With ‘Black Friday’ being followed by ‘Cyber Monday’ in the United States, main street retailers hope that the latter will be the last that internet shoppers can enjoy before the introduction of a general online sales tax.
‘Black Friday’ is the day following Thanksgiving Day in the US, traditionally the beginning of the Christmas shopping season, when most major retailers open early and offer promotional sales. On the other hand, ‘Cyber Monday’ is when shoppers, after returning to work from the long Thanksgiving weekend, continue their purchasing online using their employers’ high-speed internet connections. By last year, it had become a USD1.25bn online shopping day.
The continued growth of sales on ‘Cyber Monday’ has prompted the retail business groups to push Congress, even during the current ‘lame duck’ session, to consider the legislation that would force out-of-state internet sellers, such as Amazon and eBay, to collect state sales taxes, thereby allowing, it is said, local main street retailers to compete more effectively.
For example, Alison Joseph from the Alliance for Main Street Fairness, has called in press interviews for “Congress to pass e-fairness legislation and require all retailers, online and on Main Street, to play by the same set of rules,” such that “this should be the last holiday season that Main Street businesses have to compete on a playing field that is not level.”
Currently, under a US Supreme Court ruling, known as the ‘Quill’ decision, retailers are only required to collect sales tax in states where they also have bricks-and-mortar stores. The burden falls to consumers, who are required to report to state tax departments any sales taxes they owe for online purchases on their tax returns.
As a result, local retailers are looked at as having a competitive disadvantage because they must collect sales taxes at the point of sale, while out of state retailers, including many large online and catalogue retailers, give their customers an effective discount by collecting no state or local sales taxes.
The majority of US states have already responded to the Quill decision by working with local governments and the business community to adopt a comprehensive interstate system to harmonize and simplify their sales tax rules and administrative requirements called the Streamlined Sales and Use Tax Agreement (SSUTA).
However, the Quill decision made it clear that US Congress would need to authorize and sanction such an agreement, and proposed bills to that end - the Main Street Fairness Act in the Senate and the Marketplace Equity Act in the House - were introduced.
In addition to certifying the SSUTA, the draft legislation would also provide states who choose to use it with the clear authority to require retailers to collect sales taxes already owed; require the SSUTA to meet a list of simplification requirements to ease administrative burdens for sellers; exempt small businesses from collecting sales taxes; compensate online retailers for start-up administrative costs associated with collecting the taxes; and release consumers from their existing sales tax remittance obligations.
However, those bills have been languishing in both the Senate and the House of Representatives since mid-2011, with strong opinions being expressed on both sides, from those in support of taxing e-commerce and those against.
“Consumers shouldn’t have to face the burden of reporting all of their online purchases. Main Street retailers collect sales taxes on behalf of consumers, why shouldn’t online retailers do the same?” said Dick Durbin (D – Illinois), when he introduced the bill in the Senate. “In 2012, states across the country are expected to lose as much as USD24bn in uncollected state and local taxes on internet and catalogue sales.”
More recently, Sandy Kennedy, President of the Retail Industry Leaders Association, added that “this holiday season, thousands of retailers of all sizes will compete on product assortments, pricing and promotions to earn the business of budget-conscious consumers. But this competition will not occur in a true free market as long as online-only sellers are allowed to exploit a loophole that allows them to avoid collecting state sales taxes. This loophole gives a handful of online sellers a government-sponsored leg up in the free market, and it’s time for this special treatment to end.”
With a certain amount of bipartisan support, Kennedy urged that they should be part of the Congressional agenda before the session concludes at the end of the year. While a number of state governors have taken action in 2012 with, for example, Amazon collecting sales taxes in Texas, California and Pennsylvania, it was said that ultimately most states need Congress to act.
Amazon has also, in fact, been in favor of a new law, having stated that “it has long supported a simple, nationwide system of state and local sales tax collection, even-handedly applied to all sellers, no matter their business model, location, or level of remote sales."
However, other interested parties are not so sure, pointing in particular to possible difficulties for small online businesses. Brian Bieron, Senior Director, Federal Government Relations and Global Public Policy at eBay, has argued in the past that "we are confident that (the legislation) will be rejected because it would harm small internet retailers.”
“The giant retailers jockeying for new internet sales taxes have national store networks that they combine with their major online sales platforms, a business model they know brings some tax collection duties,” he continued. “Forcing small businesses to take on the same costs and tax burdens as national retail businesses is unrealistic, unfair and will unbalance the playing field between giant retailers and small business retailers on the internet.".
TAGS: tax | law | small business | business | internet | e-commerce | legislation | sales tax | tax compliance | United States | compliance | retail | commerce
IMPORTANT NOTICE: Wolters Kluwer TAA Limited has taken reasonable care in sourcing and presenting the information contained on this site, but accepts no responsibility for any financial or other loss or damage that may result from its use. In particular, users of the site are advised to take appropriate professional advice before committing themselves to involvement in offshore jurisdictions, offshore trusts or offshore investments.
All rights reserved. © 2013 Wolters Kluwer