Support strengthens for state sales tax collection from online retailers
It's highly likely that the Marketplace Fairness Act, which would allow states to collect sales tax from "remote" sellers (online and catalog retailers operating from another state), will become law before the year is out.
The proposal cleared a big hurdle last month when, as an amendment attached to the Budget Resolution, it was approved 75-24 in the Senate. The vote was actually just a test - the Budget Resolution is a non-binding document and therefore doesn't have the force of law - but it proved the legislation has the necessary support required to win passage later this year.
Currently, states can only collect sales tax from internet retailers that have a physical presence in the state. This is based on the rulings of two Supreme Court decisions from 1967 and 1992 - long before internet commerce, or even the internet, was a part of everyday life.
Earlier this year, the National Retail Federation's senior vice president for government affairs, David French, said it was an idea whose time had come. "For far too long local retailers and small business owners have been saddled with a competitive disadvantage with online retailers -- sales taxes. While store owners collect and remit state and local sales taxes, their digital competitors are off the hook, and benefiting because of it. As e-commerce and m-commerce continue to increase in market share, it's time Congress allows all retailers to compete on the same playing field."
As the Marketplace Fairness Act is currently written, participation by states would be voluntary, and small businesses with less than $1 million in annual total remote sales in the U.S. would be exempt from collecting the tax (this is called the "small seller exception"). States -- not retailers -- would pay for the software that would handle collection.
States that choose to participate would have to simplify their sales tax codes, and the Act specifies two ways to do that.
The state may choose a "comprehensive simplification plan," called the Streamlined Sales and Use Tax Agreement, in which they could require remote sellers (except small sellers as defined earlier) to collect sales tax starting on the first day of the calendar quarter that is at least 90 days after the date of the enactment of the Marketplace Fairness Act. On this date (which some say could be as early as Oct. 1, 2013), sales tax collection would be required on all sales shipped to the 24 SSUTA states: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming.
The remaining states that want to collect sales tax must enact legislation to implement either the SSUTA , or implement the "minimum simplification requirements" described in the Act, which include: providing retailers with at least 90 days' notice of any rate changes within the state; designating a single state organization to handle sales tax registrations, filings and audits; establishment of a uniform sales tax base; using the destination of the sold goods to determine sales tax rates for out-of-state purchases; and providing free software for managing sales tax compliance.
The states that choose the second option (the "minimum simplification requirements") can begin requiring remote sellers to collect sales tax six months after the date of enactment.
States stand to profit big from the collection of remote sales tax. A 2009 University of Tennessee study puts the national number for just the e-commerce portion at somewhere between $11.4 and $12.7 billion. But the NRF's David French says the sales tax disparity has led to a financial loss for state and local governments of about $24 billion a year.
An April post on law firm Troutman Sanders' "Information Intersection" notes that no new tax is being proposed under the Marketplace Fairness Act. "Sales taxes that would be covered by the Act are already, technically, owed. It's just that the burden is currently on each individual shopper to self-report and pay the tax. As one would expect, however, compliance is as rare. Supporters of the Marketplace Fairness Act argue that while it may have made sense to place the burden on consumers in the past, technology has made it as simple to calculate sales tax in the buyer's location as it is to calculate shipping rates, a routine practice in online commerce, making collection by the Internet retailer as easy as it is for brick and mortar stores."
The lengthy list of supporters of the Marketplace Fairness Act (shown on the marketplacefairness.org website) includes Wal-Mart, Target, Sears, JCPenney, Bed, Bath & Beyond, Beall's, Buy.com, The Container Store, Home Depot, Jo-Ann Stores, The Kroger Company, Lowes, Meijer and The Neiman Marcus Group.
Opposing organizations include eBay, Overstock.com, the Direct Marketing Association, American Catalog Mailers Association, Competitive Enterprise Institute, Heritage Foundation, National Taxpayers Union and Americans for Tax Reform. Opponents argue that the proposal is a "tax increase," violates the U.S. Constitution's Commerce Clause, and has the potential to create major compliance headaches for small businesses.
Amazon, a former opponent of state sales tax collection, is now expressing support for the Act. In a February letter to the U.S. Senate, Amazon's vice president for global public policy, Paul Misener, said "I am writing to thank you for your bill, which will allow states with simplified rules to require sales tax collection by out-of-state sellers who choose to make sales to in-state buyers. Amazon.com has long supported a simplified nationwide approach that is evenhandedly applied and applicable to all but the smallest volume sellers." Other reports suggest that after years of dealing with state legislatures and their different regulations, rates and physical presence requirements, Amazon would welcome a uniform, simplified nationwide system for the collection of state sales tax.
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