In a new effort to close Congress’s long-unfair tax loophole, Congressman Jason Chaffetz (R-UT) has introduced new legislation into the House of Representatives. Known as the Remote Transactions Parity Act (RTPA), the bill would allow states to impose a sales tax on remote sellers, such as online retailers. In theory, it’s a lot like the Marketplace Fairness Act (MFA), which small business owners and buy local groups have supported since 2013. This time around, however, RTPA introduces some key modifications that could make it more appealing to the earlier bill’s opponents.
Under current tax law, states can only collect sales tax from sellers with a physical location in their jurisdiction. That means that online retailers, which might not have a brick-and-mortar location in a given state, can sell their products without paying that state’s sales tax. Small and independent businesses in that state, however, must pay the sales tax as normal, giving the online retailers a competitive advantage in terms of pricing and operating costs.
In previous sessions of Congress, MFA has aimed to close this loophole. Rather than impose a new tax or rewrite the tax code, MFA proposed allowing states to collect sales tax from these previously exempt remote sellers. After passing the Senate in 2013, MFA stalled in the House and is still pending. In the meantime, RTPA has renewed the effort for sales tax equality in the House.
Using essentially the same model as MFA, the new bill would allow states with a simplified tax code to collect sales tax from remote sellers on any transaction in their state. One of the most significant and most celebrated differences between RTPA and the earlier bill is that RTPA would eventually apply to all online retailers and remote sellers. At first, states would only be allowed to collect sales tax from remote sellers who make at least $10 million in sales per year. Gradually, the regulation would apply to all businesses, creating tax equality across the board.
RTPA would also protect businesses from unfair audits. Under the law, states would not be allowed to audit businesses outside of their borders, regardless of where a transaction takes place.
House Oversight and Government Reform Chairman Jason Chaffetz (R-UT) has sponsored and introduced RTPA. It’s a strong show of support from a Republican member of the House. MFA was introduced with bi-partisan support in the Senate but has struggled to overcome conservative leadership in the House. With Republican support from the start and the important modifications, RTPA may hopefully find a different outcome.
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