Sales Tax Policy Outlook For 2017

Annette Nellen

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.

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.

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