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Federal lawmakers are signaling they may soon circle back to a potential national solution that sets forth states’ right to collect sales taxes from remote retailers.
“The time has come to put this long-standing, overdue issue to rest and pass legislation that allows states to collect revenue already owed but currently uncollectable,” Nevada Gov. Brian Sandoval (R) said Jan. 25 during the National Governors Association’s State of the States event.
NGA Vice Chair Sandoval was joined by Virginia Gov. Terry McAuliffe (D), the NGA chair, who echoed the invitation for Congress to address the decades-old restraints on states’ ability to capture revenue lost to remote sales. The genesis of the issue is the 25-year-old U.S. Supreme Court rule from Quill Corp. v. North Dakota,504 U.S. 298 (1992), which prohibits states from imposing sales and use tax collection obligations on sellers without an in-state physical presence.
Sandoval told reporters after the event that the issue came up during meetings that he and McAuliffe attended with House Speaker Paul D. Ryan (R-Wis.) and House Minority Leader Nancy Pelosi (D-Calif.) this week.
“All I’m told is that it’s something that will be taken up this spring,” he said. “And it’s something that I’ll be supportive of.”
During the NGA event, Sandoval characterized the matter of remote sales taxation as a “common-sense tax issue with broad bipartisan support that has been on the congressional docket for decades.”
Several competing frameworks defining states’ authority to tax out-of-state sellers have surfaced on the Hill over the years:
“The Marketplace Fairness Act is another opportunity for federal decision makers to help states balance their budgets and to invest in key economic infrastructure, all the while leveling the playing field for our brick and mortar retailers,” McAuliffe said. He identified Sears and Macy’s as cautionary tales of the impact from remote sales, noting that both companies “are closing stores because it is very hard for them to compete with the online retailers.”
Speaking with reporters after the event, Sandoval also expressed concern for Nevada’s local businesses and generating equity. According to data from Bloomberg BNA, Nevada imposes a statewide sales and use tax at a rate of 6.85 percent, with local taxes ranging from 0 percent to 1.3 percent.
“Nevada has an 8 percent sales tax,” Sandoval told the reporters. “So that’s a big difference. When somebody goes online and buys a similar product, I want to make sure that it’s competitive for Nevada businesses.”
Nevada entered into an agreement with Amazon to collect and remit sales tax, which Sandoval said has brought in about $25 million a year to Nevada’s budget.
Governors are also calling for federal officials to keep the federal deduction for state and local taxes—which has been targeted for potential elimination in the broad federal tax overhaul discussions. Sandoval said during the event that scrapping the federal deduction for state and local income and sales taxes “would preempt states’ authority over budget and tax systems.”
However, it may not be a guarantee that the deduction will fall by the wayside.
“I think it very highly unlikely that they would do anything about that in the upcoming tax reform package,” McAuliffe said. “I just find that highly unlikely. Between the mayors and the governors involved, I don’t see that happening.”
McAuliffe noted that the deduction can be part of a state’s “economic arsenal,” as an incentive to attract businesses and families into the state.
Noting that there are other tax overhaul opportunities to “turbo charge the economy,” McAuliffe also warned that if the federal tax exclusion of municipal bond interest goes on the chopping block, it could cripple the market.
This followed Sandoval’s earlier comments, which called on federal officials to protect public financing.
“It is important to preserve public financing mechanisms, specifically tax-exempt financing, which play a central role for state and local governments to raise capital for a variety of public projects, including infrastructure,” Sandoval said. “Those projects help pave the way to grow jobs, strengthen the economy and maintain the United States’ position as a global competitor.”
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