What an Updated, Simplified Online Sales Tax Law Could Mean for e-Retailers

What an Updated, Simplified Online Sales Tax Law Could Mean for e-Retailers


As online shopping increases, the nuanced laws surrounding how e-commerce companies must collect sales tax from online purchases has grown increasingly complex.

To try and simplify the process, House Judiciary Committee Chairman, Bob Goodlatte, R-VA, has drafted the Online Sales Tax Simplification Act of 2016.

According to the Performance Marketing Association, the legislation would “create a federal solution to the state-by-state approach that impacts affiliate marketers. However, this legislation is more complicated in that it would require merchants to collect sale tax from each buyer based on the buyer’s home state. Taxes would be remitted to the state and passed to a federal Clearinghouse that would then distribute the funds back to the buyer’s state. States would have a choice whether or not to participate.”

As its name reflects, the draft bill proposes a more simplified, streamlined process for all parties involved to determine the sales tax to be collected and would allow e-retailers to remit the collected monies to their home state revenue office in the same manner they already remit taxes collected on in-state sales.

The state’s revenue office would then turn the out-of-state money over to a clearinghouse for distribution to the states. E-retailers would have to report how much was collected for each state to their state revenue office. Under terms of the bill, states cannot audit out-of-state sellers over these funds.

So, if passed, what would this bill mean for e-retailers?

It has the potential “level the playing field” for traditional retailers while keeping compliance simple for online sellers so states can get the sales taxes they are due.

From a tax perspective, online sellers would now be able to treat all their customers as if they came directly into their shop to make a purchase. The only difference would be that the e-retailer charges the shopper tax at the single rate determined by the consumer’s home state, according to Internet Retailer.

Although the proposed bill is still in draft form, it is expected to be formally introduced in the House of Representatives sometime in October.