A previous post on tech neutrality discussed proposals to address the state sales tax issue outside of The Marketplace Fairness Act, and how this would affect ecommerce businesses. One such proposal, which is the subject of this post, is called “Home Rule and Revenue Return.”
For those who are familiar with Home Rule, you may be wondering, “How can this possibly be a solution to the state sales tax issue?” Fortunately, “Home Rule and Revenue Return,” while confusingly named, is a proposal that provides a relatively simple approach to streamline the current tax collection methods retailers’ use.
Home Rule and Revenue Return,” while confusingly named, is a proposal that provides a relatively simple approach to streamline the current tax collection methods retailers’ use.
The basic concept behind the Home Rule and Revenue Return approach is to have a voluntary, multi-state agreement with clear rules defining an acceptable method for collection of sales tax from remote sellers based on the sellers’ origin. Sounds simple, right? In some ways this is similar to the approach that the Streamlined Sales Tax Project has unsuccessfully advocated for over the last decade. However, the Home Rule and Revenue Return approach differs in a very vital way. This approach treats every online, catalog, and Brick & Mortar seller in the same way, aka Tech Neutrality. Every seller would use the tax rates and rules that apply where they are located and not where the customer resides. That means no nexus issues and less confusion because most retail sales already take place this way.
The main concern, and the reason why something like this has never been attempted, is that states believe they will lose vital revenue if they don’t tax every sale deemed possible, which is why the destination is typically used to calculate relevant sales tax. This is where the “Revenue Return” portion of the plan becomes important. Unlike a traditional origin-based system, which leaves tax money where it was collected, the Home Rule and Revenue Return approach would distribute the taxes received from out-of‐state purchasers to their home states.
The end result is that states receive sales tax revenue from their residents’ out-of‐state purchases, without establishing a labyrinth of new compliance burdens. Or so it is hoped. As with any proposal, there are pros and cons (and lots of questions) surrounding its execution.
Are you an ecommerce company concerned about how this will affect your business? Please share your concerns or questions in the comments.