Co-Author: Cheryl Ganim

Congressman Jason Chaffetz and bipartisan lawmakers introduced on June 15, 2015, H.R. 2775, the Remote Transactions Parity Act (RTPA)[1].  Under the RTPA, streamlined sales and use tax agreement member states, (23 full-member states, including Ohio[2]), can collect taxes on sales from Internet and remote retailers that do not have a presence in a state. The bill is designed to grant states the authority to enforce state and local sales and use tax laws on remote transactions, and would apply the sales tax rate of the purchaser’s location. Remote sales are sales that originate in one state and are sourced to another state in which the seller does not have a physical or economic presence, and thus is not legally required to pay, collect, or remit sales and use tax. When a business does not have nexus with a state, they rely on purchasers to voluntarily pay use tax – many states are unable to collect the majority of use taxes on purchases made from out-of-state vendors.

The Remote Transactions Parity Act challenges the physical presence requirement established by the U.S. Supreme Court in National Bellas Hess, Inc.[3] and reaffirmed in Quill[4]. Currently, states are prohibited from collecting sales or use tax on out-of-state sellers who have not established nexus. States have expanded their taxing authority by enacting statues that require businesses to collect sales tax not only when they have a physical presence in a state, but also when the business enjoys an economic presence, or nexus is presumed through affiliate nexus or “click-through nexus”. Challenges by the states to the physical presence rule could lead to the Supreme Court reevaluating Bellas Hess and Quill, and changing the landscape of state taxation.

RTPA exempts businesses under $5 million in gross receipts from remote state audits entirely.  RTPA exempts more small businesses from collection requirements in the first year.  For example, the RTPA in the first year exempts small business under $10 million then phases to $5 million in the second year and $1 million in the third year.  RTPA calls for states to give remote sellers the software needed to collect and remit the taxes due.  It also requires states to pay for set-up, installation, and maintenance costs on the software.

 

 

[1]H.R.2775: Remote Transactions Parity Act of 2015 (Introduced in House – IH).

[2] http://www.streamlinedsalestax.org.

[3] National Bellas Hess, Inc. v. Dep’t of Revenue of Ill., 386 U.S. 753 (1967).

[4] Quill Corp. v. North Dakota, 504 U.S. 298 (1992).