Congress Considers Granting States Power to Require Remote and Online Sellers to Collect Sales Taxes

Sep 6th, 2012

Congress is now considering three different bills that would grant states the power to require remote sellers to collect sales taxes.

Under sales tax laws in most states, consumers typically pay sales tax directly to vendors when they make purchases, and the vendors must remit those taxes to the state. But, when the vendor is a remote seller (a vendor who sells over the Internet or by mail order to consumers in states where the vendor is not located), states currently lack the power to require that vendor to collect and remit sales taxes. In a series of U.S. Supreme Court decisions, the Court has held that in order for a state to require a business to collect sales taxes, the business must have a physical presence in that state. See Quill Corp. v. North Dakota, 504 U.S. 298 (1992); National Bellas Hess, Inc. v. Dept. of Revenue of Illinois, 386 U.S. 753 (1967). Although most states do require individual consumers to self-assess and pay use tax on items purchased from remote sellers, compliance with this requirement is, at best, spotty.

InQuill, the Court left open the possibility that Congress could step in and grant the states the authority to require remote sellers to charge, collect, and remit sales tax. In 2011, the following three bills were introduced in Congress to do just that:

All three bills are designed to authorize the states, under specific conditions (e.g., that they simplify and harmonize their sales and use tax regimes), to require remote sellers to collect sales taxes, notwithstanding their lack of physical presence in the state. Currently, all three bills have been referred to committees and have been the subject of committee hearings, but none have yet come up for a vote.