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Tax & AccountingJune 16, 2022

Senate considering legislation to reduce sales tax compliance burden on small businesses

Responding to complaints from small businesses and their advocates, the Senate Finance Committee held a hearing on June 14 to examine the impact of the 2018 Supreme Court decision in South Dakota v. Wayfair on small businesses and remote sales.

Background

Four years ago, the Supreme Court upheld a lower court’s decision in South Dakota v. Wayfair that removed the physical presence “nexus” requirement for a state to impose a sales tax on sales of goods or services into that state and replaced it with an “economic nexus” standard. The result was that a state could impose a sales tax on goods and services sold into the state even if the seller didn’t have a physical location in that state. All states that impose a sales tax have “adopted” the economic nexus standard.  

Today, out-of-state sellers (remote sellers) are required to collect and remit sales taxes on goods and services sold into all states and the District of Columbia, even if they do not have a physical presence there. Further complicating matters is that many states have subsequently passed legislation or issued administrative rulings, each ruling or action differing from state to state, resulting in varying rates and rules in most states. Further complicating matters is that many municipalities and localities impose their own sales tax on top of the state tax. 

Small businesses and their supporters argue that this has created confusion and a huge compliance burden at a time when they can least afford it.

Senator Wyden seeks to draft legislation to ease the burden on remote sellers

Senate Finance Chairman Ron Wyden (D-Ore.) said during the hearing on June 14 that he is preparing legislation to help simplify the rules for remote sellers. He stated that his intent is to reduce the “toll on small businesses across America… (and) get this simplification in place.” Senator Wyden also said that the legislation would be created on a “bipartisan basis.”

Hearing witnesses testify that small business owners face an unnecessary and costly burden

The testimony of one witness, Michelle Huie, founder of VIM & VIGR Compression Legwear, is indicative of what the Senate Finance Committee members were told during the hearing:

“The current conditions make it excessively complicated and adds major costs and administrative burden as well as fear that we’re not doing something correctly. I know of businesses that have had to close because the administrative complexities and costs were just too much for some business owners.”

Despite the best of intentions, legislative action this year seems unlikely

Even if legislation is introduced soon, it is highly unlikely that any action will be taken on it this year. The Administration and Congress is focused on a myriad of other priorities before the summer recess and mid-term elections. Bottom line, small businesses and other remote sellers will need to continue to comply with complex and varied sales tax compliance obligations.

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Mark Friedlich
Vice President of US Affairs for Wolters Kluwer Tax & Accounting
Mark Friedlich, a CPA & tax lawyer, is the Vice President of US Affairs for Wolters Kluwer Tax & Accounting. He is a member of the U.S. Senate Finance Committee’s Chief Tax Counsel’s Advisory Board, advisor to 14 state taxing authorities, and has been a member of the American Bar Association’s Tax Section and AICPA’s Tax Section leadership teams. Prior to joining Wolters Kluwer he was a COO and Principal at PwC.

 

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