In 1992, the United States Supreme Court ruled in Quill Corp. v. North Dakota that a state may only require an out of state seller to collect and remit sales tax if the seller has a physical presence in the state. To circumvent this ruling, many states have passed click-through nexus laws, which enable states to tax out of state sellers without a physical presence in the state as long as the sellers have affiliate agreements with in-state retailers. Still, many online retailers do not maintain such affiliate agreements and are able to avoid sales tax.
Many brick and mortar retailers argue that the current system unfairly favors online retailers because remote online retailers often do not have to charge sales tax while brick and mortar stores, which typically make most of their sales at their in-state location, typically do. Additionally, many argue that the current patchwork of state sales tax laws creates a compliance nightmare for businesses. In response to these concerns and others, Congress proposed the Marketplace Fairness Act (“Act”) in 2013. The Act would allow states to require remote online retailers with over a $1 million in sales to collect and remit sales tax even if the retailer has no physical presence in the state.
Congress proposed several versions of the Act in 2013 and the Senate passed one in May 2013 as an amendment to a budget resolution, although the House never passed the version. Passage of the Act is currently far from certain. Several Republican members of Congress, including House Speaker John Boehner (R-OH), have come out clearly against the Act. However, several groups, including the National Governors Association, the National Conference of State Legislatures and the Council of State Governments, support the bill. Businesses and their tax compliance experts will monitor this debate in the months ahead.