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US Congressmen Reintroduce Online Sales Tax Bill

by Mike Godfrey,, Washington

20 February 2013

A bipartisan group of 53 Democrat and Republican lawmakers have re-introduced a bill – the Marketplace Fairness Act of 2013 – in both the United States Senate and House of Representatives, which would require online retailers to collect sales tax for state and local governments, even though they lack a physical presence in the state.

It is said the legislation would allow local “Main Street” retailers to compete more effectively against out-of-state internet sellers. Local “bricks-and-mortar” retailers are looked on, by some, as having a competitive disadvantage because they must collect sales taxes at the point of sale, while out-of-state retailers give their customers an effective discount of up to 10% by collecting no state or local sales taxes.

Currently, under a 1992 “pre-internet sales boom” US Supreme Court ruling, known as the “Quill” decision, it was decided that only Congress has the authority to regulate interstate commerce under the Commerce Clause, and that the maze of state and local sales tax rules was too complicated to require remote retailers to collect sales taxes.

Under the decision, retailers are therefore 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.

State and local governments are said to view the taxes they cannot collect on most online sales as lost revenue. It is estimated that the “loophole” costs state and local governments an estimated USD23bn in lost tax revenue each year, with California alone facing around USD1.9bn in uncollected 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), but require Congressional action for it to be effective.

In addition to certifying the SSUTA, the draft legislation would also provide states, which choose to use it, with the clear authority to require remote retailers to collect sales taxes already owed. It would also require them to meet a list of simplification requirements to ease administrative burdens for sellers, with an exemption for remote retailers with less than USD1m in national sales.

The effort to approve the bill in the Senate is being led by Mike Enzi (R - Wyoming), joined by Assistant Senate Majority Leader, Dick Durbin (D - Illinois) and Lamar Alexander (R - Tennessee), who introduced the Marketplace Fairness Act in the Senate during the previous Congress. In the House of Representatives, the bill has been introduced by Steve Womack (R - Arkansas), together with Jackie Speier (D – California) who, during the previous Congress, also introduced similar legislation.

“For over a decade, Congressional inaction has created one of the largest tax loopholes of our lifetime,” Enzi said. “It is time to stop discriminating through the tax code and put local and Main Street retailers on a level playing field with their out-of-state and online counterparts. The Marketplace Fairness Act does this without raising taxes and without burdening small businesses.”

Durbin added that: “Businesses do not want special treatment. All they want is a level playing field. By giving states the authority to enforce existing tax laws, the Marketplace Fairness Act of 2013 eliminates the competitive advantage currently enjoyed by many internet retailers at the expense of local businesses.”

As could be expected, reintroduction of the legislation found immediate support from the Retail Industry Leaders Association. In a letter to Senate and House sponsors of the Marketplace Fairness Act, from its Executive Vice President for Public Affairs Katherine Lugar, the need for a level playing field was highlighted.

However, not all are in favor. While Amazon has made arrangements to pay sales taxes with various states, but still sees the need for Congressional legislation, other online retailers, such as eBay, have previously been adamant in their opposition as they believe the bill would harm smaller internet retailers.

Support for that view has been expressed by the Computer & Communications Industry Association (CCIA) that continues to oppose the legislation. It said that: “While we understand and share the desire for state and local governments to be adequately funded in these times, we believe this is the wrong approach. Far from being fair or levelling the playing field, such legislation would create a new imbalance by requiring small online retailers to administer a tax collection regime for multiple jurisdictions, while a brick-and-mortar store needs only collect for the jurisdiction of its physical location.”

TAGS: compliance | tax | small business | business | sales tax | tax compliance | commerce | law | internet | e-commerce | legislation | United States | retail

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