Jim Sensenbrenner (R – Wisconsin), a member (and former chairman) of
the House of Representatives Judiciary Committee, has introduced legislation
to prohibit US states from imposing sales tax collection requirements on individuals
with no physical presence in the taxing state.
He said that the No Regulation Without Representation Act of 2016 would "stop
those states that are increasingly looking for ways to shift tax and regulatory
burdens to people from other states – to whom elected officials are unaccountable.
… This legislation would help reduce burdensome overregulation, keep government
overreaches in check, and ensure that only residents of a state are subjected
to tax obligations."
The proposed bill states specifically that, from January 1, 2017, "a state
may not obligate a person to (1) collect a sales, use or similar tax; (2) report
the sale; or (3) assess a tax on a person; or (4) treat the person as doing
business in a state for purposes of such tax, unless the person is physically
present in that state during the relevant taxing period."
A "similar tax" is defined as "a tax that is imposed with respect
to the sale or use of a product or service, regardless [of] whether the tax is imposed
on the person making the sale or the purchaser, with the right or obligation
of the person making the sale to obtain reimbursement for the amount of the
tax from the purchaser at the time of the transaction."
It also specifies that "Physical presence does not include (1) referral
agreements with in-state persons who receive commissions for referring customers
to the seller; (2) presence for less than 15 days in a taxable year; (3) product
delivery in-state by a third-party; (4) internet advertising services not exclusively
directed towards, or exclusively soliciting in-state customers."
The legislation would codify the physical presence requirement established
by the US Supreme Court in the 1992 pre-internet sales "Quill" case,
where it was decided that only Congress has the authority to regulate interstate
commerce under the Commerce Clause, and that the maze of state and local sales
tax rules was too complicated to require remote retailers to collect sales taxes.
Under the decision, retailers are therefore only required to collect sales tax
in states where they also have bricks-and-mortar stores – a "physical nexus."
If passed, Sensenbrenner's bill would overturn the development of the "nexus
expansion" laws by state legislatures and governments, such as click-through
nexus provisions, intended to ensure that sales taxes are paid on internet purchases.
It would halt, for example, the "Amazon taxes" imposed by a number
of states requiring affiliates of an internet retailer, which redirect customers
to that company's retailing website, to impose state sales tax.
The True Simplification of Taxation Coalition (TruST) has welcomed the bill,
and noted that "the recent proliferation of state laws and regulations
burdening online retailers and catalog merchants with onerous tax and reporting
obligations is already causing legal and regulatory problems for merchants around
"Without meaningful action from Congress, catalog and online merchants
across the country could be subjected to the whims of nearly 10,000 tax jurisdictions
and 46 state auditors," said Hamilton Davison, President and Executive
Director of American Catalog Mailers Association, one of the four industry organizations
comprising TruST, while Steve DelBianco, Executive Director of NetChoice, another
TruST organization, added that, "with states like South Dakota and Alabama
already harassing online retailers, it is more urgent than ever for Congress
to pass legislation that would simplify the collection of sales and use taxes."