Congress is currently considering legislation that would enable states to collect sales and use taxes on purchases made from out-of-state sellers, usually over the internet. The proposed legislation would have implications for sales made to purchasers in Indian Country and by sellers in Indian Country.
Background. Under current law, states cannot collect such taxes from an out-of-state retailer without a physical presence in the state because such collections—absent congressional authorization—would violate the Interstate Commerce Clause of the U.S. Constitution. Congress can, however, authorize the collection of such taxes by states.
Proposed legislation. Congress is considering three approaches to authorizing states to collect sales and use taxes on sales made by out-of-state retailers.
The Marketplace Equity Act (HR 3179) would authorize a state to impose tax collection responsibilities on out-of-state retailers once it implemented a simplified tax administration system that met certain requirements relating to: the sales and use tax rate structure; streamlined return filing; and uniform tax base as well as uniform exemptions throughout the state.
The Main Street Fairness Act (HR 2701 and S 1452) would authorize states to collect taxes on out-of-state-retailers providing the state signed on to the Streamlined Sales and Use Tax Agreement (SSUTA), a multi-state agreement that requires states to adopt a simplified sales tax system so that both internet and brick-and-mortar retailers may easily collect and remit sales taxes. States would also have to meet certain procedural requirements.
Finally, The Marketplace Fairness Act (S 1832) represents a hybrid approach. It would authorize states to impose sales and use tax collection responsibilities on sales sourced to that state if the state either adopted the SSUTA or implemented minimum simplification requirements, similar to those required by the Marketplace Equity Act.
All of the proposed bills include exceptions for “small sellers,” as defined in the legislation or in the SSUTA (which enables the board administering the SSUTA to define “small”).
Only one bill—the Marketplace Equity Act (HR 3179)—includes any provision dealing expressly with tribes or Indian Country. HR 3179 defines “state” to include “any Indian country” as defined by federal law (18 U.S.C. § 1151). This provision would appear to allow a tribe to collect sales and use taxes on internet sales to its reservation provided it met the tax simplification provisions of the legislation. The bill does not expressly state, however, whether the state tax would also be collected by the state on the same sale. Further, given the small seller exemption, many sales on a tribe’s territory may come within that exception.
The bills contain no express provisions for sales to tribal members on reservation. (Under current law those sales are exempt from state taxation.) In addition, they do not deal with existing tribal-state tax agreements.
Similar legislation introduced in previous Congresses included additional tribal provisions. S 34, introduced by Senator Enzi (R-WY) in the 110th Congress, would have authorized signatories to the SSUTA to collect taxes on remote sales and included provisions for tribes to become “member states” in the SSUTA, thereby entitling tribes to collect taxes on remote sales to their lands. No such provision is included in Senator Enzi’s current bill, S 1832.
Two hearings have been held on this legislation. The Marketplace Equity Act (HR 3179) was the subject of a House Judiciary Committee hearing on July 24, 2012. The Marketplace Fairness Act (S 1832) was the subject of a hearing by the Senate Commerce, Science and Transportation Committee on August 1, 2012. The bills are supported by some states that want to collect lost tax revenues estimated to be in the billions of dollars, and by “brick and mortar” retailers who want to “level the playing field” because they lose sales to internet sellers that do not collect the state sales taxes. Opponents argue that the legislation would constitute a new tax, and that it would be burdensome to businesses, especially given the multiplicity of taxing jurisdictions throughout the country.
After the Senate Committee hearing on August 1, Committee Chairman Rockefeller (D-WV) told reporters that he hopes to pass the bill during the “lame duck” session of Congress which occurs after the November elections.
Please let us know if we may provide additional information regarding the legislation summarized in this Memorandum.