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March 21, 2018


Will Congress pass a law addressing online transactions?

Lawmakers within Congress are poised to pass a tax law that could change the way we tax online sales.

What is the new tax law? The proposal, Remote Transactions Parity Act, would provide states with the right to enforce local sales and use tax laws on remote transactions. This means that if passed, the law would allow states to tax a business for online purchases. The term “remote sale” is defined as any sale that originates in one state but sent to another where the seller would not be required to pay the local taxes.

There is an exception. If a seller qualifies for a small remote seller exception it will not be subject to the tax. To meet the exception, the seller must “(1) has a gross annual receipts exceeding specified amounts, which are phased in from $10 million for the first year following the effective date, to $5 million for the second year, and $1 million for the third year; or (2) utilizes an electronic marketplace for the purpose of making products or services available for the public.”

When would the Remote Transactions Parity Act become law? The law could pass within the week. Congress is currently facing another shutdown. Part of the negotiations for the spending bill have included the inclusion of this bill.

The proposal has momentum. At least 50 lawmakers have cosigned the bill. The momentum comes at an interesting time, as the Supreme Court of the United States (SCOTUS) has also agreed to take on the issue. Current law, based on a previous case out of SCOTUS, essentially requires sales tax apply in the state the business has a “substantial nexus.” This has generally translated to mean the state the business has a physical presence, like an actual brick and mortar store or headquarters.

If passed, the new law could lead to tax issues for businesses. Businesses will need to review the impact of the law and make changes to ensure compliance. A failure to do so could result in tax penalties.