Senate Passes Tax Collection Legislation: The Most Important Sales Tax Change in Almost 50 Years

The United States Senate has passed a bill that will require remote retailers (including those in foreign countries) to collect sales and use taxes across the United States.[1]  The bill has the “strong support” of the White House, as well as the backing of the states, America’s largest retailers and a variety of trade organizations.  The bill now moves to the House of Representatives.  If it passes there, it is certain to become law.

What it Means to Retailers

If the bill becomes law, a retailer located in New York City making sales by Internet to customers in, for example, Pennsylvania, Florida, Illinois, Colorado, Texas and California will have to (i) collect those states’ sales taxes, (ii) remit the collected taxes, and (iii) file periodic returns in each of those states as well as in its home state (New York, in this example). Of course, Internet businesses seek to sell to customers located throughout the United States, which means that the retailer will have to collect and remit tax, and file periodic tax returns, in every other state from Alabama to Wyoming even if the retailer has no store or inventory in those states. These are significant new responsibilities and expenses.

These tax collection obligations apply across both state and international borders, excluding retailers with gross annual remote sales in the United States of $1 million or less.  Retailers that fail to collect and remit these taxes are liable for deficiencies, and management of such businesses can be held personally responsible for taxes, interest and penalties.

In addition, under this bill the cost of goods to customers of remote sellers will increase by some 5% to 9%. (In truth, most customers should be paying this tax already, but few do.) This will permit local retail stores to better compete on price. This is one of the purposes of this bill: to benefit local retailers. Moreover, the bill does so while raising tax revenue for the state.

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