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Monday, January 16, 2017

Sales Tax Policy Outlook for 2017

I don't expect 2017 will look much different than activities of 2016.  With one change - Congress looking at a consumption tax at the federal level for business income. If that happens, there is relevance for state sales taxes.

For more, please see my policy post originally posted at

Sales tax law changes and discussions in 2017 are likely to look a lot like those of 2016, with one possible exception.
The repeating discussions and activities will include:
1) Expanding the sales tax base to include more services and digital goods.
2) Congressional hearings on the Marketplace Fairness Act without enactment of legislation.
3) Continued and expanded state efforts to get a case to the US Supreme Court to challenge the 1992 Quill decision. For more on this, see Sylvia Dion's 12/16/16 post.
The possible new item is the federal level tax reform discussions that include moving the business income tax to a consumption tax. The House Republican blueprint released in June 2016 calls for a cash-flow consumption tax where assets (other than land and inventory) are expensed, interest expense in excess of interest income is not deductible (it carries forward), imports are taxed and exports are exempt, and the tax rate is lowered. They hope that this is considered a valid border-adjustable tax by the World Trade Organization (WTO), because of the desire to tax imports and exempt exports (this will help pay for lower rates). If this cash-flow tax is not found to be border adjustable, and Congress wants such a tax, perhaps we'll see the debate move to replacing the corporate income tax (and perhaps other business income taxes) with a credit invoice VAT used by over 130 countries, and known to be border-adjustable. If that happens, that will lead to a new sales tax policy discussion - should the states convert their sales taxes to a credit invoice VAT? One issue of course, is what to do with the state level business income tax? Should it be kept if the federal business income tax ends?
Congressman Jim Renacci (R-Ohio) has introduced a tax reform plan to replace the corporate income tax with a credit invoice VAT.
For more on consumption taxes and the operation of a VAT, see my explanation here.

Let's see what happens.

What do you think?


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