Internet Sales Tax

Overview

While consumers are required pay state sales and use taxes on the goods they purchase, out-of-state online and other remote sellers are not required to collect the tax in the same way that local businesses are. Internet and other remote sellers are often physically located far from their customers, and do not pay property and other taxes to help support the local infrastructure of the communities in which the customers live. This unequal treatment puts local "brick-and-mortar" businesses – who do pay these taxes – at a competitive disadvantage. The resulting pressure on established retail districts and historic downtowns can adversely affect overall economic sustainability in a community, and can also lead local jurisdictions to attempt to make up the lost revenue by increasing property taxes.

NAR supports the passage of legislation to level the sales tax playing field for all retailers.

Political Advocacy

What is the fundamental issue?

In 1992, the U.S. Supreme Court ruled (Quill Corporation v. North Dakota) that complex state and local sales tax rules were a burden to interstate remote retailers, and therefore, Internet and catalog retailers should be exempt from collecting sales taxes unless they have a physical presence in the purchaser’s state. The burden to remit sales tax on Internet and catalog purchases falls on the consumer, who is usually unaware of the responsibility.  The Supreme Court also stated that “Congress may be better qualified to resolve [the problem].” But since then, Congress has failed to pass legislation to do that.

In the absence of Congressional action, many states have passed "nexus" laws, which broadly define the "physical presence" required for the state to collect sales tax from the business.  Several of these laws have resulted in federal court cases challenging them, and in 2018 the Supreme Court granted cert to South Dakota v. Wayfair, Inc., a case challenging a South Dakota state law allowing for the collection of sales tax on remote purchases.  The Court heard oral arguments in April and is expected to release its opinion in June 2018.

Members in both the House and Senate introduced bills in recent Congresses that would give states the authority to require retailers to collect and remit sales tax on online purchases, which have had bipartisan support.  Despite that, disagreements over the mechanisms for collecting and remitting the sales tax as well as protections for retailers against out-of-state audits have kept the bills from passing.  

I am a real estate professional. What does this mean for my business?

While consumers are required pay state sales and use taxes on the goods they purchase, out-of-state online and other remote sellers are not required to collect the tax in the same way that local businesses are.  This unequal treatment puts local "brick-and-mortar" businesses at a competitive disadvantage. The resulting pressure on established retail districts and historic downtowns can adversely affect overall economic sustainability in a community, and can also lead local jurisdictions to attempt to make up the lost revenue by increasing property taxes.

NAR Policy:

NAR supports the passage of legislation to level the sales tax playing field for all retailers.

Internet and other remote sellers are often physically located far from their customers, and do not pay property and other taxes to help support the local infrastructure of the communities in which the customers live.  "Brick-and-mortar" retailers do pay these taxes, and this fact should not put them at a competitive disadvantage.

Legislative/Regulatory Status/Outlook

Since the Quill ruling, 24 states have simplified their sales tax systems through the Streamlined Sales and Use Tax Agreement (SSUTA).  The SSUTA provides one uniform system to administer and collect sales tax, eliminating the burden of the country’s diverse sales tax systems on retailers.  
However, because this is a matter of interstate commerce, Congressional authorization is still required to allow states to collect taxes from out-of-state sellers and online retailers.

In the 114th Congress, bills were once again introduced in the House and Senate which would allow states to collect uncollected state sales and use taxes due on Internet and other remote purchases. NAR supported both bills and worked with the Marketplace Fairness Coalition to advocate for their passage.  In the summer 2016, the House Judiciary Committee circulated a draft of their own bill addressing the issue, which greatly differed from the previous bills. Ultimately, the House Judiciary Committee and the Senate sponsors were unable to come to a compromise on the mechanics of how such a bill would work, and so it was not considered.

The outlook in the 115th Congress for internet sales-tax fairness legislation is unclear. In April 2017, S. 976, The Marketplace Fairness Act (Senators Lamar Alexander (R-TN), Mike Enzi (R-WY), Dick Durbin (D-IL), and Heidi Heitkamp (D-ND)) and H.R. 2193, the Remote Transactions Parity Act (Representatives Kristi Noem (R-SD), Steve Womack (R-AR), Jason Chaffetz (R-UT), Steve Stivers (R-OH), Lou Barletta (R-PA), John Conyers (D-MI), Jackie Speier (D-CA), Peter Welch (D-VT), Suzan DelBene (D-WA), and David Cicilline (D-RI)) were introduced.  NAR continues to be a member of the Marketplace Fairness Coalition and will advocate for their passage into law.  

In January 2018, the U.S. Supreme Court granted cert (meaning that enough of the justices believe the case warrants review) to South Dakota v. Wayfair, Inc., a case challenging a South Dakota law allowing the state to require that online sellers collect and remit sales tax to the state. NAR, along with other real estate organizations, sent an amicus brief in support of the Court granting cert on the case in 2017. This is a very positive development, as it indicates that the Court may be ready to revisit their 1992 decision in Quill in light of Congress's inaction on the issue, and the massive increase in remote sales during that time.  

Advertisement