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US Online Sales Tax Bill Tagged Onto Senate Budget

by Mike Godfrey, Tax-News.com, Washington

26 March 2013


A bipartisan group of 75 Democrat and Republican United States lawmakers have shown their support for the Marketplace Fairness Act of 2013, which would require online retailers to collect sales tax for state and local Governments, by voting to add an amendment summarizing the bill to the Democrat–led Senate's 2014 Budget.

Under the current tax system, while bricks-and-mortar retailers collect sales and use taxes from customers who make purchases in their stores, many online and catalog retailers do not collect the same taxes. The Marketplace Fairness Act of 2013, which had also been introduced on a bipartisan basis in the House of Representatives, would give states the option to require the collection of sales and use taxes from businesses even if they lack a physical presence in the state.

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 tax compliance burden falls on 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. 22 Governors (15 Republicans and 7 Democrats) have come out in support of a legislative amendment.

The Marketplace Fairness Act of 2013 would 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.

Dick Durbin (D - Illinois), the Assistant Senate Majority Leader, welcomed the vote as proving that "an overwhelming majority of Senators support this bipartisan legislation to level the playing field for bricks-and-mortar retailers … In order for this bill to become law, we'll need to stand up for businesses and retailers across America once again in the Senate with a decisive vote on the full Marketplace Fairness Act. I expect a bipartisan coalition in the House will join us."

The National Retail Federation, understandably, also thanked the Senate "for continuing the fight for fairness on behalf of America’s small businesses owners. This is a critically important issue for retailers – both large and small – across the country. Both bricks-and-mortar stores and e-commerce leaders understand that the Marketplace Fairness Act is common-sense legislation dedicated to protecting states' rights."

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.

Phil Bond, executive director of the WE R HERE coalition, an association of small business retailers all across the US, said that it was "disappointed that many Senators decided to vote in favor of an unprecedented increase in the tax burdens on one class of small businesses."

"Amendments like this are thinly veiled attempts to benefit big-box multinational corporations while persecuting their small competitors," he added. "Indeed, this legislation seems designed to help big retailers like Amazon.com and Walmart eliminate their much smaller competition."

In addition, Max Baucus (D – Montana), Chairman of the Senate Finance Committee, also confirmed that, while the bill should first have been considered through his Committee in a tax reform context, it "provides no protections for small businesses or protections from aggressive tax departments in other states. … With this amendment, a single business in any state may be exposed to tax collectors from all 45 sales tax states."

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

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