businesses in general.

The Hill’s On the Money Blog is carrying continuing coverage of the politics around this bill.

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