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By Che Odom
A federal solution to the problem that remote retailers face when confronted by multiple states demanding sales and use taxes may not come anytime soon.
Bills that might address the controversy are tied up with legislation regarding the taxation of workers who cross state boundaries to access their jobs, a staff adviser to a GOP House member told Bloomberg Tax Nov. 8. One won’t be put forward for a vote unless they all are, he said.
Tax reform, infrastructure, and other legislative priorities of Republican leaders and the White House, as well as the ongoing Russia probe, leave little room for much else, said the staffer, who wished to remain anonymous because he isn’t authorized to speak about ongoing tax negotiations.
“Whenever you link legislation together and have different constituencies involved, that makes getting something through more difficult,” Jamie Yesnowitz, principal and state and local tax practice and National Tax Office leader at Grant Thornton LLP, said Nov. 8 at the American Institute of CPAs Fall Tax Division Meeting in Washington. The mobile workforce bill seems to have the best chance of success, and it’s unrelated to the other bills, he said.
The Mobile Workforce State Income Tax Simplification Act of 2017 (H.R. 1393) may have a chance of getting passed next year, but the odds aren’t great, the staffer said. The proposed federal legislation, which passed the House by voice vote June 20, would prevent states from taking income tax from people who work 30 days or less within their borders. However, the bill faces strong opposition from New York lawmakers, particularly in the Senate. The measure remains in the Senate Finance Committee, along with a Senate companion bill ( S. 540) with identical language that had a June hearing before the Small Business and Entrepreneurship Committee.
Likewise, states, tax practitioners, and sellers shouldn’t expect Congress to take action on the issue of states’ taxing authority over remote retailers, the staff advisor said. “I’d be surprised” if Congress got to that issue, he said.
Several congressional bills have been designed to address the U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota, which precludes states from imposing sales and use tax collection obligations on vendors without a physical presence in-state.
Lawmakers presented in late April the Marketplace Fairness Act of 2017 (S.976) and the Remote Transactions Parity Act of 2017 (H.R. 2193), in the Senate and House respectively, both allowing states to mandate out-of-state sellers and online vendors collect tax on in-state sales. Neither has advanced further, and versions of both have been introduced in prior years.
The No Regulation Without Representation Act of 2017 (NRRA) (H.R. 2887), a competing measure that would codify Quill, is also pending in Congress. A House Judiciary subcommittee heard testimony on the NRRA during a July hearing, but there has been no floor vote.
As more states require businesses to report remote sales in their states, small companies, in particular, are finding compliance difficult, Cathie Stanton, partner and national leader of state and local tax services at Cherry Bekaert LLP, said Nov. 8 during the AICPA meeting.
“This can be very burdensome to comply for small businesses,” particularly those doing sales in multiple states, she said.
In July, Washington state Gov. Jay Inslee (D) signed into law E.H.B. 2163. The statute requires that beginning Jan. 1, 2018, remote sellers, marketplace facilitators such as Amazon.com Inc., and referrers with gross receipts sourced to Washington of at least $10,000 must collect and remit sales or use tax.
The penalty for non-compliance is $20,000 per year, Stanton said. That is huge for a small company that may not even be aware that it is doing business in Washington, she said.
This is an area in which the federal government should take action, Stanton said. “We don’t want to push smaller sellers out of business for just reporting requirements,” she said.
Rather than require remote sellers to collect tax on their marketplace transactions, an increasing number of states have proposed shifting the tax collection burden to Amazon, eBay Inc., Etsy Inc., and other companies providing the online platforms. Minnesota and Washington this year were the first two states to enact laws requiring marketplace providers to collect tax on third-party marketplace transactions.
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