WASHINGTON – Four U.S. senators from states without statewide sales taxes have introduced legislation seeking to restore the physical presence standard for e-commerce retailers to pay state and local sales taxes.
The Stop Taxing Our Potential (STOP) Act of 2018 (S. 1320), which was spearheaded by Sen. Jon Tester, D-Mont., but may not gain a lot of support, seeks to supersede last month’s 5-4 decision by the Supreme Court in South Dakota v. Wayfair that described the longstanding physical presence rule as "unsound and incorrect."
The court affirmed South Dakota’s right to enforce a 2016 law requiring e-commerce retailers to collect sales tax if they have $100,000 in sales or 200 transactions in the state, regardless of whether they have a physical presence in the state.
Tester and his co-sponsors want to prevent businesses in their states from being forced to collect sales taxes.
“Montanans oppose a sales tax and our businesses shouldn’t be forced to collect a sales tax to shore up the finances of other states,” Tester said in a press release announcing his legislation on June 28. “This bill reflects the overwhelming sentiment of Montanans and defends our state’s businesses from getting into the sales tax business.”
The bill is a nonstarter with Senate colleagues in states where e-commerce retailers have had a tax advantage over Main Street bricks-and-mortar businesses that are required to collect sales taxes.
But its message should resonate in all states where small businesses could be adversely impacted if some states enact e-commerce sales tax laws that cover businesses with only a small number of transactions.
“New Hampshire is a small-business state, and most firms operate on very thin margins,” wrote Sen. Jeanne Shaheen, D-N.H., a co-sponsor of Tester’s bill, in an op-ed piece in the Manchester Union Leader last weekend. “Just about every owner knows what it's like to lie awake at night worrying about paying the bills or meeting the next payroll. Needless to say, our entrepreneurs do not have the time or resources to act as tax collectors for other states and localities.”
Shaheen also said in the opinion piece that she has been opposed for years to the bipartisan Marketplace Fairness Act (S. 976). But that bill, whose lead sponsor is Sen. Mike Enzi, R-Wyo., provides an exception for small sellers with under $1 million in sales that might soften the opposition from senators in states with no sales taxes.
The bill also would require states to either join the Streamlined Sales and Use Tax Agreement compact or agree to implement certain sales tax simplification measures. That could ease the burden on businesses in New Hampshire, Montana, Alaska, Delaware and Oregon, which are the five states without statewide sales taxes.
The Marketplace Fairness Act has 27 co-sponsors, while the companion version in the House, the Remote Transactions Parity Act sponsored by Rep. Kristi Noem, R-S.D., has 50 bipartisan co-sponsors.
Enzi is still reviewing the Supreme Court decision "and discussing with his colleagues and stakeholders whether legislation is necessary," spokesman Max D’Onofrio said in an email Tuesday.
Emily Brock, director of the federal liaison center for the Government Finance Officers Association, said the court decision does leave "a few important questions unanswered for some states.”
“For example, small sellers conducting out-of-state commerce would very much like to know exempted thresholds,” Brock said, noting they are “likely also sensitive to streamlining and simplifying processes for audit.”
GFOA and other local government advocacy groups such as the National League of Cities support the Marketplace Fairness Act and its House counterpart.
“I think we certainly see opportunities to work together and with the Streamlined Sales Tax project to urge legislation that would provide fair, efficient and transparent implementation of the decision for all sellers and stakeholders,” Brock said.
The four Supreme Court justices who dissented in the South Dakota v. Wayfair case said the issue should be decided by Congress rather than the court.
“Nothing in today’s decision precludes Congress from continuing to seek a legislative solution,” Chief Justice John Roberts wrote in the June 21 dissenting opinion, joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan.