The U.S. Supreme Court’s Wayfair decision in June was the most important sales tax case in over 25 years, dramatically altering the sales tax landscape for merchants. The 5-4 decision was indeed divided, but not on the issue of whether to overturn the long-standing physical presence standard for sales tax, as re-affirmed in the 1992 Quill decision. Rather, the division was on how to solve the issue—or more accurately—who should solve it. Although the majority opinion expressed the view that it was up to the Court to overturn Quill, the dissenting justices felt that the U.S. Congress should step in and enact legislation to deliver the fatal blow. Therefore, it’s no surprise (despite the Court’s majority ruling) Congress has had five legislative proposals to consider since the decision was announced in June.
Legislation designed to address the increasingly outmoded Quill decision is not new to Congressional lawmakers. Even before the Wayfair decision, Congress had considered at least 3 separate bills centered on the theme of simplification: The Marketplace Fairness Act of 2017, the Remote Transactions Parity Act of 2017, and its cousin, the Remote Transactions Parity and Simplification Act of 2018. After Wayfair, new themes were added, namely, protecting small businesses and preventing retroactive application of sales tax collection requirements.
The first post-Wayfair proposal came just days after the decision was announced. The Stop Taxing Our Potential Act(S. 3180) was sponsored by Senators from states that don’t impose sales tax with the goal to codify the physical presence standard, thus overturning the Wayfair ruling.
Other lawmakers took a different tack; instead of changing the effect of the ruling, the idea was to make it less burdensome and confusing for merchants to comply. The first of these proposals, the Protecting Small Business from Burdensome Compliance Costs Act, was introduced in September by Ohio Congressman Bob Gibbs and designed to address the most burning and immediate concern for merchants by preventing states from retroactively collecting sales tax for previous interstate sales. The bill would also require states to satisfy several other requirements related to tax rate limits, remittance locations and consistency on what is deemed taxable when they enact new sales tax laws.
A few weeks later, Wisconsin Congressman Jim Sensenbrenner also introduced a bill. The Online Sales Simplicity and Small Business Relief Act of 2018 (H.R. 6184) contains several similar requirements called for in Rep. Gibbs’ proposal. Rep. Sensenbrenner’s bill also contains an exemption for small businesses: online merchants with less than $10 million in U.S. revenue would not be required to collect and remit sales tax until the states produce a compact, approved by Congress, to simplify collection to the point where no small business exemption is necessary.
In November, another bill by Rep. Sensenbrenner, the No Retroactive Online Taxation Act of 2018 (H.R. 7184), stripped away most of his previous bill’s language, leaving only a prohibition against retroactive collection of sales tax. A few weeks later, Senate Bill 3725, which was introduced by Senators from New Hampshire and Oregon and shares a name with Sensenbrenner’s original bill, proposes many of the same elements and provides for a delay until January 2020 before merchants would be required to collect sales tax.
Is Congressional activity simply too little, too late? Perhaps. A quote from Will Rogers comes to mind… “The only difference between death and taxes is that death doesn’t get worse every time Congress meets.” In our current divided Congress, urgency is not always a priority. With dozens of states already enforcing existing or newly-promulgated Wayfair-type rules, action by Congress now on any of these proposals could lead to mass confusion.
We’ll keep you posted as these bills progress or (more likely) sit idle.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.