Home  |   About us  |   Partner with AWC  |   Login      


Welcome to AWC’s online library of Legislative Bulletin and CityVoice news articles and other updates.

Published on Friday, April 3, 2015

Washington State Marketplace Fairness Act

In an unexpected move, some Washington lawmakers have decided not to wait for Congress to act on legislation that would allow the state to collect sales tax from out-of-state-retailers. In late March, House Democrats proposed a Washington State Marketplace Fairness Act as part of their $1.5 billion revenue proposal, HB 2224.

Requiring out of state retailers to collect sales taxes has been a long-standing AWC federal priority. In a 1992 decision, Quill Corp. v. North Dakota, the U.S. Supreme Court held that states cannot require retailers with no in-state physical presence to collect sales and use tax. As internet sales have increased, this case has become more problematic for states, especially Washington which is about 50% dependent on sales tax for operating revenue.

The Washington State Department of Revenue estimates that local governments in Washington will lose approximately $118 million in sales tax for state fiscal year 2016. The state will lose an estimated $314 million.

Over the past several years, the U.S. Congress has introduced legislation that would overturn the court’s ruling in Quill and require retailers to collect from customers who live in a state with a sales tax. Last year, the federal Marketplace Fairness Act passed the Senate but failed to advance in the House. The legislation was recently re-introduced in the Senate.

At the same time, a U.S. Supreme Court Justice seemed to invite a challenge to Quill in a recent opinion regarding a Colorado tax case. In a concurring opinion in Direct Marketing Association v. Brohl, Justice Anthony Kennedy stated that the “legal system should find an appropriate case for this Court to reexamine Quill.” The concurrence recognized the current impacts of the Quill decision on state and local governments due to the rise of internet purchases, Congress’s failure to pass the Marketplace Fairness Act, and the need for states to improve use tax collection.

Other states have taken steps to improve collections by out of state businesses, and Washington has been involved in these discussions at the national level. With HB 2224, House Democrats have signaled their willingness to challenge the Quill decision and no longer wait for Congress to act. The proposal stops short of requiring all out-of-state retailers to collect sales tax from all Washington State customers. Instead, it modifies the standard for when a retailer has nexus with the state and must collect sales tax.

The proposal is estimated to generate $145 million to local governments in Washington State over the next five years. Approximately one-third of that would go to cities.