Congress introduces bill to phase in online sales tax collection

A bipartisan group of lawmakers in the House has introduced legislation to clarify interstate sales tax collection requirements in the wake of the Supreme Court’s decision this year in South Dakota v. Wayfair.

In June, the Supreme Court overturned the physical presence, or nexus, standard from the 1992 decision in the case Quill Corp. v. North Dakota, enabling states to tax activity that has a “substantial nexus” within them (see Supreme Court abandons physical presence standard in Wayfair). The decision has sent states around the country scrambling to release varying guidance on how companies should proceed with taxing online sales (see When will the dust from Wayfair clear?). The bipartisan legislation, known as the Online Sales Simplicity and Small Business Relief Act, aims to provide a more orderly process for states to follow. The bill was introduced Friday by Rep. Jim Sensenbrenner, R-Wis., Anna Eshoo, D-Calif., Jeff Duncan, R-S.C., and Zoe Lofgren, D-Calif.

The bill would ban retroactive taxation, establish an orderly phase-in of compliance obligations, and create a small business exemption. It bars states from imposing sales tax collection duties on remote sellers for any sale that happened prior to June 21, 2018, the date that the Wayfair decision was handed down by the Supreme Court. It would also prevent states from imposing sales tax collection duties before Jan. 1, 2019. It provides a $10 million exemption for small business sellers, until the states produce a compact, approved by Congress, to simplify collection to the point where no small business exemption is necessary.

“This bipartisan legislation reins in the taxation free-for-all created by the Supreme Court’s ruling in Wayfair,” Sensenbrenner said in a statement. “Online sellers need clarity and stability in the sales tax arena. Our bill will protect small businesses and Internet entrepreneurs from excessive regulatory burdens. Throughout the Fifth Congressional District, I continually hear from businesses that they need ‘certainty.’ This bill provides that.”

An advocacy group, the National Taxpayers Union, issued a statement supporting the legislation. “Chaos is brewing across the country as states have scrambled to seize new tax power for themselves after the court’s ruling in Wayfair,” said Andrew Moylan, head of NTU’s Interstate Commerce Initiative. “By solving some of the most vexing questions, like retroactivity, state implementation dates, and obligations for small sellers, Congressman Sensenbrenner’s bill is a great start down the long path of crafting a remote sales tax system that underscores, rather than undermines, important principles of free markets, limited government and simplicity.”

Donnie Shackleford/doncon402 - Fotolia