On November 9, 2011, a bi-partisan group of U.S. senators introduced legislation that would give states implementing simplification requirements the authority to require remote sellers to collect sales and use tax. The legislation, called the Marketplace Fairness Act, would not limit the authorization to states who are members of the Streamlined Sales and Use Tax (SST) Agreement but would also apply to other states that implement some minimal simplification provisions. This follows other legislation on remote seller sales tax collection that has been introduced in Congress earlier this year.
Full member states of the SST Agreement would have collection authority for remote sales sourced to their state under the Agreement. The authority for full member states would start no earlier than the first day of the calendar quarter that is at least 90 days after the legislation is enacted. Collection authority would also be granted to non-SST member states that would start no earlier than the first day of the calendar quarter that is at least six months after the date that the state enacts legislation to impose the requirements. To comply, non-member states of the SST Agreement would need to implement the following minimum requirements:
– a single state-level agency to administer the collection and administration of all state and local taxes and local sales and use taxes on remote sales;
– a single audit for all state and local tax jurisdictions within the state;
– a single sales and use tax return for remote sellers and providers;
– a uniform sales and use tax base among the state and its local tax jurisdictions;
– a requirement that remote sellers and providers collect tax at the destination rate, which would be the sum of the state and local rate for the jurisdiction into which the sale is made;
– adequate software and services for remote sellers and providers to identify the applicable destination rate;
– certification procedures for providers to make software and services available to remote sellers and hold the providers harmless for errors or omissions resulting from information provided by the state;
– a provision to hold remote sellers using a provider harmless for provider errors and omissions;
– a provision relieving remote sellers from liability, including penalties and interest, for collecting the wrong amount of tax if the error was the result of relying on state-provided information; and
– 30 days notice to remote sellers and providers of a rate change by any state locality, which may only be effective on the first day of a calendar quarter.
– States would be able to certify a provider that would handle tax administration, collection, remittance and audits for transactions serviced or processed for remote seller sales.
A number of provisions in the legislation would apply whether a state receives collection authority as a member of the SST Agreement or by implementing the minimum requirements. A small seller exception would relieve remote sellers of collection if the seller and all related entities had $500,000 or less gross annual receipts in total remote sales in the United States in the preceding calendar year. A state’s collection authority would end on the date that the highest court of competent jurisdiction makes a final determination that the state no longer meets the requirements of the legislation, and the determination is not subject to appeal. The provision of the legislation would only apply to remote sales, not to intrastate sales or sourcing rules. However, states granted collection authority through the SST Agreement would need to comply with the intrastate provisions of the Agreement. (S. 1832, introduced in the U.S. Senate on November 9, 2011)