New Digital Tax Bill in Wings at Congress: State Official

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,...

By Ryan Prete

How many congressional bills does it take to limit states’ tax authority over online sellers?

A fifth bill on the subject is headed to Congress in this rapidly moving area, which has on edge direct sellers like Amazon.com Inc. and those selling on the e-giant and other marketplace platforms like Etsy Inc.

That’s according to an official from the Multistate Tax Commission, an interstate tax organization that tries to shape state tax activity via model legislation. Thomas Shimkin, legislative counsel and director at the MTC, told Bloomberg Tax July 31 the details and a timeline for introducing the bill are unknown.

“What I can say is that the issues at hand are those that states have been working on diligently, and the MTC affirms its stance that Congressional action is not necessary,” Shimkin said. “These are issues that the MTC believes states can address themselves.”

Meanwhile, at its legislative summit in Los Angeles, the National Conference of State Legislatures approved a July 30 resolution to support federal legislation in this area, as long as the legislation created a framework of standards for states to follow. The MTC has urged the opposite, as have many states, saying states can work on uniformity themselves. eBay, Inc. and Amazon are on the side of congressional action.

Shimkin said the new legislation might focus on the issue of how sales are “sourced” for purposes of calculating state tax bills, but it’s unclear how it may vary from the four other bills pending in Congress that deal in similar issues (and have been pending for several years).

This development is the latest reaction in Washington, D.C., and otherwise to the U.S. Supreme Court’s groundbreaking ruling in South Dakota v. Wayfairwhich tossed out Quill Corp. v. North Dakota, the court’s 1992 physical presence threshold for when states could tax remote sales. States are expected to become even more active in taxing online sales after the June 21 ruling, and

And prominent members of Congress like House Judiciary Committee Chair Robert W. Goodlatte (R-Va.) have urged Congress to intervene despite years of inactivity on the subject matter.

Congress Wading in?

On July 24, the House Judiciary Committee heard a litany of online seller concerns during a hearing on the post-Wayfair world of state sales taxation, but it didn’t result in a clear road map for what’s ahead.

There are currently four bills pending to potentially affect states’ authority over online sellers, many versions of which have been pending without substantial action for years. The bills are:

E-retailer Ebay Inc, has urged Congress to act in this space, something Amazon has done less vocally in the past. Meanwhile, many states are announcing that their South Dakota copycat laws are already in place or will become effective Oct. 1. Retail groups have urged states, and groups like the MTC, to pursue simplicity in their regimes and reasonable implementation timetables. States for years have enacted a variety of regimes to collect online sales tax, though dozens have flocked to the South Dakota model—which imposes a tax collection threshold at 200 transactions or $100,000 in in-state sales.

State Groups Diverging?

State and industry groups like NetChoice Inc. held a roundtable July 26 at the MTC’s annual meeting in Boston, and MTC executive director Greg Matson said that later this week that the commission, the Federation of Tax Administrators, and the Streamlined Sales and Use Tax Governing Board Inc. would have a forward-looking discussion with the National Governors Association and the NCSL.

In the meantime, the NCSL in its July 30 resolution urged Congress to create a framework of standards for states to follow.

“The National Conference of State Legislatures urges Congress to introduce and pass legislation that provides a framework for the taxation of digital goods and services consistent with NCSL principles, in conjunction with or after consideration of the Remote Transactions Parity Act, to establish a national framework providing certainty and uniformity for state and local governments in the taxation of digital goods and services, while protecting consumers from multiple and discriminatory taxation and supporting the continued growth of the digital economy,” the resolution stated.

The NCSL resolution breaks from MTC resolution 2018-01, adopted June 25, which asked for Congress’s restraint as states and other stakeholders work through the implications of Wayfair. The MTC resolution cited Congress’s inability to pass digital taxation legislation in the past.

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