Bill would place online sales tax collection restrictions on states

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WASHINGTON – States would not be able to start requiring the collection and remittance of sales taxes from online vendors located out of state until next year under a bill introduced by Republican Reps. Bob Gibbs of Ohio and Joe Wilson of South Carolina.

The Protecting Small Business from Burdensome Compliance Costs Act (H.R. 6724), introduced last Thursday, would also bar states from retroactively collecting sales taxes from out-of-state online vendors that do not have some physical presence in the state.

States that want to collect sales taxes from out-of-state vendors that do not have a physical presence in the state would only be able to do so if they enact legislation mandating certain conditions.

The conditions are that the states: have a statewide uniform tax rate that is not higher than the highest combined rate of all local and state taxes; permit out-of-state vendors to remit sales taxes to one location and; provide a statewide uniform provision for what is taxable.

Governmental and some tax groups are opposed to the legislation.

“It would be better for Congress to stay out of this and let the states work through it,” said Greg Matson, executive director of the Multistate Tax Commission. “MTC is very opposed to federal preemption in state tax matters, which this clearly is.”

“It takes away any authority or autonomy of local governments,” said Emily Brock, executive director of the Government Finance Officers Association’s federal liaison center.

Craig Johnson, executive director of the Streamlined Sales Tax Governing Board Inc., said his group is still reviewing the bill.

The Jan. 1, 2019, start date could be a problem for some states that have said they plan to start requiring the collection of online sales taxes on Oct. 1.

“Most states have coalesced around [starting online sales tax collections] Oct. 1 of this year or Jan. 1 of next year,” said Matson.

“The biggest problem with this bill is that it’s too early,” said Matson. “The states are doing good work and are implementing their states taxes in a way that comports with Wayfair.”

The Supreme Court, in its decision in South Dakota v. Wayfair, Inc. in July, held that states can charge sales tax on residents’ online purchases from out-of-state vendors, even if the vendors don’t have a physical presence in the state.

Prior to the ruling vendors had to have a physical presence in a state for the state to be able to collect sales taxes from online purchases.

The Gibbs-Wilson bill follows a measure that Sen. Jon Tester, D-Mont., and three other Democrats in the Senate from states that have no sales tax introduced in late June that would restore the physical presence standard for states to be able to collect sales taxes from online purchases.

That bill, Stop Taxing Our Potential Act of 2018 (S. 3180), is co-sponsored by Jeanne Shaheen and Maggie Hassan from New Hampshire, and Jeff Merkley from Oregon but has not moved forward since it was referred to the Senate Finance Committee.

Matson, like others, said it’s unlikely Congress will take up the Gibbs-Wilson bill this year, especially because it’s an election year and members will be out campaigning.

That bill has been referred to the House Judiciary Committee.

“In my view it would be very difficult for it to get done,” said Matson.

Neither Gibbs nor Wilson is on the House Judiciary or Ways and Means committees.

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State and local finance Government finance Online sales tax E-Commerce Finance, investment and tax-related legislation GFOA Washington DC South Dakota