Just last week new legislation was introduced into the US House of Representatives by Congressman Jim Sensenbrenner (R-WI.).
The “No Regulation Without Representation Act of 2016” aims to more clearly define physical presence and to shut down the many challenges to Quill including click-through nexus, notification and reporting requirements like in Colorado, and the economic nexus standards recently enacted by Alabama and South Dakota.
Additionally, the legislation would prescribe a 15-day de minimis threshold. This would provide a consistent guideline rather than the current interpretation of how many days of certain activities (i.e. solicitation of sales or providing services) creates sales tax nexus.
Here are the specific requirements to create physical presence as outlined in the bill:
- owns or leases real property in the state
- owns or leases tangible property in the state
- has employees, agents or independent contractors in the state specifically soliciting product or service orders from customers in the state
- has employees, agents or independent contractors in the state providing design, installation or repair services in the state
- maintains an office in-state with three or more employees for any purpose.
The following activities are specifically excluded from creating a physical presence:
- referral agreements with in-state persons who receive commissions for referring customers to the seller (no more click-through nexus)
- presence for less than 15 days in a taxable year
- product delivery in-state by a third-party
- Internet advertising services not exclusively directed towards, or exclusively soliciting in-state customers
This legislation would certainly simplify determining sales tax nexus. It does not address the supposed loss of sales tax collections by the shift in buying patterns to the internet. However, I’m not convinced the loss of sales tax collections are as significant today as previous studies have indicated. Many internet sales (as much as 80% as described by some resources) are via big box retailers that collect sales tax and Amazon which continues to expand the number of states where they collect sales tax. Could this new legislation put to bed this sticky issue once and for all?