November 15 2022

Government Accountability Office Recommends Congress Establish Guidelines for State Taxation of e-Commerce

Source: IBFD Tax Research Platform News

On 14 November 2022, the US Government Accountability Office (GAO) published a report (GAO-23-105359) recommending Congress to work with US states to create guidelines for e-commerce businesses navigating the variety of tax requirements among the 50 states.

In 2018, the US Supreme Court held that individual states could collect sales tax from out-of-state businesses absent a physical presence. This resulted in states creating tax requirements that vary across the United States, creating a more complex tax landscape for businesses to navigate.

To evaluate the approaches taken to address the need for a more unified approach of e-commerce taxation among the states, the GAO evaluated reform proposals. While states and multistate organizations have begun the steps towards an incremental approach (e.g. a single state-wide point of registration, filing, administration and auditing), a comprehensive approach (e.g. uniform standards and centralized processes) has not been adopted.

To address the patchwork of tax compliance for e-commerce businesses along with legal disputes that may arise, the GAO suggested Congress use its authority under the Constitution's Commerce Clause to regulate interstate commerce. Furthermore, the GAO provided that the Supreme Court has already stated that Congress has the "ultimate power to resolve" issues with taxation of remote sales.

The GAO suggested Congress use the power to put into place federal legislation which would provide nationwide parameters for state taxation of remote sales. This would help address uncertainties and multistate complexities and improve the overall system.