Government Accountability Office Raises Three Concerns about U.S. Sales Tax System

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A recent Government Accountability Office (GAO) report expressed that Congress should work with states “to establish nationwide parameters for state taxation of remote sales. Such parameters should balance state interests with the need to address multistate complexities. The parameters should improve the overall system’s alignment with the criteria for a good tax system and help address existing uncertainties regarding what remote sales taxation is legally permissible by states and localities.”

How does that plan – put forth by the GAO – sound as a starting point for sales tax reform? Sounds very appealing, particularly if you’re a remote seller that spends significant time and money striving to comply with what the GAO describes as “a complex patchwork of requirements … governing the taxation of remote sales.”

The GAO’s mission is to provide Congress with fact-based, nonpartisan information that can help improve federal government performance and ensure accountability for the benefit of its citizens. Given that mandate, it’s not surprising that the GAO has been scrutinizing the sales tax system in the wake of sweeping post-Wayfair tax policy changes. Back in June, the governmental watchdog examined the effects of states’ expanding taxing authority earlier this year. The current report raises three concerns about remote sales reporting that these apprehensions center on: 

  1. Equity: Similarly situated taxpayers should receive similar treatment, but they do not under the current system. Remote sellers grapple with a patchwork of requirements in all the taxing jurisdictions in which they have economic nexus while traditional brick-and-mortar sellers only need to address sales tax rules in the jurisdictions where they are located.
  2. Economic efficiency: GAO research shows that many remote sellers have diverted resources from business operations and investments to tax compliance. Other remote sellers have limited the number of states into which they sell to reduce their compliance burdens.
  3. Simplicity, transparency and administrability: These hallmarks of a good tax system are often lacking as evidenced by the substantial time and effort remote sellers allot to understanding and fulfilling numerous different remote sales tax obligations.

Addressing these shortcomings requires a combination of incremental and comprehensive reform. One incremental fix that has been proposed involves a state adopting a single point of registration, filing, administration and audit. Comprehensive reforms extend across states; one example, the GAO report indicates, would be for states to participate in an interstate collaborative mechanism by which states agree on uniform standards and centralized processes. 

Another example of comprehensive reform that the GAO report cites is federal legislation that establishes nationwide parameters for state taxation and remote sales. While that fix is extremely unlikely to come about in a politically divided Congress, the GAO makes an excellent point about a Constitutional matter with sales tax implications that I’ll be talking and writing about in greater detail throughout 2023: “under the Constitutional’s Commerce Clause, Congress has the authority to regulate interstate commerce.”

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. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.

Blog Author

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Vice President of Tax Content and Chief Tax Officer

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.