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Congressional focus on regulating online sales taxes

On Behalf of | Mar 23, 2018 | Business Formation & Planning |

New York and other states are jealous mistresses in that they want to realize profit from transactions between business entities and consumers.

In the realm of retail transactions, they customarily achieve that goal through the imposition of a sales tax. The amount is easily determined and collected by a brick-and-mortar entity in the state when a customer purchases goods.

What if a selling entity is an online enterprise, though, without a physical nexus to the state from where the buyer is making the purchase?

States have had varying reactions to that, with a recent Forbes article noting “the lack of a consistent approach” across the country. Current law emerging from a U.S. Supreme Court ruling back in 1992 mandates that only retailers with an in-state physical presence can be forced by state authorities to collect and remit sales taxes. In the new online universe, that ruling is anachronistic and has become problematic.

It is now centrally in the spotlight. The nation’s highest court is slated to revisit it next month in a case that some commentators believe could yield a ruling that ushers in a host of new and unaligned state-varied regulations. Forbes states that new legislation flowing from the states “could make sales and use taxes even more confusing than they are now.”

That might not turn out to be the case, though, given a recent flurry of activity on Capitol Hill. A House bill with scores of co-sponsors and a clear bipartisan bent is being pushed forward for quick consideration. It is supplemented by companion legislation in the Senate. Both bills would enable states to order retailers beyond their boundaries to collect and remit sales taxes on goods purchased by their residents. Passage would obviously have an impact in New York and other states on both online retailers registered locally and on state residents transacting with out-of-state online companies.

As Forbes notes, Congress has the constitutional power to regulate interstate commerce. It will soon be known whether it chooses to do so in the realms of online sales taxes.