Jan 19, 2015
From KPMG TaxWatch
The 114th Congress was only recently sworn in but is already working on legislation addressing the collection of tax on remote sales. The Chairman of the House Judiciary Committee, Robert Goodlatte, who was instrumental in stalling progress of the Marketplace Fairness Act of 2013 (MFA) in the House, has released a draft proposal of new remote seller legislation. The terms of the draft “Online Sales Simplification Act of 2015” (Act) circulated by his office are vastly different from the MFA of 2013. Unlike previous iterations of remote seller legislation that followed the destination-based sourcing common to retail sales taxes and relied heavily on the Streamlined Sales and Use Tax Agreement (SSUTA), the new Act proposes to use origin-based sourcing and does not include SSUTA states among those authorized to impose collection requirements on remote sellers. Recall, origin sourcing means that sales tax is imposed in the jurisdiction where the seller is located, instead of where the purchaser is located.
Specifically, the Act provides that a state may impose or require the collection of sales tax on a remote sale (i.e., sale by a seller without a physical presence (as defined in the Act) in the destination state) only if (1) the state is the origin state for the remote sale, and (2) the state is a party to the distribution agreement. The distribution agreement, to be developed by participating states, would create a clearinghouse to share sales tax revenues from remote sales among the participants. A remote seller based in a participating state would collect tax on all its remote sales at the rate and against the tax base in its “origin locality” (defined as the state and the locality therein in which the seller has its greatest number of employees) and would remit that tax along with certain information on the destination of the sale to its origin state. The origin state would, in turn, remit the tax and information to the clearinghouse for distribution to the appropriate destination state. The origin state would presumably retain the tax collected on sales into states not participating in the distribution agreement. A state that does not join the agreement will not be able to levy a tax on a remote sale, receive distributions from the clearinghouse, or (apparently) pursue the collection of use tax directly from the purchaser if an origin-based tax has been levied on the transaction. A remote seller could be audited only by its home-state taxing authority.
The treatment of business purchases is a bit unclear under the draft language. It appears, however, that purchases by businesses for which the purchaser would be required to accrue and remit use tax under current law are intended to be excluded from the purview of the Act and the collection of the origin-based tax. The purchaser would be required to remit use tax to the destination state or the state in which the product or service is used.
Remote sellers whose origin state is one that does not levy a sales or use tax are provided an option under the draft language. Such sellers may provide information including the name of the purchaser, address and amount of sale to the clearinghouse for reporting to the destination state. Or, the seller may collect tax at a rate that is equal to the lowest state sales tax rate in those states levying a state sales tax other than Hawaii plus the average local tax rate in that state against a base that would reflect certain “common exemptions” to be determined by the participating states. Sellers in foreign jurisdictions that require U.S. sellers to collect consumption taxes on sales into those countries would be treated as remote sellers based in a state that does not levy a sales or use tax.
Chairman Goodlatte has requested that industry groups weigh in on the draft proposal by the end of January. Meanwhile, Representative Jason Chaffetz (R-UT) is also working on draft legislation that is expected to be based heavily on the MFA of 2013 with some changes to address concerns that arose over previous remote seller bills. Rep. Chaffetz has indicated he does not support an origin sourcing approach, but wants to work with Chairman Goodlatte. For more information on federal remote seller legislation developments, please contact Harley Duncan at (202) 533-3254.
For more information about TWIST or to view archived episodes, please visit our TWIST homepage.
To receive TWIST e-mails each Monday morning, make sure that state, local and indirect is checked off as one of your topics of interest on the KPMG TaxWatch registration site.
The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.