Sales Tax Slice: MFA Lacks Enforcement Mechanism Against Non-Complying States

Under the current version of the proposed federal Market Place Fairness Act, before a state is granted the authority to require remote sellers to collect and remit sales and use taxes on sales into their state, it must comply with the federal minimum simplification requirements specified in the bill. This can be achieved by becoming a full member of the Streamlined Sales Tax initiative or by adopting the MFA’s minimum simplification requirements.

But what happens when a taxpayer wants to dispute a state’s claim that it  complies with the FMA’s minimum federal simplification  requirements? The answer would likely depend on whether or not the state is a Streamlined Sales Tax (SST) member.

 A state that is an SST full member must be in compliance with the Streamlined Sales and Use Tax Agreement (SSUTA) to maintain its SST certificate.. The MFA’s federal minimum simplification requirements can be  met through the streamlined state’s conformance with the SSUTA. Further, the state’s compliance is re-certified annually by the SST governing board.

 But a similar type of enforcement mechanism is lacking for non-SST states that opt to simplify their tax codes by adopting the minimum simplification requirements set forth in the MFA.  Does this mean a taxpayer who is challenging a state’s implementation of a federal minimum simplification requirement (fmsr) is without a forum—other than the non-SST state itself-- to make the challenge?

 At the ABA Tax Section conference in San Francisco on Sept. 20, KMPG’s Harley Duncan andother prominent state tax experts on a panel about the MFA noted several instances in which a taxpayer in a non-SST state would lack a clear authority or mechanism for challenging a jurisdiction’s alleged compliance with an fmsr.   

For example, the MFA would require conforming states to adopt a uniform tax base among state and local taxing jurisdictions. For an SST state to meet this requirement it must conform to Section 302 of the Streamlined Sales and Use Tax Agreement. But in a non-SST state a taxpayer would be without a uniform agreement to point to when challenging a state’s implementation of this requirement.

While the prospects for the MFA’s enactment remain unclear, seems certain that the act shouldinclude a mechanism for determining if a state truly conforms to its simplification requirements. Without one, the process for resolving inevitable disputes will be anything but simple.

By Ean Hamilton

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