What You Need to Know About Online Sales Taxes as “Prime Day” Approaches

July 14, 2015

Last year, the Tax Foundation published a primer on the Marketplace Fairness Act (MFA). In the year since, there have been new MFA-related bills introduced in Congress and more litigation over states’ nexus laws, but the status quo remains unchanged. In light of Prime Day tomorrow, here is an update on MFA.

Designed to allow states to overcome the Quill physical presence rule so states may require all online retailers to collect and remit state sales tax, the MFA and its precursor bills have been discussed in Congress for over ten years in one form or another. The 114th Congress is no different, with two separate bills under consideration to address the collection of sales taxes by remote sellers.

The Marketplace Fairness Act of 2015 was introduced in the Senate in March and referred to the Senate Committee on Finance. This version of MFA is similar to prior versions, in that it authorizes states that are members to the Streamlined Sales and Use Tax Agreement, and who have simplified their sales tax requirements, to require all sellers to collect and remit sales and use taxes from remote sales. The legislation exempts small sellers with less than $1 million in total gross annual remote sales receipts.

The second bill, the Remote Transactions Parity Act (RTPA), was introduced by Rep. Jason Chaffetz (R-UT) last month. The bill has been referred to the House Judiciary Committee’s Subcommittee on Regulatory Reform, Commercial and Antitrust Law. This bill differs from the MFA as it authorizes all states, regardless of whether they have adopted the Streamlined Sales and Use Tax Agreement, to require remote sellers to collect and remit sales and use taxes in states where remote sales occur. Like the MFA, the RTPA requires states to implement simplified sales tax schemes before states can require remote sellers to collect and remit the taxes. Unlike the MFA’s permanent exception, the RTPA provides for a graduated three year phase-in period for sellers based on annual gross receipts: $10 million the first year, $5 million the second year, and $1 million the third year. So far, this bill has attracted bipartisan support, with eighteen Republican cosponsors and fifteen Democratic cosponsors.

Whether one of these bills will succeed where their predecessors failed is yet to be determined. Until that occurs however, the physical presence rule established in Quill will continue to be binding precedent, unless the Supreme Court decides to reconsider and overrule Quill prior to either of these bills becoming law.

See our whole primer here.

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