Last year was a winner for online shopping. MasterCard reported that in 2015, between Black Friday and Christmas Eve, online commerce grew by 20%, which is great news for ecommerce shops. By New Year’s Day, most online retailers are thinking about their profits from the holiday, sales tax reporting for the last quarter and last year, and what they can do to improve sales for the upcoming year as customers continue to flock online for holiday shopping.
But while many of those shops were busy with sales, returns and customers, Congress was busy this holiday season too – with new bills that can impact sales tax for both consumers and ecommerce vendors. Let’s take a look at some of the proposals and changes.
Internet Access Tax Freedom Act in Jeopardy
First off, the Internet Access Tax Freedom Act (IATFA), which has been in place since the 1990’s to make sure that online access is available for people of every income, is in jeopardy. Illinois Senator Dick Durbin will only allow Congress to pass the IATFA if they also allow states to tax online sales across the board. Not only will this have an effect on the continued push by states for more sales tax revenues, it will also have implications for Internet users since those taxes can cost a consumer between 2 to 5% on their current bill.
NewsMax writes, "Economist George Ford of the Phoenix Center found that taxing broadband subscribership could reduce the number of Americans with Internet service in their homes or offices by up to 15 million people," effectively reducing the number of online sales as consumers are driven offline.
Naturally, this can have a devastating effect on online retailers and offset the ecommerce boom seen last holiday season.
Remote Transactions Parity Act
The IATFA’s fate is not the only concern for online business owners.
Last year, we explored the implications of the Remote Transactions Parity Act (RTPA), which would compel online retailers to pay taxes in every state that collects sales tax. Sen. Lamar Alexander, R-Tenn., and Rep. Jason Chaffetz, R-Utah are pushing to put forth this proposal, however it is getting pushback from some members of Congress.
Sen. Marco Rubio, R-Fla., is opposed and sent a letter to Congress on Cyber Monday, arguing that this act would hurt small businesses. Considering that Rubio is also a presidential candidate (as of this writing) and that the 2016 elections are only a few months away, putting this bill through will be an uphill battle, however, The Daily Signal reports that Alexander and Chaffetz are confident that it will be passed.
In 2016, we can expect both the RTPA and the Marketplace Fairness Act to remain in play as the debate in Congress rages on.
Protecting Americans from Tax Hikes Act of 2015
In other sales tax news, on December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), designed to help consumers and encourage spending.
One provision allows consumers a deduction for sales and use tax in lieu of state income taxes. This deduction is now a permanent part of the tax code for qualifying taxpayers. MarketWatch reports that consumers "can deduct predetermined sales tax amounts from IRS tables based on where they live," unless they have receipts for a larger amount. Consumers can also deduct sales tax from major purchases, such as vehicles like cars or boats, or home renovations.
Hopefully this will encourage more consumer spending, but the cost of this provision is high and retailers need to watch how the government and states plan on recouping that loss. That said, this bill also has numerous provisions for business taxes so retailers must be sure that their accounting service is aware of the new provisions and which are applicable to their business in order not to overpay their taxes.
With a Presidential and Congressional election only 11 months away, business owners cannot afford to be uninformed about the future of sales tax laws. Even those who shy away from politics should understand where the candidates stand and what that means after the election for the future of sales tax. Online vendors need to be savvy as they plan for 2016 and be aware that new taxes can monopolize their profits as well as jeopardize accurate tax reporting.