Backers of Federal Digital Tax Provision Come Up Empty-Handed

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

Ryan Prete Washington Reporter Ryan C. Tuck Washington

By Ryan Prete and Kaustuv Basu

It appears a digital sales tax provision will be absent from an omnibus spending bill despite a push from lawmakers to enact legislation before a pivotal U.S. online tax ruling can be handed down in June.

Rep. Kristi Noem (R-S.D.)—the apparent ringleader behind the push for the provision—previously told Bloomberg Tax that federal digital sales tax legislation needed be passed before the U.S. Supreme Court could reach a ruling in South Dakota v. Wayfair—a case that directly challenges the 1992 ruling in Quill Corp. v. North Dakota that prohibits states from imposing sales tax collection obligations on vendors lacking an in-state physical presence. Oral arguments in the case are scheduled for April 17.

Noem is the sponsor of the Remote Transactions Parity Act of 2017 (H.R. 2193) (RTPA)—which seeks to undo Quill.

Noem told Bloomberg Tax that she continues to have discussions on how to move the idea of digital sales tax legislation forward. Noem said “we’re taking steps,” but didn’t elaborate, and said she remains concerned about what would happen if the Supreme Court was to reach a decision later this year before federal legislation could be passed.

‘Nail in the Coffin’

Max Behlke, director of budget and tax at the National Conference of State Legislatures, told Bloomberg Tax the failure to include a digital sales tax provision in the spending bill is a “nail in the coffin” for Congressional efforts to pass an online tax bill before the high court can rule in the Wayfair case.

“With midterm elections coming up, the omnibus bill is really the last piece of major legislation we will see this year,” Behlke said. “I don’t see any digital tax legislation coming out of the 114th Congress.”

A March 19 motion filed by the U.S. Solicitor General that requests that the United States participate in oral arguments for South Dakota v. Wayfair shows that the administration is focused on the high court addressing the issue of digital taxation, not Congress, Behlke said.

“Congress continually discusses issues that should be resolved, but never acts to resolve them,” Behlke said.

Republican lawmakers have lead the push for federal legislation concerning online taxation, so if the House of Representatives is overtaken by Democrats in November, Congress might not propose another digital tax bill until 2021 when the 117th Congress succeeds, or thereafter, according to Behlke.

Richard D. Pomp, the Alva P. Loiselle Professor of Law at the University of Connecticut School of Law, told Bloomberg Tax that he always thought it was a long shot that Congress would move on a digital sales tax bill. Without a digital tax provision in the omnibus bill, the long shot “simply has gotten even longer now,” Pomp said.

Lame-Duck Period

However, not all state and local tax professionals believe time has run out for a federal digital sales tax bill.

Jamie Yesnowitz, a principal and state and local tax practice and national tax office leader at Grant Thornton LLP in Washington, told Bloomberg Tax that while he doesn’t expect Congress to pass a digital sales tax bill before the Wayfair decision in June, he does “think there is a real possibility that Congress will be inspired to act at some point soon after Wayfair, depending on how the Court holds.”

Yesnowitz said a “potential window in the lame-duck period between the midterms and the new Congress” could potentially allow for movement on a digital sales tax bill.

Still, congressional digital sales tax measures have been stagnant.

Alongside the RTPA is the the Marketplace Fairness Act of 2017 (S.976) (MFA), sponsored by Mike Enzi (R-Wyo.). The bill also seeks to kill Quill, and like the RTPA, has seen no movement.

On the opposite end of the spectrum is the No Regulation Without Representation Act of 2017 (H.R. 2887) (NRRA), sponsored by Rep. Jim Sensenbrenner (R-Wis.)—which would, in part, codify Quill’s physical-presence standard. The bill received a House Judiciary subcommittee hearing in July 2017, but hasn’t moved since then.

The leadership of the House Judiciary Committee is also a frequent topic of discussion surrounding digital sales tax legislation. The committee is currently chaired by Rep. Bob Goodlatte (R-Va.), a lawmaker often considered by members in the state and local tax community as the biggest hurdle to e-commerce reform. However, Goodlatte announced he will retire in November.

Behlke said that Rep. Doug Collins (R-Ga.) plans to run for House Judiciary Chair after Goodlatte. Behlke said he believes that Collins would be amenable to having additional hearings on digital tax proposals.

To contact the reporters on this story: Ryan Prete in Washington at and Kaustuv Basu in Washington at

To contact the editor responsible for this story: Ryan C. Tuck at

Copyright © 2018 Tax Management Inc. All Rights Reserved.

Request Daily Tax Report: State