Congress Takes Aim at Online Sellers — Prepare for the Fallout

Three federal bills are being considered that require remote sellers to collect and remit sales tax

Legislation  |  February 2012

Many corporations may face new state sales and use tax compliance challenges, thanks to new federal legislation working its way through Congress.

The most recent federal bill, the Marketplace Fairness Act (S. 1831), joins earlier efforts: the Main Street Fairness Act, the Marketplace Equity Act and proposed House and Senate resolutions.

“Given the current divide in Congress, 2013 is a more likely time frame for a bipartisan solution,” says Daniel Schibley, JD, CCH State Tax News Director, who’s been following the legislation closely.

Unlike previous federal efforts, the current Marketplace Fairness Act would not limit collection authority to the 24 states that are members of the Streamlined Sales and Use Tax (SST) Agreement. This legislation does, however, specify criteria that non-SST states would have to follow in return for collection authority, and includes a small-seller exception.

Because federal legislation is unlikely to be enacted in an election year, states are moving ahead on their own, Schibley says. “Thirteen states now have legislation in place covering online sales and use tax, and it’s pending in 11 more,” he says. “I expect to see more state legislation proposed in the coming year.” Some of the most recent states to introduce legislation are Florida, Indiana, Massachusetts, Michigan and Tennessee.

Companies need to be aware of these developments and decide how they are going to respond, Schibley says. “Some of the state laws are being challenged in court, and California has agreed to delay enforcement for one year, while Amazon pushes for a federal law.”

The result? “Many online sellers are taking a wait-and-see approach because of the court challenges, and states have not seen a lot of additional revenue yet,” Schibley says. 

”But the bottom line is: Within the next few years, it’s likely that all online sellers are going to be required to collect sales tax on online purchases, either through federal legislation or the spread of state laws that follow the Amazon-law model,” Schibley says. “It’s also possible that online sellers will decide it’s not worth fighting all of the new proposals and give in even before mandatory legislation is enacted.”

“It’s important for both online companies and traditional brick-and-mortar companies to follow what is going on and to know whether or not they should be collecting tax,” Schibley says.

Several resources from CCH can help companies stay on top of sales tax developments, including:
• CorpSystem® Sales Tax Office
• CorpSystem Sales Tax Online
• Sales Tax Rates and Taxability Database
• MultiState Sales Tax Guide