Congressional Bills Resulting from the Wayfair Decision on Sales Tax
Last year was a significant year for all businesses that sell across state lines online. The June 21, 2018 US Supreme Court decision in South Dakota v Wayfair struck down more than 25 years of precedent, allowing states to collect sales tax on remote sales without the need for physical nexus. The result was a wave of anxiety among small and medium sized businesses that were not yet equipped to collect and process these transactions for each individual state.
Since the Supreme Court’s decision, more than a dozen additional states have passed or moved forward to enact previously passed sales tax legislation that would allow them to collect on remote sales. In response, several new bills were introduced in the United States Senate and House of Representatives to address how and when these taxes could be collected. While none of these bills has passed, they are worth reviewing for indications of what legislation might be considered by the new congress seated this month.
Online Sales Simplicity and Small Business Relief Act of 2018 (SB3275)
An updated version of House Resolution 6824, the Senate’s bill was introduced toward the end of 2018 by the four senators from New Hampshire and Oregon – both Nomad States. The bill would put in place a temporary moratorium on taxation of remote sales for the duration of 2019, preventing any retroactive collection on sales less than $10 million until a new law can be presented and passed by Congress to address interstate nexus thresholds.
The goal of the bill is to give time to businesses that need to adapt to the now wide-open opportunity for the nation’s small businesses, and especially Nomad states that have no sales tax infrastructure to adapt to the new standards.
Protecting Small Business from Burdensome Compliance Cost Act (H.R. 6724)
Originally introduced on September 6, 2018 by Rep. Bob Gibbs (R-OH) and later reintroduced as H.R. 6824 (which was the basis for SB 3275) at the end of the month, this bill offers many similar protections for small businesses that the senate bill does.
It would seek to provide time and a higher $10 million threshold for sales tax collection that would allow congress to evaluate an interstate compact for collecting sales tax. Because remote nexus laws have thresholds ranging from $10,000 to $250,000, different rates and different processes for collecting and filing, the bill’s sponsors see the implementation for small businesses as being particularly burdensome.
No Retroactive Online Taxation Act of 2018 (H.R. 7184)
Subsequent to H.R. 6724 was H.R. 7184, the No Retroactive Taxation Act of 2018. Introduced by Rep. James Sensenbrenner (R-WI), who also introduced the revised H.R. 6824, the bill would ban states from imposing sales tax collection duty on remote sellers for any sales that occurred before the Supreme Court’s decision was issued on June 21, 2018. This would include anyone who, under the old physical nexus rules, did not have physical presence in a state and therefore wasn’t legally required to collect sales tax before the ruling.
What Happens Next
The goal of these bills is threefold. To start, they seek to delay the impact of the new laws being passed by states around the country so that small business can better prepare for them. Second, they seek to make it easier for out of state vendors to remit sales tax, not requiring them to work with dozens of different revenue departments around the country. Finally, they seek to make it clear what is taxable and what the thresholds of taxation are for out of state vendors.
There are a lot of concerns in the small business community about the way remote seller tax laws currently work, if only because states are so vastly different from one another and have such diverse regulations. For small businesses with limited staff that still meet the minimum requirements for collection, it’s an extra burden that many are worried could impact those businesses.
Nonetheless, none of these bills were passed before the end of the 115 Congress, meaning it will be up to a bipartisan coalition in both the House and Senate to bring them back up and pass them in time to have an impact as new laws go into effect around the country in 2019.