New GFOA Research: Bringing Sales Tax into the 21st Century
Even though January 2017 marked the beginning of the 115th Congress and a new Administration, state and local governments still find themselves without the ability to enforce existing sales and use tax laws on remote, online purchases. A long-standing priority for state and local governments, we remain optimistic that federal remote sales tax legislation will advance in the new Congress. We anticipate an introduction of legislation identical to last year's legislation in February 2017.
Part of what will help lift this legislation off the ground is by dispelling the myths that surround Marketplace Fairness.
In the 114th Congress, several remote sales tax bills were introduced and there were several attempts to advance the proposals. In March 2015, a bipartisan group of Senators – Sens. Enzi (R-WY), Alexander (R-TN), Durbin (D-IL) and Heitkamp (D-ND) – introduced S.698, the Marketplace Fairness Act of 2015 (MFA). The bill was essentially the same that was passed by the Senate with large bipartisan support in 2013. In June 2015, in the House of Representatives, Reps. Jason Chaffetz (R-UT-3), House Judiciary Committee Ranking Member John Conyers (D-MI-13), and a bi-partisan group of legislators introduced H.R. 2775, the Remote Transactions Parity Act (RTPA). Both bills would compel retailers to collect taxes on remote sales based on the location of the consumer – also known as destination-based sourcing. The state in which the consumer resides could compel out-of-state retailers to collect remote sales taxes, either as a member of the Streamlined Sales Tax Governing Board or through the use of certified software providers.
Unfortunately, neither proposal was supported by the Chairman of the House Judiciary Committee; Rep. Bob Goodlatte (R-VA-6). Since the Judiciary Committee has jurisdiction over the legislation, Chairman Goodlatte’s opposition created a substantial impediment to either proposal’s advancement. Chairman Goodlatte has offered discussion drafts of alternatives to the MFA and RTPA, the most recent was released in August 2016. The discussion drafts are designed to enable state and local governments to collect taxes from internet sales based on the address of the retailer as opposed to the address of the consumer – also known as origin-based sourcing – a notion that would strip taxing authority from state and local governments. The GFOA has some serious concerns with this approach, which you can review here.
We are working closely with our colleagues at the National League of Cities, U.S. Conference of Mayors, National Association of Counties and National Governors Association, along with our partners in the retail community, to urge Chairman Goodlatte to consider moving forward with solutions like RTPA that utilize destination-based sourcing to determine the tax. As congressional discussions continue on these legislative proposals, the GFOA will continue to keep you informed on the status of these discussions and continue to encourage you to engage your members of Congress directly to urge their support for remote sales tax legislation using the resources below.
It is time to pass this important legislation and we need your help!
Your direct outreach to your member of Congress is critical to advancing this legislation through the federal legislative process this year. To help you with this outreach, see below for a sample resolution and a sample op-Ed. If you are able to send this along any correspondence to your member of Congress please also email a copy of the letter to Emily Brock, Director, GFOA Federal Liaison Center.
- NLC - http://www.nlc.org/influence-federal-policy/advocacy/federal-advocacy-priorities/close-the-online-sales-tax-loophole
- NACo - http://www.naco.org/advocacy/action-centers/marketplace-fairness
- NGA - https://www.nga.org/cms/marketplace
Why is this legislation necessary?
Consumer failure to pay online sales and use taxes as a result of federal inaction on this issue annually results in the loss of billions of dollars per year in taxes owed to state and local governments on remote sales. For example, according to the Department of Commerce, e-commerce sales in 2005 were $87 billion, and grew to $341.7 billion in 2015. Due to this exponential growth, it is estimated that state and local governments fail to collect more than $23 billion annually on remote transactions.
Passing MFA or RTPA would finally bring federal law into the digital age by enabling state and local governments to collect sales taxes on online purchases that are already owed to them but are not being paid. Further, modernizing tax law to reflect the impact of e-commerce sales will level the playing field for brick and mortar retailers who are currently at a five to ten percent competitive disadvantage to remote sellers.