In June, The Supreme Court overturned a 1992 ruling that said that businesses had to have a physical presence in a state to charge sales tax. Because of that ruling, states can tax online activity that has a “substantial nexus” in the state. For example, since Amazon has a fulfillment center in Tennessee the state can tax online purchases from Amazon. The intent of this is to level the playing field for local businesses and provide a revenue opportunity for states. Recently, a bipartisan group introduced legislation in an attempt to clarify online sales tax collection. The Online Sales Simplicity and Small Business Relief Act will give states a process to follow for the phasing in of online sales taxation. This bill establishes a small business exemption, gives states an orderly phase-in process of compliance obligations, and puts into writing that retroactive taxing is not allowed. A $10 million small business exemption will exist until states can institute a simple process that will make the exemption unnecessary.
The legislation, according to Congressman Sensenbrenner, “reins in the taxation free-for-all created by the Supreme Court’s” previous ruling in June.” Congressman Sensenbrenner and his co-authors argue that the ruling lacks clarity and can cause instability in the sales arena for online retailers and could cause excessive regulatory burdens.” The bill would put a stop to the power struggle that states have gotten involved in since the Supreme Court’s decision in June. “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,” according to a statement issues by the National Taxpayers Union, an advocacy group that issued a supporting statement.
This bill is important because it could ease the chaos among states as they have scrambled to issue online taxation policies individually since the Supreme Court’s decision in June. States will now have a process to follow to gradually introduce online sales tax across the board. Even if you are the owner of a small e-commerce business, it is important to keep a pulse on the legislation because the small business exemption will eventually be removed and sales taxes will be required. For consumers, this legislation is important to monitor as it will affect when and how costs will rise when purchasing products online.