If you sell goods and services online, every click may cost substantially more should Rep. Jason Chaffetz of Utah and Rep. Steve Womack of Arkansas get their way with a newly proposed bill, the Remote Transaction Parity Act H.R. 2775.
Bill supporters claim new sales tax regulation will level the playing field between online retailers and physical storefronts, while #RPTA #efairness bill opponents suggest a logistical and compliance nightmare – a burden that many online business owners cannot bear.
Online Sales Tax Battle
For established online retailers this isn’t necessarily surprising or new news. The collection of sales and use tax has been a matter of lengthy debate for quite some time.
“If you are selling goods or products online, you need to be aware of Internet sales tax rules. The issue of whether to require online retailers to collect sales tax in states where they have no physical presence has been a matter of significant debate in many states and at the federal level” (Nolo).
Did you know? Currently, “consumers who live in a state that collects sales tax are technically required to pay the tax to the state even when an Internet retailer doesn’t collect it. When consumers are required to pay tax directly to the state, it is referred to as “use” tax rather than sales tax.” It’s a law that is rarely enforced.
If the bill is passed, businesses with a physical storefront will get the leveled playing field they desire and online businesses will take a hit. Inevitably, small businesses will feel the blow, given many lack the resources and capital to comply with new regulations.
Is the proposed bill a sucker punch to small business or a much needed wake-up call? Either way—suit up. I’ll let you decide.
Here’s a brief rundown of where we’ve been and what you need to know.
Just the Facts
In 1992 (Quill v. North Dakota) the U.S. Supreme Court ruled that online retailers were not required to collect tax from customers unless they had a significant physical presence in the state.
The Marketplace Fairness Act was introduced in 2013 to enable state governments to collect sales taxes and use taxes from remote retailers with no physical presence in their state; shifting compliance and responsibility for sales tax payment from consumers to retailers. The bill was essentially dead on arrival.
On Monday, June 15, 2015, the House put forth a gussied up version of the Marketplace Fairness Act, (i.e., same prerogative, different name) a bill that seeks to add a new tax to online purchases and essentially overturn the 1992 Supreme Court ruling.
The new act, entitled the Remote Transaction Parity Act, aims to require online retailers to collect tax from buyers located in remote states.
A remote state is defined by “businesses that sell their products to customers in a state, using the Internet, mail order, or telephone, without having a physical presence in that state” (SSTBG).
Currently, “45 states collect statewide sales taxes” and “sales taxes rates differ by states, but sales tax bases also impact how much revenue is collected from a tax and how the tax effects the economy” (Tax Foundation).
Supporters: Remote Transaction Parity Act
Supporters of the proposed bill are adamant in their stance that the variance in sales tax rates cause consumers to shop across borders or buy products online. States and brick-and-mortar businesses are rallying to keep shoppers close to home. Support of the bill includes, but is not limited to, several assertions:
In-state local businesses operating a physical retail presence have a serious competitive disadvantage that is not sustainable.
State and local governments, which rely heavily on sales taxes, have lost enormous amounts of revenue as e-commerce continues to gain traction.
States feel like too much money is being left on the table. The National Conference of State Legislatures estimates lost revenue at $23 billion annually.
The passing of the bill would even the field for online sellers and struggling brick-and-mortar stores.
Opponents: Remote Transaction Parity Act
Entrepreneurs and small business owners have expressed their opposition to the proposed bill and are equally adamant in assertions that the bill does more harm than good to the e-commerce industry and small business ecosystem. Opponents express the following concerns:
The bill is highly one-sided, since small online businesses will be held to a new and higher tax standard, one that is relatively out of proportion to brick and mortar stores that are responsible for only one tax jurisdiction.
Individuals who shop online are already required to tally up what they owe at the end of every year, and remit that amount to the state along with their tax returns, even though it is not enforced.
Federal and state governments would put an undue burden on small businesses to cut quarterly checks to 45 states that currently charge sales tax.
It would be a logistical nightmare to update accounting software, hire a programmer to update shopping cart software and file a steady stream of paperwork. Many online shops won’t be able to bear the cost of compliance.
Compliance with 45 state specific sales tax laws would require a swath of accountants to ensure compliance every accounting period.
Not to mention, technology moves very fast and there’s a lot of confusion on how you tax it. Do streaming downloads count? Not for every state.
The U.S. e-commerce industry is a burgeoning space. “Web sales totaled $304.91 billion in 2014, up 15.4% from 2013, according to Commerce Department” (Internet Retailer). As online business flourishes, the industry is projected to grow to 434.2 billion U.S. dollars by 2017.
The question is: Is it really the government’s job to ensure a “level” playing field?
Should online businesses be forced to collect taxes from buyers across 45 states?
For more information on the current sales tax landscape, across fifty states, Nolo’s Internet Sales Tax: A 50-State Guide to State Laws is a helpful, albeit exhaustive, resource.
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