With the growth of electronic sales, states are looking to expand tax obligations to businesses in an effort to capture an estimated $23 billion in uncollected sales tax revenue.
States are struggling to capture lost sales tax revenue, but many have made attempts to change existing rules detailing when sellers need to collect tax. Several pending federal bills and proposals would also address this issue. These legislative developments could have significant impact on business processes for remote sellers, especially those who do not currently collect sales tax in all jurisdictions within the U.S.
Businesses should be aware of these proposals and understand the potential impact each could have on their compliance obligations, as well as what steps to take if any of these proposals moves forward. Here are the four pieces of legislation that, if passed, will have sales tax repercussions for remote sellers:
• No Regulation Without Representation Act and Nexus
This bill would essentially mean businesses without a physical presence would not be required to collect tax. It would also remove affiliate nexus or click-through nexus laws that have broadened the scope of what constitutes nexus.
• Determination and the Marketplace Fairness Act
The MFA maintains the destination principle for determining the location of tax, which dictates the tax rules apply in the place where the item is delivered to the customer. The bill provides liability relief to remote sellers using the certified software and for mistakes made due to misinformation from or errors by the state.
• The Destination Principle and the Remote Transaction Parity Act
The RTPA requires most of the same simplifications as the MFA. It also adheres to the destination principle in determining where tax applies and offers liability relief.
• The Online Sales Tax Simplification Act
The OSSA takes a different approach to taxing remote sales. While the principle of allowing states to tax remote commerce remains the same, this proposal has markedly different rules for determining the tax rate, tax laws and location of the transaction than either the MFA or RTPA.
Though it is not clear which — if any — of these proposals will be enacted, the business impact of the MFA, RTPA or OSSA would be significant. As such, organizations selling across the US and not collecting sales tax currently should review each state in which they sell and consider what they would need to do to comply in each jurisdiction.
To learn more about the business impacts of this pending legislation, download the full white paper Pending Federal Legislation Regarding Sales Tax Compliance for Remote Sellers.