Simplifying the sales tax rules that currently confuse and bewilder ecommerce retailers has always been a desirable alternative to the current regime. With the Marketplace Fairness Act stuck in the House of Representatives, there is still hope that simplification could become a reality. There have been attempts in the past and a more contemporary appeal made to make this dream come true, but what would it really mean for ecommerce? Would simplification be as effortless as ecommerce retailers need in order to thrive?
The Streamlined Sales Tax Project(“the Project”) began over a decade ago with the intent to simplify sales tax collection for states that voluntarily agreed to become members. Today, there are 22 member states and over 2,000 registered sellers who have volunteered to collect sales tax. This is quite an accomplishment given that there was little incentive provided to join, except for a modest revenue stream from the registered sellers.
Despite the considerable amount of progress made by the Project, simplifying and standardizing a sales tax collection protocol still has a long way to go before being truly successful. One of the alternatives suggested would build upon the Project’s effort and continues to strive for even greater simplification (with a few caveats).
The framework suggested isn’t substantially different from the current one the Project uses. There would be numerous, specific elements that member states and registered users would be required to agree to, such as, certain definitions, administration requirements, common tax base, etc. However, in the alternative framework these rules would be intended only for remote sellers.
Now come the caveats. Even though the simplification method would be designed to coincide as much as possible with the Project, ultimately two sets of sales tax rules would be created, one for online retailers and one for intrastate sellers. The second caveat is that this sort of framework may incentivize states to limit the pool of retailers that would be considered “remote” sellers.
The federal government would be limited to creating a framework designed for “remote” sellers; however, the definition of whom that applies to would be left up to the states. States may be tempted to stretch the concept of nexus as much as possible to assert that sellers have nexus and are not “remote”. This is already an issue as nexus has consistently been expanded over the recent years in an attempt to stretch states’ tax bases.
In terms of alternative solutions to the present problem of sales tax collection and compliance, I am a bit lost (even after listening to four hours of testimony) as to why this is considered a reasonable idea. It doesn’t truly address the issue of nexus and compliance in thousands of jurisdictions. The logic of creating a secondary set of rules for ecommerce sellers in order to “simplify” also alludes me. As wonderful as simplification sounds, and makes perfect sense to anyone that has to deal with sales tax, these attempts don’t quite hit the mark of making things easier to understand.