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Updated: New State Online Sales Tax Bill Introduced in Congress

2 min readBy: Joseph Bishop-Henchman

Download RILA Bill Talking PointsDownload Womack-Speier Online Sales Tax Bill

Yesterday we reported on what might be in a new online sales tax bill being introduced into Congress. The actual version was introduced yesterday and is different from that version. Read the full version (PDF) of the bill; here is a talking points sheet being distributed by supporters. The bill is reportedly called the Marketplace Equity Act but the version I obtained yesterday has that blank.

Key points of the bill:

  • A state must first implement a simplified system of sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. administration, as defined by meeting four requirements:
    • Remote sellers are exempt if they have less than $1 million in U.S. sales or $100,000 in sales in the state.
    • One state return to be used by remote sellers, which cannot be required to filed more frequently than required for other sellers.
    • Uniform statewide tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. (list of things subject to taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. ).
    • The state can require remote sellers to pay one of three tax rates: (1) a single rate blending the state rate and the average local rate (for an idea of these, see our recent local sales tax report), (2) the maximum state rate exclusive of local rates, or (3) the tax rate of the customer’s location although the state must “make available adequate software that substantially eases the burden of collecting at multiple rates,” although this is not further defined. This is the most concerning part of the bill: states are likely to prefer (3) and then skimp on easing compliance burdens.
  • If a state wishes to impose a lower rate on food or drugs/medicine, it can require collection of additional tax rates for these items.
  • The state may begin collecting six months after publishing a notice listing the requirement, the criteria under which collection is required, the effective date, the rate or rates, and where sellers can obtain the tax filing return.
  • Unlike the previous version, the bill does not restrict states from making other assertions of expanded state taxing authority over sales tax collection.
  • Unlike the previous version, there is no mechanism for litigating against a state out of compliance with the law. The previous version specified that such cases would be heard by the Court of Federal Claims.

Again, we’ll keep readers in touch as this issue develops.