The bill is expected to have a substantial impact on state and federal tax reporting requirements. By raising the de minimis threshold, fewer transactions will require detailed reporting, which is anticipated to simplify the process for both sellers and tax authorities. This change could lead to enhanced compliance from smaller sellers who often struggle with the complexities of tax documentation, thus encouraging more individuals to engage in online selling activities without fear of punitive tax implications.
Summary
House Bill 3530, known as the 'Cut Red Tape For Online Sales Act', aims to amend the Internal Revenue Code to increase the de minimis exception related to third-party settlement organizations from $600 to $5,000. This amendment will significantly reduce the compliance burden for a large number of small businesses and individuals who use online platforms to sell goods and services, helping them avoid extensive reporting requirements for lower earnings. The bill is positioned as a facilitation of e-commerce, reflecting the growing importance of online sales in the economy.
Contention
Despite its advantages, the bill has faced scrutiny concerning the potential for misuse. Critics argue that raising the threshold could enable some sellers to evade tax responsibilities on larger sums of income derived from online sales. There are concerns about the balance between facilitating commerce through reduced regulations and ensuring that tax obligations are met comprehensively. Additionally, the requirement for plain language notices regarding the form 1099-K aims to address some of these concerns by ensuring taxpayers are adequately informed about their tax obligations.
Stop the Nosy Obsession with Online Payments Act of 2023 or the SNOOP Act of 2023 This bill modifies requirements for third party settlement organizations to eliminate their reporting requirement with respect to the transactions of their participating payees unless they have earned more than $20,000 on more than 200 separate transactions in an applicable tax period. A third party settlement organization is the central organization that has the contractual obligation to make payments to participating payees (generally, a merchant or business) in a third party payment network. This reverses a provision in the American Rescue Plan Act of 2021 that lowered the reporting threshold to $600 with no minimum on the number of transactions.
FairTax Act of 2023 This bill imposes a national sales tax on the use or consumption in the United States of taxable property or services in lieu of the current income taxes, payroll taxes, and estate and gift taxes. The rate of the sales tax will be 23% in 2025, with adjustments to the rate in subsequent years. There are exemptions from the tax for used and intangible property; for property or services purchased for business, export, or investment purposes; and for state government functions. Under the bill, family members who are lawful U.S. residents receive a monthly sales tax rebate (Family Consumption Allowance) based upon criteria related to family size and poverty guidelines. The states have the responsibility for administering, collecting, and remitting the sales tax to the Treasury. Tax revenues are to be allocated among (1) the general revenue, (2) the old-age and survivors insurance trust fund, (3) the disability insurance trust fund, (4) the hospital insurance trust fund, and (5) the federal supplementary medical insurance trust fund. No funding is authorized for the operations of the Internal Revenue Service after FY2027. Finally, the bill terminates the national sales tax if the Sixteenth Amendment to the Constitution (authorizing an income tax) is not repealed within seven years after the enactment of this bill.