The online sales tax situation in the United States is a big concern for online retailers and can be a difficult topic to understand. A recent study from Stamford University indicated that a national online sales tax could decrease online purchase volumes by an average of 12% across all channels (although this could be financially negated by the upward trend in increased average order values). The addition of this tax would be a unique and challenging obstacle for all online retailers in the country.
Another unique aspect about online sales tax in the U.S. is that each state has different laws (or lack thereof) on whether it collects online sales tax and how it collects the tax. For example, last month Pennsylvania announced they will begin taxing online sales for companies with a physical presence in the state. As state laws currently stand, only online retailers with a physical eCommerce presence (i.e. distribution center) in a state can be subject to online sales taxes from that state, meaning online retailers do not have to pay an online sales tax in states where they do not reside.
Currently there are three online sales tax bills Congress is considering, each very unique in their own way yet with some similarities:
(Note: the Main Street Fairness Act requires and the Marketplace Fairness Act gives states the option to join the Streamlined Sales and Use Tax Agreement)
To recap the above table…
- Of the three acts, the Marketplace Equity Act would exempt the most businesses from any sort of online sales tax regulations as it requires only businesses with more than $1 million in revenue (gross annual receipts) to pay online sales tax.
- The Main Street Fairness Act would unite all 50 states with one uniform set of tax requirements and definitions – the other two Acts would not. (This act also allows states to determine their own online sales tax rate which can be uniquely different than the local or state tax rates currently in place.)
- One unique aspect of the Marketplace Fairness Act is its ability to allow states to pick and choose other states to unite with which fit their preferred tax requirements and definitions. This would help to minimize the number of online sales tax policies but give states some flexibility to choose their own policy.
The U.S. online sales tax issues are not easy to comprehend. Many different angles have been approached from a political perspective and as a result it will likely be years before a national online sales tax initiative is in place. Given the array of different Acts on the table in Congress it appears as though some form of a national online sales tax is on the horizon and we’ll be counting the years, not decades, until online sales tax reaches all corners of the United States.