Nexus? Who Said Anything about Nexus?: A Summary of the Federal Nexus Bills
Recently, there has been significant activity in Congress related to sales tax nexus.
- In July, Sen. Richard Durbin (D-Ill.) introduced the Main Street Fairness Act (the “Durbin Bill”), the first of three bills introduced this year that would allow states to collect sales taxes from remote sellers.
- On October 13, 2011, Rep. Steve Womack (R-Ark.) and Rep. Jackie Speier (D-Cal.) introduced the Marketplace Equity Act of 2011 (the “Womack Bill”) that would allow states to impose a sales or use tax collection requirement on remote sellers with no physical presence in a state.
- Yet another bill, the Marketplace Fairness Act, was introduced by Sen. Michael Enzi (R-Wyo.) on November 9 (the “Enzi Bill”). This bill appears to have bipartisan support, as senators on both sides of the aisle are co-sponsors: Sens. Durbin, Lamar Alexander (R-Tenn.) Tim Johnson (D-S.D.), John Boozman (R-Ark.), Jack Reed (D-R.I.), Roy Blunt (R-Miss.), Sheldon Whitehouse (D-R.I.), Bob Corker (R-Tenn.), and Mark Pryor (D-Ark.).
- In contrast to these bills, Sens. Ron Wyden (D-Ore.) and Kelly Ayotte (R-N.H.) introduced a resolution opposing the enactment of “new burdensome or unfair” tax collection requirements on small Internet sellers. Sen. Res. 309 (Introduced Nov. 2, 2011).
Despite the resolution, Congress will seriously consider the three proposed acts. The three acts attempt to address the same issue through slightly different approaches. All three would allow states to collect tax from remote sellers if certain uniformity requirements are met. The uniformity requirements are similar, for the most part, but with some slight differences as discussed below.
The Durbin Bill allows states who are members of the Streamlined Sales Tax Agreement to collect sales tax on remote sales, provided that the Agreement itself meets certain uniformity requirements. The Womack Bill allows states to collect if they meet certain simplification requirements, regardless of membership in the Agreement. The Enzi Bill is, in some ways, a hybrid of the Womack and Durbin Bills, as it would authorize members of the Streamlined Sales Tax Agreement to require collection similar to the Durbin Bill (though, importantly, the Enzi Bill does not require the Agreement to conform to any specific simplification requirements), but the Enzi Bill also offers an alternative simplification regime for non-member states to gain the same authority as member states, similar to the Womack Bill.
Below is a summary of different key aspects and uniformity requirements of the proposed bills:
- Small Seller Exception: All three bills exempt remote sellers from being forced to collect tax if they meet the requirements for the small seller exception. Under the Womack Bill, the remote seller must have total sales in the United States exceeding $1 million and exceeding $100,000 in the state seeking to tax those sales. Under the Enzi Bill, the remote seller must have remote sales in the United States exceeding $500,000 (no state-specific requirement), and under the Durbin Bill, the Streamlined Governing Board would determine the requirements for the exception.
- Rates: All three bills would allow the destination rate to be collected provided that adequate software and taxability matrices are provided to sellers. The Womack Bill would also allow states to impose a single, blended rate or the highest state-level rate in lieu of providing the destination rate with software. For the Enzi Bill, this requirement would only apply to non-members of Streamlined.
- Administration & Audits: All three bills would require states to have state-level administration of all sales and use taxes. For the Enzi Bill, this requirement would only apply to non-members of Streamlined. The Enzi Bill would specifically require non-members of Streamlined to subject remote sellers to only a single audit. The Durbin Bill would allow sellers to request a single audit by the Governing Board for all member states. The Womack Bill does not specifically address audit requirements.
- Returns: For the Womack and Enzi Bills, there must be a single state return for remote sellers. For the Enzi Bill, this requirement would apply only to non-members of Streamlined. Under the Durbin Bill, the returns must be filed at the state level, but there is no requirement for a single return.
- Definition of Remote Seller: In all three bills, remote sellers are defined as those who make remote sales. Under the Durbin and Womack Bills, remote sales are sales where the seller did not have “adequate physical presence to establish nexus” under the law existing the day before enactment. Under the Enzi Bill, remote sales are sales where the seller did not have “adequate physical presence to establish nexus” under Quill.
- Consolidated Provider: The Enzi Bill also allows sellers to use third-party single or consolidated providers to collect and remit sales taxes on their behalf. Single and consolidated providers would be certified by the state to collect for third parties and would bear the rights and responsibilities of the remote seller.
- Sourcing: Unlike the other bills, the Enzi Bill addresses sourcing requirements. Member states must comply with the Agreement’s sourcing provisions, but non-member states must source sales according to delivery destination. If no delivery location is specified, then the sale is sourced to the address known to the seller, including the billing address. If that address is unknown, the sale is sourced to the seller’s address.
Given the substantial activity associated with these federal bills, it is difficult to assess which, if any, federal bill will gain momentum.