Congress has a duty
— not a choice —
to protect interstate commerce.
Congress is considering overturning the present Constitutional standard, enshrined in the Quill decision, which requires retailers to collect sales tax only for states where they have a physical presence.
Since states have not truly simplified their sales tax systems, Congress must hold states accountable to minimum simplification standards and fair procedures for dispute resolution.
Fortunately, Congress can take the time to get it right. First, potential tax collections are far lower than tax advocates have claimed: uncollected sales tax on business-to-consumer e-commerce is only one-third of one percent of all state and local taxes. Second, the fastest growth in e-commerce is among multi-channel retailers who already collect for all states where they have stores.
However, if Congress is determined to remove the Constitutional protections for interstate commerce, it must require states to adopt these minimum simplification requirements:
- States must provide consolidated, certified software for rate lookup, collection, electronic filing, and funds transfer. Users of the software would be immune from state and civil liability for errors in taxes collected.
- A single sales tax rate per state for remote sales.
- States should compensate businesses for reasonable costs of collecting sales taxes, including purchase and implementation of software.
- A single set of definitions for taxable and exempt products and uniform rules – including rounding rules and documentation requirements for exempt purchases – for all states.
- A single audit on behalf of all states and local jurisdictions conducted by a single state where the seller has physical nexus, or a designated state in cases where a seller lacks physical nexus in any sales tax state
- There should be a common sales tax return for remote sellers to file.
- A single national rule for sourcing sales.
- Harmonize sales tax holidays and thresholds, or give remote sellers an optional exemption from participation in sales tax holidays and thresholds.
- Allow remote sellers to challenge states in federal district court for disputes on sales tax collection, including whether a state is following congressionally required simplifications.
- Preempt and preclude state laws imposing sales tax obligations on businesses with no physical presence in that state.
- Collection of sales tax under federal legislation does not create nexus for any other business purpose.
- A congressionally-determined exception for small businesses.