A bipartisan group of 10 senators introduced legislation Wednesday that would give states the option to collect the sales taxes they are owed under current law from out-of-state businesses, rather than rely on consumers to pay those taxes to the states.
The bill, known as the Marketplace Fairness Act, would give states the option to collect sales and use tax revenues from out-of-state sellers through a new, simplified tax system. Among the senators sponsoring the bill are Lamar Alexander, R-Tenn., Dick Durbin, D-Ill., and Mike Enzi, R-Wyo.
The bill resembles another piece of legislation, the Main Street Fairness Act, which was introduced in July by Durbin and several other Democratic lawmakers, but now includes support from some key Republicans and conservative groups (see Congress Introduces Bill to Collect Online Sales Taxes).
Like the earlier bill, it relies on the Streamlined Sales and Use Tax Agreement that is already in use by 24 states. However, the emphasis with the new bill is on the fact that it would not impose any new taxes, but merely collect taxes that are already owed, and it gives states the option not to collect the sales taxes, preserving states’ rights.
“This legislation would give states the ability to close the online sales-tax loophole, created when out-of-state sellers don’t collect, and purchasers don’t pay, the state sales tax—even though they still owe it,” Alexander said in a statement. “The legislation addresses a states’ rights issue: preserving the right of states to collect—or to decide not to collect—taxes that are already owed under state law.”
The legislation would streamline the country’s more than 7,500 diverse sales tax jurisdictions and provide two options by which states could begin collecting sales taxes from online and catalog purchases.
States that voluntarily become member states of the Streamlined Sales and Use Tax Agreement, or SSUTA, would be able to require remote sellers to collect and remit sales and use taxes after 90 days.
The agreement would help harmonize states sales and use tax rules, bring uniformity to the definitions of items in the sales tax base, reduce the paperwork burden on retailers, and incorporate new technology to modernize administrative procedures.
States that do not wish to become members of SSUTA would be allowed to collect the taxes only if they adopt certain minimum simplification requirements and provide sellers with additional notices on the collection requirements.
“For over a decade, Congress has been debating how to best allow states to collect sales taxes from online retailers in a way that puts Main Street businesses on a level playing field with online retailers,” said Enzi. “This bill empowers states to make the decision themselves. If they choose to collect already existing sales taxes on all purchases, regardless of whether the sale was online or in store, they can. If they want to keep things the way they are, it’s a state’s choice.”
Enzi read a letter from Amazon.com supporting the bill. Amazon also released a statement conforming its support. “Amazon strongly supports enactment of the Enzi-Durbin-Alexander bill and will work with Congress, retailers, and the states to get this bi-partisan legislation passed,” said Amazon vice president of global public policy Paul Misener. “It’s a win-win resolution—and as analysts have noted, Amazon offers customers the best prices with or without sales tax.”
Alexander noted that a version of the legislation introduced in the House has also won the support of the American Conservative Union.
The legislation exempts sellers who make less than $500,000 in total remote sales in the year preceding the sale to qualify for an exemption and not be required to collect the tax.
“Most small business people don’t want a government handout,” said Durbin. “They don’t want special treatment. They just want to be able to compete fairly against other businesses. That’s why I have worked with Senators Enzi and Alexander to introduce the Marketplace Fairness Act—a bipartisan bill to level the playing field for local main street businesses.”
Senators Tim Johnson, D-S.D., John Boozman, R-Ark., Jack Reed, D-R.I., Roy Blunt, R-Mo., Sheldon Whitehouse, D-R.I., Bob Corker, R-Tenn., and Mark Pryor, D-Ark., are also co-sponsors of the legislation.
Under the Supreme Court’s 1992 Quill decision, retailers are only required to collect sales tax in the states where they also have a physical presence, also known as nexus, while consumers are required to report to state tax departments any sales taxes they owe for online purchases. As a result, local retailers are at a competitive disadvantage because they must collect sales taxes at the point of sale while out-of-state retailers, including many large online and catalog retailers, in effect give their customers a discount by collecting no state or local sales taxes.
As with the earlier bill introduced by Durbin, eBay registered its objection, however. “This is another Internet sales tax bill that fails to protect small business retailers using the Internet and will unbalance the playing field between giant retailers and small business competitors,” said eBay vice president for government relations and deputy general counsel Tod Cohen. “It does not make sense to expand Internet sales tax burdens on small businesses at a time when we want entrepreneurs to create jobs and economic activity.”
Alexander predicted on the Senate floor that the legislation ultimately would be passed. “This problem’s been there for a long time,” he said. “It’s had the opposition of conservatives worried about taxes. It’s had the opposition of Amazon and other online sellers. The Supreme Court said 20 years ago that it was too complicated for out-of-state vendors to figure out how to collect sales taxes when something is purchased and sent to the state, which is what the Main Street seller does, and maybe that was true 20 years ago. But the Supreme Court said 20 years ago, it invited us in Congress to solve this problem, and Senator Enzi and Senator Durbin with this legislation in my opinion have solved the problem, and this is going to happen. I’m not presumptuous enough to predict what the United States Congress will do and what the President will sign, but I think I’ve been around long enough, and I’ve watched Congress enough to say this is going to happen. And if I were a governor, or I were an online retailer, or I were a catalog retailer, I would make my plans to conduct my business in this way.” For more information please see Senators Introduce Online Sales Tax Bill at www.accountingtoday.com.