After months of speculation and anticipation – a new federal remote seller bill was introduced in the U.S. Congress. On June 15, 2015, U.S. Representative, Jason Chaffetz (R-UT) introduced H.R. 2775, the Remote Transactions Parity Act (“RTPA”). If enacted, the RTPA will expand a “qualifying” state’s authority to impose its tax collection duties on remote out-of-state businesses.
The RTPA isn’t the first federal remote seller bill introduced this year – on March 10, 2015, the Marketplace Fairness Act of 2015 (S. 698) was introduced in the U.S. Senate with very little fanfare. Perhaps that was because the Marketplace Fairness Act (MFA) of 2015 is almost identical to the Marketplace Fairness Act of 2013 (S. 743, 113th Congress), a Senate bill introduced by the last Congress which initially made swift headway and significant news when the MFA of 2013 was passed by the full Senate on May 6, 2013 but which failed to become final law by the time the 113th Congress adjourned. Oh, and by the way, the MFA of 2013 - well it wasn’t all that different from the Marketplace Fairness Act of 2011, a Senate bill introduced by the 112th Congress (one of 3 bills introduced that session) which never made any progress. (Yes folks, Congress has been introducing federal remote seller legislation for quite some time now.) But suddenly, with the introduction of the RTPA, whether a federal “internet sales tax bill” might become law is a hot topic of discussion (along with the misleading media stories about “tax free shopping soon being over” and the opinions, editorials and what not). While there are many similarities in the RTPA to the MFA of 2015, there are significant differences too. So here’s an overview and comparison of some of the key components.
The RTPA – Similarities to the MFA of 2015:
Like the MFA of 2015, the RTPA will grant the authority to require remote sellers to collect tax on sales to instate customers to states that are full-members Streamlined Sales Tax (“SST”) states and publish notification of their intention to exercise their authority, and to non-SST states that enact state legislation to adopt the Act’s simplification and other provisions and implement all of the Act’s requirements. Also like the MFA of 2015, the RTPA will require non-SST states to enact legislation that specifies the taxes to which the simplification requirements and authority apply and the products/services to which the new law does not apply and provide simplification measures which include; (1) a single state-level entity to administer all State and Local sales and use tax laws, including return processing and audits, (2) a single audit for all State and Local taxing jurisdictions within the state, (3) a single sales and use tax return to be used by remote sellers for filing and a requirement that remote sellers not be mandated to file returns more frequently than non-remote sellers, and (4) a uniform sales and use tax base among the state and its local taxing jurisdictions. Additionally, the RTPA’s provision on how a sale is “sourced” to a state, which basically determines which state gets to tax that sale, is essentially the same as in the MFA which are both based on a hierarchy of rules. Under both proposals a sale is sourced first to the state where the purchaser instructs the seller to deliver the purchase. If such delivery location isn’t specified, then the sale is sourced to the customer’s address on record obtained during the transaction, which could be based on the address of the customer’s credit card or other payment instrument. And finally, if an address is not known, the sale is sourced to the address from which the remote sale was made.
The RTPA and MFA of 2015 - Key Differences and Introduction of New Concepts:
But other than the provisions above and a few others, the RTPA introduces some significant changes from the MFA of 2015. For instance, although both the RTPA and MFA of 2015 would exempt sellers that meet the definition of a “small seller” from a state’s collection authority, the RTPA’s provision is significantly different in several aspects.
a) Small Seller Exception: The RTPA’s small-seller is based on annual gross receipts from both remote and non-remote sales. The MFA of 2015 retains the definition used in prior versions, which bases the small seller exemption on annual gross receipts of $1 Million or less in the preceding calendar year - but only considers gross receipts from remote sales. Another difference is the gradual phase out of the small seller exception over a 4 year period under the RTPA. In the first calendar year in which a state’s collections authority is in effect, the RTPA would exempt sellers with gross annual receipts of $10 million or less in the immediately preceding calendar year. In the second year, the annual gross receipts threshold would be reduced to $5 million, in the third year it would be reduced again to $1 million, and in the fourth year, it would be reduced to zero. Another significant component of the RTPA’s small seller exception is that seller that utilizes an electronic marketplace (i.e., Amazon or eBay) is excluded from the definition of a “small seller” regardless of the level of their annual gross receipts. This is significant!
b) Certified Service Providers and Remote Seller Audits: Another major difference between the RTPA and the MFA of 2015 focuses on the expanded role of the Certified Service Provider ("CSP") and the limitation of audits on remote sellers. A provision in the RTPA, not found in the MFA, is the prohibition on states from auditing remote sellers who have registered to collect tax as required by the MFA but whose annual gross receipts are less than $5 million in the taxable year unless the state has reasonable suspicion that the remote seller has engaged in intentional misrepresentation or fraud. Under the RTPA, the role of a CSP is significantly enhanced in that a CSP is the first contact in a situation where a remote seller uses a CSP and had designated that the CSP should be contacted in the event of an audit. The CSP is responsible for providing the state a complete set of transactions processed for the remote seller and even represent the remote seller during the audit. (However, a remote seller would still be able to contest the audit findings). Regarding software provided by CSP – both the RTPA and MFA require that free software capable of calculating the sales tax due in every qualifying state on each transaction at the time the transaction is completed, and of electronically filing and remitting the related taxes due. However, the RTPA would also require that “free” access to such software would encompass the cost of installation, set-up and maintenance.
Concluding Thoughts - For Now...
So there you have it – a NEW federal remote seller proposal thrown into the pot! But I’ve only touched on a few aspects of the RTPA – as this is a comprehensive 22 page bill (in contrast to the 12 page MFA of 2015 bill). There is still much more to know and consider!! Which is why over the next few weeks I’ll be continuing this RTPA series and delving deeper into key provisions, such as:
- What it means to be “remote seller.”
- The real workings of the small seller exception.
- When the RTPA would be effective if enacted.
- The impact of the liability provisions on CSP and remote seller.
- How the RTPA could “hitch a ride” with another piece of federal legislation with state impact, such as the Permanent Internet Tax Freedom Act, the Mobile Workforce State Income Tax Simplification Act or other federal proposal.
In essence, I’ll focus on the real “what you need to know” about the RTPA. Because, let's face it- what's really important is how it could affect your business and requirement to collect sales or use tax in many more states. Yes, it seems the Remote Transaction Parity Act has once again reignited the so called “Internet sales tax” debate and has raised the question – will Congress finally succeed in passing a federal remote seller law?
Other recent “Internet Tax / E-Commerce” posts by Sylvia F. Dion, CPA:
- States Follow South Dakota: A By-State Guide on Economic Nexus
- With Wayfair Decided, Is a Federal Solution Still Needed?
- Amazon and Other "Nexus Expanding" Laws - By State Summary
- Economic Nexus: The “New Normal” or the Demise of Quill?
- Remote Transactions Parity Act: Comparing RTPA to MFA