If you’ve been following the Internet sales tax debate, you know that taxing online transactions is one way that lawmakers foresee increasing state revenue. Still, they can’t start collecting online sales tax until Congress passes federal legislation to mandate and enforce a change in procedure for on-line retailers. Or can they?
Legislators in Washington State’s House created a plan that would allow the state to collect tax from online sales. Because Internet shoppers are supposed to be paying use taxes based on sales taxes they don’t pay from an online purchase, this legislation could be considered simply enforcing existing law.
Washington’s Five-Point Internet Sales Tax Solution
The plan basically expands the definition of “nexus” to prompt online sales tax collection in five areas.
- Economic nexus would be achieved three ways:
- If out-of-state sellers sold $267,000 or more in goods to customers within Washington state.
- If Washington accounted for more than $53,000 in payroll or property.
- If Washington accounted for at least 25% of payroll, property or income.
- Click-through nexus* would target out-of-state sellers that pay commissions to Washington residents for referring possible clients (through affiliate links on websites, for example).
- Affiliate nexus* would target out-of-state sellers that sell products through an Internet-based marketplace with a physical presence in Washington (such as Amazon).
- Marketplace facilitator nexus* would target Internet-based marketplaces that are not located within Washington, but that have sellers located within the state (like eBay or Etsy).
- Credit card nexus* would target out-of-state sellers who accept credit cards distributed by any company with a physical presence in Washington (Visa or MasterCard for example), or with a payment processor or bank within the state.
*These parts of the plan are all dependent on physical presence and more than $10,000 in sales to Washington consumers each year.
We always watch proposed legislation like this with a bit of a wary eye. The U.S. Constitution says that it is Congress that must regulate interstate commerce. And they’ve done little lately to address the issues related to online sales and the large amount of sales taxes that go uncollected. While we may sympathize with states for the loss of revenues due to increased online commerce, the enactment of laws that fly directly in the face of the U.S. Supreme Court decision about physical presence in Quill over 20 years ago isn’t the way to fix it. As states continue to pass legislation that will pull in more revenue under the guise of expanding the nexus threshold, we feel like we are in the Wild West and dodging bullets. Has the Sheriff left town completely? Send this back to Congress – it’s what the U. S. Constitution tells us to do.
Miles Consulting Group, Inc. is a professional service firm in San Jose, California specializing in multi-state tax solutions. Our firm addresses state and local tax issues for our clients, including general state tax consulting, nexus reviews, tax credit and tax incentive maximization, income tax and sales/use tax planning and other special projects, including the new California Competes Tax Credit and the California Manufacturer’s Partial Sales Tax Exemption. To learn more, contact us today at www.MilesConsultingGroup.com.
Photo Credit: Nicolas Raymond