Sales Tax Slice: Does Congress Have Time to Consider Alternatives to the Marketplace Fairness Act?

The House Judiciary Committee will finally hold a hearing to discuss imposing sales tax on remote sales on March 12. But the focus will be alternatives to the Marketplace Fairness Act (S.743). 

It’s a little late in the game to consider alternatives to the MFA, said KPMG’s Harley Duncan, and perhaps the measure’s best chance is in connection with the likely extension of the Internet Tax Freedom Act (ITFA). 

In the meantime, with state legislative sessions underway, more jurisdictions are supplying their own answers by continuing to propose click-through nexus legislation.

So will the state and local tax crowd finally figure out what Congress might or might not do about the issue? Probably not anytime soon if the title of the March 12 hearing is any guide: “Exploring Alternative Solutions on the Internet Sales Tax Issue.” 

Instead of the MFA, the hearing will focus on alternatives to the MFA and streamlined sales tax efforts, and that is what is interesting, Duncan said.  Duncan is managing director and state and local tax leader in KPMG’s Washington National Tax practice in Washington, D.C.

The MFA passed the Senate last spring and has been waiting since June for a hearing by the House Judiciary Committee. If that bill is enacted in its current form, remote sellers whose sales exceed the $1 million annual threshold could be required to collect sales tax in the states that simplify their sales tax laws pursuant to the MFA’s requirements.

 “I know Mr. (Bob) Goodlatte always said he wanted to take a different approach,” Duncan said. Rep. Goodlatte (R-Va.) is chairman of the House Judiciary Committee.  But Duncan said that supporters of the bill know that there is a fairly limited time window left in this Congress. A new Congress generally starts at the beginning of January in odd-numbered years.

“Is there really sufficient time to explore those?” Duncan said about the alternatives. He said that he is not sure that a hearing is the best way to lay all of the alternatives out.

Pushing the bill forward is the increasing proportion of online sales to in-store retail sales, Duncan said. And the tax revenue at stake is an issue that states are vitally concerned about. It is an issue that cuts across party lines.  But at the same time, necessary considerations for remote sales tax legislation include determining whether the proposals are simple enough to expect sellers to collect at a reasonable cost, and whether the measure will be perceived as a tax increase.

One thing to keep in mind is that the Internet Tax Freedom Act, which is unrelated to the MFA, expires in 2014, Duncan said. The ITFA has passed in Congress three different times, and always with strong support, so it could become a vehicle for dealing with these remote sales tax issues that have been in front of Congress for a long time.

States also want Congress to act, but at the same time, they are not waiting for Congress. According to Duncan, a half dozen states are considering legislation in the click-through nexus and affiliate nexus areas during this year’s legislative sessions.

 “The debate’s in Congress, but it’s a real issue for the states,” Duncan said. For example, taxpayers may wonder if they have tax liability on certain transactions.  That continued uncertainty may provide an impetus for Congress to move the issue forward.

Continue the discussion on Bloomberg BNA’s State Tax group: What kind of alternatives, if any, do you think Congress should or will consider for remote sales tax legislation?

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