How the Remote Transactions Parity Act Would Affect Ecommerce Retailers
This June, a new bill has been introduced to Congress called the Remote Transaction Parity Act (RTPA) by Rep. Jason Chaffetz, a Representative out of Utah. If passed, this bill, H.R. 2775, will make it easier for states, cities and districts to collect sales and use tax on remote purchases. Chaffetz claims that this bill will “promote states’ rights,” since it would take effect in every state. Chaffetz has gotten strong support from the National Retail Federation, the world’s largest retail trade association for this bill, which has been brought to the table with bipartisan support. It is similar to the Marketplace Fairness Act (MFA), which was passed by the Senate in 2013 and never acted upon by the House of Representatives.
The RTPA is based on the Streamlined Sales and Use Tax Agreement, which most states currently participate in. According to the Streamlined Sales Tax Governing Board, this agreement is meant to simplify and streamline tax collection and level the playing field between bricks and mortar shops and online vendors. The RTPA is the most recent bill to take steps toward making that agreement a reality.
Why do lawmakers feel the need for such a bill now?
Chaffetz’s team writes:
“The current tax loophole…allows businesses that employ fewer people and contribute to the economies of fewer states to avoid collecting sales taxes. This not only forces more brick-and-mortar stores to close their doors and lay off their employees, but also requires consumers to shoulder the burden and liability of the sales tax themselves.”
That “loophole” he is referring to are existing nexus laws for online retailers who have a presence in that state. In addition, the MFA has sat without action for two years now. The Streamlined Sales and Use Tax was created back in 1999 and supporters are eager to proceed. Add this to the fact that states are trying to get more sales tax revenue in their doors and you can see why the bill has come to the table this year.
What Does This Bill Mean for Ecommerce Retailers?
While it’s not exactly the same as the MFA, it does have some of the same consequences for online retailers, namely:
- Online retailers would have to collect and remit sales tax in every state;
- They would be provided free software to help them do so; and
- Small businesses would be exempt.
Additionally, the National Law Review reports that the RTPA adds protections for certified software providers, making sure “that a state is not authorized to impose a sales and use tax collection requirement on remote sellers until it has certified multiple software providers, and those providers are certified in all other states seeking to impose authorization requirements.” This is to allow software selection for the vendor. States must also makes sure there is a central registration service so sellers only need to register once.
It differs, however, in a few key areas. In addition to the above, the RTPA also provides:
- Stronger audit protection for small businesses. The RTPA will provide small business with more protection from audits. Unless there is evidence of fraud or misrepresentation, the law would exempt businesses earning under $5 million in gross profits from remote states from any auditing procedures.
- Additional small business exceptions. This bill also “would exempt more small businesses from collection requirements in their first year.” Chaffetz further clarifies that the MFA only exempted businesses under $1 million in sales, but the RTPA would exempt small business under $10 million in their first year, $5 million in the second year and $1 million in the third.
Criticism of the RTPA
Shortly after its introduction, the bill raised criticism from its opponents. In the article “Chaffetz Swings and Misses with Internet Sales Tax Bill ,” Andrew Moylan of TheHill.com reports that the bill is a means to empower “states to extend their tax-collection authority beyond their borders.” Bills like the RTPA and MFA would require ecommerce retailers to collect taxes in states where they have no nexus, and therefore no ability to vote or have a say in the creation or increase of sales and use taxes.
Highly critical of the MFA in general, Moylan’s article goes on to lambast the RTPA’s provision of “destination sourcing,” which requires tax calculation at the point of destination. It would require remote retailers to query customers on their residence and “remit the dollars to a tax authority in a state where they may have no presence at all.”
Moylan also downplays the protections for small businesses in the bill and claims it will impose high financial consequences on any electronic marketplace sales, including small-time eBay or Amazon sellers.
Jessica Melugin, also of TheHill.com, agrees, claiming the RTPA gives states “unprecedented power,” and compares it to pulling into a gas station and paying tax based on your home state’s location and tax laws . She also argues for origin-based sales tax sourcing to keep costs low for businesses and recommends a bill that is being drafted now by House Judiciary Committee Chairman Bob Goodlatte (R-Va.).
Ernst Hunter of Bloomberg BNA and State Tax Law Editor adds that the RTPA could hit small businesses very hard with high compliance costs, but that the bill’s provisions, such as the state-supplied software, might help ease those costs.
Another issue is privacy concerns, which often come into play with use tax. Different products are taxed differently. How much information does the state need to know about what products being purchased and how?
The Future of the RTPA
There are no easy answers to market parity. Either things remain as they are, or use tax needs to be enforced with the burden on the buyer to track and pay tax. Unfortunately, use tax is harder to enforce and purchases are more challenging to track, making them more difficult for states to collect.
Will the RTPA pass? Market parity solutions have big money from major retail lobbyists behind it, such as Walmart and Target, as well as bipartisan support but there is still much criticism of the current bill as well. Ecommerce retailers need to keep an on the RTPA to see if it passes as is, is scrapped or if new legislation conquers it as the debate rages on.