Log in

Internet Sales Tax Bill Moving Forward

24 Apr, 2013 By: Chris Tribbey

A bill that would allow states to collect sales taxes from online retailers passed procedural hurdles in the U.S. Senate this week and is set for a vote.

Current law prohibits states from collecting taxes on an Internet transaction unless that vendor has a physical presence in the state, but the Marketplace Fairness Act would remove that barrier, and allow states to collect taxes on online sales to consumers, if the business doing the sale had more than a $1 million in total remote sales in the previous year.

Opponents say the bill would burden online retailers with myriad state and local sales tax systems, and that collecting taxes on Internet sales would still remain difficult, while proponents say it’s unfair for brick-and-mortar stores to pay while online retailers don’t.

U.S. Sen. Bob Corker, R-Tenn., a sponsor of the bill, said the bill merely enforces current law (taxpayers are required to pay taxes to the state on online purchases, but rarely do).

“This is a states’ rights bill that gives states like Tennessee the ability to enforce existing state tax laws and collect sales taxes on online purchases if they choose,” he said in a statement. “It also levels the playing field between local brick-and-mortar businesses, who have invested in the state and currently have to collect sales taxes, and online retailers who are sometimes out-of-state entities and do not have to collect the Tennessee sales tax.”

The Hill reported that Senate Majority Leader Harry Reid, D-Nev., promised a vote on the bill before Monday.

A Congressional sales tax report released April 19 estimates lost tax revenue to the states due to untaxed Internet transactions at $11.4 billion in 2012. Other estimates have that figure as high as $23 billion.

“No compelling reason exists for government to continue to give remote retailers a competitive advantage over in-state merchants who live and work in a community, hire employees, and pay taxes, said Craig Johnson, executive director of the Streamlined Sales Tax Governing Board.

The Alliance for Main Street Fairness, a coalition of small business owners, is also speaking out against an apparent attempt by eBay to be exempted from the Marketplace Fairness Act. eBay doesn’t want its high-ranking sellers taxed for transactions on the site.

“We are on the cusp of ensuring that the government gets out of my way and lets me run my business on a level playing field against my online competition,” said Alliance member Michael Frueh, owner of Longmeier Printing in Lima, Ohio. “As a small business retailer, I compete on price and work hard to serve my customers, but I don’t have the ability to forgo collecting sales tax at the point of purchase.”

Steve DelBianco, executive director of NetChoice — a coalition of online businesses, including eBay and Yahoo! — said the bill, if passed, “needlessly threatens a fragile economic recovery, by failing to require true simplification of incredibly complex sales tax regimes” and would “unleash a horde of state auditors on small and midsized businesses across the country.”

“The big-box stores love this legislation, because it adds to their competitive advantage over smaller retailers that took refuge on the Internet after they were driven off Main Street,” DelBianco said. “Consumers, however, should be very concerned about a measure that will hurt businesses they rely upon, and very likely lead to less choice and higher prices.”

While passage of the Marketplace Fairness Act seems certain in the Senate, its fate is less certain in the Republican-controlled House. DelBianco said House members will “recognize a new tax when they see one, so hopefully we will get another chance to make the real fixes that this bill so desperately needs.”

Edward Black, president and CEO of the Computer & Communications Industry Association, said the law allowing states and communities to tax vendors with no physical presence “would be a fundamental rethinking of the way we consider taxes, with profound impacts on electronic commerce and on the future shape of commerce itself.”

“Proponents of this bill often speak of ‘fairness’ and ‘leveling the playing field’ between online retailers and physical stores,” he said. “However, for this bill to actually result in a level playing field, the tax collection burden for online retailers would have to match that of brick and mortar stores.

“While the physical store only needs to collect sales tax for its own tax jurisdiction, an online retailer is being asked to administer a tax collection regime for thousands of jurisdictions, as an online purchaser could potentially be in any one of them.”

A coalition of conservative groups — including the National Taxpayers Union and Taxpayers Protection Alliance — said in a statement that the law “would create a very slippery slope for states to attempt collection of business or even income taxes from out-of-state entities.”

“In seeking to address the failures of the ‘use tax’ systems employed by states, the Marketplace Fairness Act ends up giving a federal blessing to a massive expansion in state tax collection authority, the dismantling of a vital taxpayer protection upon which virtually all tax systems are based, while harming a segment (online sales) that despite its dramatic expansion still only accounts for roughly 7 cents of every $1 in retail spending,” the statement reads.

Add Comment