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Following his introduction of the Main Street Fairness Act into the US House of Representatives a month ago, Representative Bill Delahunt recently joined with a group of politicians and small business owners to urge its passage.
Sales tax revenues comprise up to a third of most US state budgets. The stated objective of the bill is to help those states retrieve billions of lost sales tax revenues that are currently owed but go uncollected due to the sales tax rules across the country.
It is estimated that, in 2010, USD18.6bn will go uncollected and that, by 2012, the states will be losing at least USD23bn annually. In some cases, it was said, these revenue losses can comprise up to one half of a state’s budget shortfall.
The revenues are uncollected because of US sales tax rules across the country, which were confirmed by the Supreme Court in 1992 and which only allow a state to collect sales tax on goods traded between residents of the same state. Thus, online retailers are able to avoid collecting sales taxes from out of state consumers and, the Act’s supporters say, place retailers on local main streets at a competitive disadvantage.
Certain states have been working to fix their problem by formulating an inter-state agreement known as the Streamlined Sales Tax (SST) initiative that contains a uniform set of guidelines. To date, twenty-four states have simplified and streamlined their sales tax laws in this way. However, the agreement cannot take effect without Congressional authority.
The Main Street Fairness Act does not compel any state to join the agreement, but those that choose to adopt this system would then have the authority to require online retailers to collect and remit sales taxes in the same way that businesses on Main Streets do already.
Former Speaker of the Iowa House of Representatives, Chris Rants, said: "Currently, state governments are grappling with a USD68bn budget deficit. States aren't asking the federal government for a handout - states just need the federal government to give them the ability to collect the USD23bn in sales taxes that are already owed."
“Without question, states and local municipalities are facing an unprecedented budget crisis,” Delahunt said. “Instead of raising new taxes, this bill is a common sense approach that allows them to collect taxes that are already owed while coming to the aid of struggling small businesses in our communities.”
“This bill is about fairness and competition. It will help make sure that the store on the corner and the store on the internet are playing by the same rules. This will create fair competition that benefits consumers,” added South Dakota Governor, Mike Rounds. “Tax law should not favor out-of-state retailers over our own corner stores.”
Amongst others, the legislation is supported by the National Retail Federation, Retail Industry Leaders of America, International Council of Shopping Centers, National Governors Association and the National Conference of State Legislatures, together with over 50 state-level retail associations and chambers of commerce.
However, the proposed Act is being fiercely opposed by internet retailers. They contend, for example, that the imposition of sales tax on their sales would be particularly costly, given the myriad of tax rules and rates throughout the US states.
EBay, for example, has stated that the Act “would require small online retailers to comply with varying and regularly changing sales tax rules and rates for thousands of tax jurisdictions and to collect and remit sales taxes from each customer.”
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