The Big Story: Online sales tax back in the spotlight with watchdog report
A government agency is recommending that Congress address the patchwork of state laws that govern online sales taxes, an issue that has burdened e-commerce businesses, including many startups. In a new report this week, the Government Accountability Office examined the “substantial uncertainty” and complexity of the current remote sales tax landscape and recommended that Congress work with states to streamline requirements and minimize the burdens currently imposed on businesses across the country.
In 2018, the Supreme Court ruled in South Dakota v. Wayfair, allowing states to require out-of-state businesses to collect sales taxes even if the business did not have a physical in-state presence. In response, states quickly established new remote sales tax laws, creating a patchwork of requirements across many jurisdictions that has made it increasingly difficult and expensive for startups to navigate. The new report found that the resulting tax burdens from the Wayfair decision run counter to the criteria considered for a “good tax system,” including a lack of equity between multi-state sellers who must comply with the tax laws of many jurisdictions and brick-and-mortar businesses that face sales tax liability only in the jurisdictions in which they are physically located. It recommends that Congress work with states to “establish nationwide parameters for state taxation of remote sales” that should “balance state interests with the need to address the multistate complexities.” And that federal legislation could not only address existing uncertainties, but could more generally improve the overall tax system.
Engine has long noted the increased and expensive burden of sales tax administration for startups in the wake of Wayfair. The decision has necessitated small e-commerce startups to register in numerous states to pay and remit tax and rely on expensive software for collection and compliance. Policymakers should craft a legislative solution to reduce the burden startups face from a patchwork of state laws and help foster startup growth and success.
Policy Roundup:
Transatlantic startup, business associations send letter supporting EU-U.S. Data Privacy Framework. This week, Engine joined 40 other industry organizations from both sides of the Atlantic representing virtually every sector of the economy in urging EU policymakers to advance the EU-U.S. Data Privacy Framework and restore certainty to transatlantic data flows. Through an executive order signed last month, the framework replaces and enhances the earlier Privacy Shield Program that was invalidated by an EU ruling in 2020. The EU will use that EO as the basis for an adequacy decision—a draft of that decision is expected early next month.
Anti-patent troll laws and what they mean for startups. In our latest in a series of State Policy Updates—where we’re exploring how state initiatives can impact innovators across the country—we explore lawsuits in Washington state and North Carolina that were brought under state anti-patent troll laws. Those laws penalize bad faith patent assertion, and we explore how these two lawsuits could impact the efficacy of those laws deterring misuse of the patent system to benefit U.S startups and small businesses.
California’s children’s privacy law could inspire copycats. California state policymakers this year passed the California Age-Appropriate Design Code Act which could inspire a wave of similar laws in states across the country. While the California law passed unanimously, critics in academia and industry are concerned the law would actually incent more intrusive data collection, disempower parents, and burden innovation. In the continued absence of a federal privacy framework, states are likely to continue passing consumer and child-privacy laws, highlighting the need for a clear, universal federal privacy framework that creates strong protections for Internet users and consistent obligations for companies.
Congressional Democrats to prioritize DACA in lame-duck. This week, Senate Majority Leader Chuck Schumer announced that Democrats in Congress will push to permanently protect beneficiaries of the Deferred Action for Childhood Arrivals (DACA) program during the lame-duck session and are urging their counterparts on the other side of the aisle to support legislation. Last month the 5th Circuit Court of Appeals ruled DACA illegal but sent the case back to the lower court in light of the administration’s new DACA rule. While current recipients have retained their status, new applicants are barred from applying. DACA recipients are overwhelmingly entrepreneurial, help fill STEM talent pool gaps, and are crucial for U.S. economic and technological success.
Texas judge strikes down student debt relief, calls for extension to repayment pause surge. Last week, a federal district court in Texas declared President Biden’s student loan forgiveness plan unconstitutional, adding another wrench in the administration’s plan to forgive up to $20,000 in student loan debt for thousands of qualifying borrowers. The plan has faced several legal challenges and is currently enjoined by the 8th Circuit—which the administration plans to appeal. As a result of the challenges, the administration has paused its forgiveness application and is facing calls to extend the student loan repayment pause—erected during the pandemic amidst surging unemployment and financial instability—into the new year, while legal challenges continue to play out. Student debt can stifle innovation by preventing new, would-be founders—especially founders of color—from launching and growing startups.
Startup Roundup:
#StartupsEverywhere: Miami, Fla. Lofty is a blockchain-based investment platform making it easy for anyone in the world to diversify into real estate. CEO & Co-Founder Jerry Chu spoke with us about his experiences as a Canadian growing a U.S.-based business, his journey raising capital, and the ways in which policymakers can craft policy to support the responsible growth of emerging technologies.
