Sales Tax Slice: Federal Anti-Wayfair Legislation Could Help Online Micro-Entrepreneurs


Earlier this month, Rep. Jim Sensenbrenner (R-Wis.) introduced legislation to limit the impact of the Supreme Court’s decision in South Dakota v. Wayfair. Appropriately named the Online Sales Simplicity and Small Business Relief Act of 2018, this legislation would shield many small businesses from state efforts to impose sales and use tax collection and remittance obligations on remote sellers. 

The bill would prohibit states from imposing sales tax collection, remittance, and reporting obligations on remote sellers with no more than $10 million in gross receipts in the United States during the preceding calendar year. On its face, the limitation appears to extend to the kind of reporting requirements that were challenged in Direct Marketing Association v. Brohl. Under the bill, the limitation would be lifted 30 days after Congress approves a state-developed interstate compact clearly defining minimum nexus requirements and simplifying registration, collection, remittance, auditing, and other compliance processes. 

The bill defines remote sellers as sellers making sales into a state that lack a physical presence in that particular state. A remote seller would not be treated as having a physical presence in the state if the seller’s physical presence in the state was for less than 15 days in a taxable year, or if the seller’s physical presence in the state was “solely for the purpose of conducting limited or transient business activity.” The bill does not specify what this term means.

For remote sellers not falling within the small business exemption, the bill also prohibits states from imposing sales tax compliance obligations for sales occurring prior to Jan. 1, 2019. Unless the legislation becomes law in the next week, it is not clear what effect this prohibition would have on those states planning to begin imposing these obligations on Oct. 1. 

The bill’s uncertainties aside, its $10 million safe harbor would clearly provide welcome relief to many small sellers struggling to keep up with the states’ varying compliance requirements.

Without simplification, will sales and use tax compliance costs cause small online retailers to close? Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn

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