Just saw that Senator Max Baucus of Montana added a provision to the Marketplace Fairness Act of 2013 that allows states to exempt “remote sales of business inputs from sales and use tax”. What the heck is that all about?
The Senator must believe, or has been advised by his staff, that the state sales tax is like the value added tax which does allow for exemptions for business inputs because the total amount of the business revenue is subjected to VAT when sold. No state that I am aware of has any broad sales tax exemption for “business inputs”, however there are countless examples of specific product level exemptions that will survive despite the passage of the Marketplace Fairness Act of 2013.
As a reminder, the vote the Senate took on the Act was not binding and really did nothing to impact that progress of the bill. However, this addition to the bill shows how little the U.S. Congress knows about state sales tax and why they really have no business tying to micromanage what the states may or may not do. In Sen. Baucus’ addition, there is no definition of what a “business input” is and it does not require state to actually provide an exemption for business inputs. As I have written about before, though, the passage of this kind of bill would potentially allow Congress to set state sales tax policy or allow the Streamlined Sales Tax Project to dictate to states what is taxable and what is not taxable. Based on the trajectory of these types of non-governmental groups, the states are slowly losing their ability to legislate tax policies that are specific to their states.
Ned Lenhart, CPA
President Interstate Tax Strategies