The U.S. Treasury Department announced on Friday that it is expanding relief for individuals who filed their tax returns with a marketplace tax statement that previously included incorrect information.
In expanding the relief, the department said it will not require individuals who filed returns with the incorrect information to file an amended return. In addition, the IRS “will not pursue the collection of any additional taxes from these individuals based on updated information in the corrected forms,” the Treasury Department said in a statement.
The announcement comes several weeks after the department disclosed that approximately 20% of individuals who purchased coverage from the Health Insurance Marketplace last year were provided with inaccurate data in Form 1095-A. The form was provided to individuals who received advanced payments of a tax credit that was intended on helping filers ameliorate the costs associated with purchasing coverage on the marketplace.
In February, the department alerted approximately 800,000 individuals or less than 1% of filers that Form 1095-A included incorrect information regarding their benchmark premiums. At the time, approximately 50,000 individuals filed their tax returns with information containing incorrect premiums.
A tax filer could still stand to gain from amending their return if their monthly premium for 2015 from their Silver (or second-tier) plan is lower than the premium they paid each month in 2014, the Treasury Department added.
A bipartisan group of US Senators has re-introduced the Marketplace Fairness Act (MFA), which would give states the option of levying sales taxes on internet transactions. Currently retailers are only required to collect sales tax in US states where they also have brick-and-mortar stores (that is, a physical nexus). State and local governments are said to view the taxes they cannot collect on most online sales as lost revenue, and the National Conference of State Legislatures previously calculated that the present “loophole” costs USD23bn in uncollected taxes each year.
The MFA was approved by the previous Congress’s Democrat-led Senate on a bipartisan basis in May 2013. The MFA would give states the option to require online retailers with national annual sales greater than USD1m to collect the tax, even if their websites lacked a physical nexus in the state. The MFA was sent for approval to the Republican-led House of Representatives where it encountered a great deal of opposition, particularly on the grounds that it was considered to create new taxation and onerous compliance requirements. It then stalled in the House Judiciary Committee, and can also be expected to attract strong Republican opposition in the current Congress. House Judiciary Committee Chairman Bob Goodlatte (R – Virginia) has proposed an alternative system of taxing “remote sales” in an attempt to overcome his colleagues’ doubts. His draft legislation would create sales tax obligations based on where the retailer – not the customer – is located, but the proposal has also encountered criticism and is unlikely to be introduced in the short term.
Arguing in favor of the Bill, one of its sponsors, Mike Enzi (R – Wyoming), the Chairman of the Senate’s Budget Committee, said that “thousands of local businesses are forced to do business at a competitive disadvantage because they have to collect sales and use taxes and remote sellers do not. The MFA would put Main Street businesses on a level playing field with online retailers.”
Another sponsor, Assistant Senate Democratic Leader Dick Durbin (D – Illinois), added that “we came close in the last Congress, but the Bill was never acted on in the House of Representatives. I hope that, in the 114th Congress, we can do what’s right for businesses around the country.”
Discussions on the taxation of internet sales has also been stimulated by Justice Anthony Kennedy’s additional comments within the recent US Supreme Court (SCOTUS) decision in Direct Marketing Association v. Brohl (13-1032), on the 1992 “pre-internet sales boom” SCOTUS ruling, known as the Quill decision, that established the physical nexus ruling.
Justice Kennedy noted that “there is a powerful case to be made that a retailer doing extensive business within a state has a sufficiently ‘substantial nexus’ to justify imposing some minor tax-collection duty, even if that business is done through mail or the internet,” and suggested that “it is unwise to delay any longer a reconsideration of the Court’s holding in Quill.”