Sales Tax Nexus and Federal Sales Tax Legislation

I’ve read a significant amount of information regarding three different pieces of Federal legislation that would grant states the right to force remote sellers to collect sales tax on sales to customers in their states.  If this Federal legislation should pass, and ultimately be upheld by the Supreme Court, then everything we know relative to sales tax is about to change. 

This will affect almost every business and it will certainly change our entire industry.  These three pieces of legislation are The Mainstreet Fairness Act, The Marketplace Equity Act, and The Marketplace Fairness Act.  (For an overview of each of these Acts you can download our Sales Tax Handbook here.)

Each has its own set of simplification standards and small business provisions that a state must adhere to in order to exercise their authority to require remote sellers to collect sales tax.  The big news and the commonality is that each of the three Acts remove the requirement of physical sales tax nexus that has governed sales tax collection responsibilities since their inception in the 30’s.  This raises multiple questions:

• With no physical sales tax nexus requirement, wouldn’t these Acts affect practically EVERY business – not just those that sell through the Internet?  For example, a software company based in Georgia that traditionally has not had sales tax nexus in Indiana has historically not collected sales tax in Indiana.  With the passage of any of these Acts, the Georgia business would be required to collect sales tax provided Indiana meets the simplification rules and the business does not meet the small business exception.  It seems like in an attempt to force online retailers to collect sales tax, this broadens the burden of collection to almost EVERY business.  Was this the intended consequence of taxing internet retailers?

• Simultaneously, since sales tax nexus is no longer required and every business is collecting the sales tax whether they have a physical presence or not, doesn’t the whole concept of consumers use tax go away?  The basis for consumers use tax is for businesses and individuals to self assess the tax that is due and to remit the tax directly to the state in those situations where the retailer did not collect the sales tax.  If every seller is now required to collect sales tax, then it seems consumers use tax would go away.  The only scenarios where consumers use tax would apply is on the purchases from businesses that fall into the small business exception that do not have the obligation to collect the sales tax or when a company withdrawals products from exempt inventory.

• Wouldn’t these Acts be challenged in the Courts and ultimately, wouldn’t the Supreme Court need to rule as to whether these Acts are Constitutionally acceptable?  While the Commerce Clause allows the federal government to regulate interstate commerce, do these Acts violate other aspects of the Constitution such as The Compact Clause, The Appointments Clause, or The Due Process Clause?

I’ve not seen much commentary on these three questions.  Perhaps reviewing the full transcripts of the various hearings where these Acts have been debated would provide some insight.