Bipartisan U.S. Senate Bill Would Give Both SST and Non-SST States Collection Authority

SALT Report 1202 – On November 9, 2011, a bipartisan group of 10 U.S. senators announced the introduction of legislation that would give states implementing sales tax simplification requirements the authority to require remote sellers to collect sales and use tax, unless that seller qualifies for a small seller exception.
Unlike previous legislation, the Marketplace Fairness Act would not limit the authorization to member states of the Streamlined Sales and Use Tax (SST) Agreement. It joins other legislation on the same topic introduced this year in both houses of Congress: The Main Street Fairness Act, the Marketplace Equity Act, and proposed resolutions in opposition to collection authority.
Under the agreement a full member state of the SST would receive collection authority for all remote sales. This authority would begin no earlier than the first day of the calendar quarter that is at least 90 days after the date of enactment of this legislation.
Alternative collection authority would be granted to any non-SST member state that implements the minimum simplification requirements specified. This alternative authority would begin 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 implement each of the requirements. A non-SST state could certify a “provider” that would have the responsibility for tax administration, collection, remittance, and audits for transactions serviced or processed for sales by remote sellers.
Minimum Requirements for Alternative Collection Authority
A state that wants to receive collection authority, but is not a member of the SST Agreement, would have to implement the following minimum requirements:
  • a single, state-level agency to administer the collection and administration of all state and local sales and use taxes on remote sales;
  • a single audit for all state and local tax jurisdictions;
  • a single tax return for remote sellers and providers;
  • a uniform tax base for the state and any local tax jurisdictions;
  • a requirement that remote sellers and providers collect tax at the destination rate, which would be the sum of the state rate and any local rate for the jurisdiction into which the sale is made;
  • adequate software and services for remote sellers and providers that identifies the applicable destination rate;
  • certification procedures for providers to make software and services available to remote sellers and hold the providers harmless for any errors or omissions as a result of relying on information provided by the state;
  • a provision to hold remote sellers using a provider harmless for any errors and omissions by that provider;
  • a provision to relieve remote sellers from liability, including any penalties and interest, for collecting the incorrect amount of tax if the error was the result of relying on information provided by the state; and
  • 30-days’ notice to remote sellers and providers of a local rate change, which may only be effective on the first day of a calendar quarter.

Remote sales would be sourced to the location where the item sold is received by the purchaser, based on the delivery instructions. If no delivery location is specified, the sale would be sourced to the customer’s address known or obtained by the seller. If an address is unknown and cannot be obtained, the sale would be sourced to the address of the seller from which the sale was made.

Small Seller Exception and Other Provisions

The following provisions would apply whether a state receives collection authority as a member of the SST Agreement or by implementing the alternative collection requirements:

  • A small seller exception would relieve a remote seller of the collection mandate if the seller, and related entities, had $500,000 or less in gross annual receipts in total remote sales in the United States in the preceding calendar year.
  • Collection authority would end on the date the highest court of competent jurisdiction makes a final determination that the state no longer meets the requirements of this legislation, and the determination is no longer subject to appeal.
  • The provisions of this legislation would only apply to remote sales and not to intrastate sales or intrastate sourcing rules. However, states granted authority as members of the SST Agreement would have to comply with the intrastate provisions of the Agreement.

SST Requirements Not Applicable to Alternative Collection Authority

The minimum simplification requirements that a non-SST member state would have to implement in return for collection authority are less extensive than the current requirements for SST member states. The requirements in the SST Agreement that this legislation would not require states seeking alternative collection authority to implement include the following:

  • uniform definitions of products and product-based exemptions;
  • uniform rules for bad debts, rounding, and sales tax holidays;
  • various uniform sourcing rules;
  • uniform exemption administration rules, including a relaxation of the good-faith requirement for acceptance of exemption certificates;
  • the elimination of most caps and thresholds;
  • consistent electronic filing and remittance methods;
  • a taxability matrix with information on defined terms and exemptions;
  • mandated vendor compensation; and
  • for all sellers, state-level administration of local taxes, relief from liability for relying on state-provided data, and a single-audit option.

This legislation was introduced by Sens. Mike Enzi, R-Wyo.; Richard Durbin, D-Ill.; and Lamar Alexander, R-Tenn. Cosponsors include Sens. Tim Johnson, D-S.D.; John Boozman, R-Ark.; Jack Reed, D-R.I.; Roy Blunt, R-Mo.; Sheldon Whitehouse, D-R.I.; Bob Corker, R-Tenn.; and Mark Pryor, D-Ark.

For Further Information:

Marketplace Fairness Act as introduced in the U.S. Senate November 9, 2011