US Senators Seek To Protect Online Retailers

by Mike Godfrey, Tax-News.com, Washington

08 November 2011

A bipartisan “Sense of the Senate” Resolution has been introduced in an attempt to counteract efforts within the United States Congress, and by some states, to impose sales taxes on out-of-state online retailers.

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 brick-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.

A number of states have 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.

However, the Quill decision also made it clear that Congress would need to authorize and sanction any such agreement, and a proposed bill, the Main Street Fairness Act, was introduced, in July this year, in both the Senate and the House of Representatives to provide that support.

“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 Senator Dick Durbin (D - Illinois), who introduced the bill. “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.

Other interested parties are not so sure, and Ron Wyden (D - Oregon), Kelly Ayotte (R- New Hampshire) and other bipartisan Senators have now introduced a “Sense of the Senate” Resolution stating that Congress will not enact legislation that “would upset the free and fair internet marketplace and allow state governments to impose new and onerous and burdensome sales tax-collecting schemes on out-of-State, internet-enabled small businesses. This, they added, would "adversely impact hundreds of thousands of jobs, reduce consumer choice and impede the growth and development of interstate commerce”.

“Whenever there is an opportunity to invent new ways to tax goods and services, governments will take advantage of them,” Wyden said. “But allowing a scenario in which a small online retailer is forced to calculate, collect and remit thousands of different taxes for thousands of different tax jurisdictions is a barrier to entry that will discourage entrepreneurship.”

“Small online storefronts are taxed differently than big-box brick and mortar operations because they are different,” he added. “We are offering this resolution to reaffirm those differences and to ensure that Congress doesn’t enact legislation that will discourage entrepreneurs from using the Internet to grow their companies and our economy.”

In the opinion of Ayotte, a member of the Senate Small Business Committee, “Congress should not impose onerous tax collection and remittance requirements on small Internet vendors. Placing new requirements on these companies would mark a significant departure from the traditional hands-off approach that Congress has taken with respect to the internet marketplace.”

The Computer & Communications Industry Association has also applauded the introduction of the Resolution. Its President and CEO, Ed Black, stated that “it is counterproductive to add to the administrative burdens of small businesses at the very moment we need them growing and leading our economic recovery. E-commerce is an innovation that has enabled businesses to broaden their scope beyond traditional geographical limitations.”

He concluded that “allowing states to impose geographically-based taxation collection requirements on e-commerce businesses would re-impose the very limitations that innovation has enabled them to overcome,” and described such moves as “retrogressive measures that would draft online vendors into service as remote sales tax collectors”.

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