Legislation is gaining support that would enable states to collect sales and use taxes on purchases made from out-of-state sellers by in-state customers. These transactions usually occur over the internet. Under current law, states generally cannot collect such taxes from an out-of-state retailer without a physical presence in the state (a “remote seller”) 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, and is considering bills which would do so. The proposed legislation would have implications for sales made to purchasers in Indian Country and by sellers in Indian Country.
The Marketplace Fairness Act (HR 684 and S 336) would authorize a state to impose tax collection responsibilities on out-of-state retailers if the state met one of two conditions. A state would have to either (1) sign 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; or (2) meet certain procedural 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 proposed bills include exceptions for sellers whose gross annual receipts on remote sales in the United States are $1 million or less.
The bills do not address sales in Indian Country specifically, or any existing tax agreements between tribes and states. Under current law, sales to tribal members within Indian Country are exempt from state taxation. Also, tribes generally have the right to tax sales to non-tribal members on their lands. The bills do not expressly prohibit states from taxing sales to tribal members, nor do they authorize tribes to collect tribal taxes that some tribes levy on sales within their lands. As such, the bills do not address concerns raised by tribes and tribal organizations (including the National Congress of American Indians and the United South and Eastern Tribes) that have called for remote sales tax legislation that properly recognizes and respects the tax policies and principles applicable in Indian Country.
Similar legislation introduced in previous Congresses included tribal provisions that attempted to address some (but not all) tribal concerns. 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 336.
The bills are gaining support, as demonstrated on March 22, 2013, by a 75 to 24 procedural vote amending the Senate Budget Resolution (S. Con. Res. 8) to support the bills. Senate Majority Whip Durbin (D-IL) is reportedly working with Senator Enzi and Senator Alexander (R-TN) on a plan to move the full Marketplace Fairness Act as soon as possible when the Senate returns to Washington the week of April 8.
Authorizing states to collect taxes on internet sales is 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, including Senator Baucus (D-MT), Chairman of the Senate Finance Committee, 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.
Please let us know if we may provide additional information regarding the legislation summarized in this Memorandum.