Members of Congress have re-introduced legislation aimed at pressuring online Web sites to charge sales taxes to out-of-state customers, combining three competing bills that were introduced in the previous congressional term.
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A bipartisan group of 53 lawmakers in the Senate and House backed the Marketplace Fairness Act of 2013 last Thursday, which aims to resolve the differences between bills introduced in the Senate and House in the last Congress to allow local brick-and-mortar retailers to compete more effectively against out-of-state internet sellers.
The Marketplace Fairness Act of 2013 would give states the option to require the collection of sales and use taxes already owed under state law by out-of-state businesses, rather than rely on consumers to remit those taxes to the states—the method of tax collection to which they are now restricted.
While brick-and-mortar retailers typically collect sales and use taxes from customers who make purchases in their stores, many online and catalog retailers do not collect the same taxes. Under the Marketplace Fairness Act of 2013, states would have the option to require the collection of sales and use taxes by out-of-state sellers if states simplify their sales and use tax systems.
The effort in the Senate has been led by Senators Mike Enzi, R-Wyo., Dick Durbin, D-Ill., Lamar Alexander, R-Tenn., who introduced the Marketplace Fairness Act in the Senate during the 112th Congress (see Senators Introduce Online Sales Tax Bill).
“For over a decade, congressional inaction has created one of the largest tax loopholes of our lifetime,” Enzi said in a statement. “The federal government should not favor some businesses over other businesses and some taxpayers over other taxpayers. It’s 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. It’s time to let states make their own fiscal decisions without having to first ask Washington.”
Durbin noted that businesses in his home state aren’t looking for a handout from Washington, but just 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,” he said. “Every day we don’t act to pass this bill, we risk another small business closing its doors because they can no longer survive.”
Sen. Alexander contended that the 11-page bill boils down to states' rights. “States have a right to decide what taxes to impose and whether they're going to collect those taxes from some or all of the people who owe them, and whether they're going to subsidize some businesses at the expense of others,” he said.
The effort to pass online sales tax legislation in the House has been led by Steve Womack, R-Ark., and Jackie Speier, D-Calif., who, during the 112th Congress, introduced the Marketplace Equity Act of 2011 and John Conyers, Jr.., D-Mich., and Peter Welch, D-Vt., who, during the 112th Congress, introduced the Main Street Fairness Act (see House Considers Online Sales Tax Legislation and Congress Introduces Bill to Collect Online Sales Taxes).
“Small businesses and states alike are suffering from the inability to collect due—not new—taxes from purchases made online,” said Womack. “The Marketplace Fairness Act is the bipartisan, bicameral, common-sense solution that promotes states’ rights and levels the playing field for our Main Street businesses rather than continuing to allow the government to pick marketplace winners and losers.”
Speier contended that the Marketplace Fairness Act of 2013 represents a fair and workable solution to a problem that has been growing since online retailers opened their virtual doors. “As a result of an outdated Supreme Court ruling that hasn’t kept up with modern technology and the 21st century marketplace, our local brick and mortar retailers are struggling to stay afloat,” she said. “With the MFA, my colleagues and I have found a way to level the playing field for all retailers while still protecting small online sellers. It’s time for our tax laws to catch up with the modern marketplace and take government out of picking retail winners and losers.”
Conyers noted that after more than 12 years of work, the coalition supporting the Marketplace Fairness Act has grown to include labor and business interests, state and local governments, small as well as large retailers. “This legislation is bicameral and bipartisan, and will help the bottom lines of our state and local governments while protecting our local retailers,” he said. “With support for this legislation coming from all corners, it is imperative that Congress promptly consider this important legislation.”
“Our bill gives Main Street businesses a fighting chance,” said Welch. “When a consumer can walk into a store, try out a product and then go home and buy it online without paying sales tax, Main Street businesses and downtowns lose out. Our bill will level the playing field and bring much-needed fairness, strengthen our Main Street businesses, create jobs, and revitalize our downtowns.”
The Marketplace Fairness Act gives states the authority to compel online and catalog retailers, no matter where they are located, to collect sales tax at the time of a transaction, just as local retailers are already required to do. However, states are only granted this authority after they have simplified their sales tax laws.
Simplification is required because two Supreme Court rulings (National Bellas Hess v. Illinois Department of Revenue in 1967 and Quill v. North Dakota in 1992 cite a concern that collecting sales tax for multiple states would be too difficult.
The Marketplace Fairness Act requires that states must simplify their sales tax laws in order to ease those concerns and make multistate sales tax collection easy. Specifically, states seeking collection authority have two options for simplifying their sales tax laws.
Under one option, a state can join the 24 states that have already voluntarily adopted the simplification measures of the Streamlined Sales and Use Tax Agreement, or SSUTA, which has been developed over the last 11 years by 44 states and more than eighty-five businesses with the goal of making sales tax collection easy. Any state that is in compliance with the SSUTA and has achieved full member status as a SSUTA implementing state will have collection authority on the first day of the calendar quarter that is at least 90 days after enactment.
Alternatively, states can meet essentially five simplification mandates listed in the bill. States that choose this option must agree to:
1. Notify retailers in advance of any rate changes within the state;
2. Designate a single state organization to handle sales tax registrations, filings and audits;
3. Establish a uniform sales tax base for use throughout the state;
4. Use destination sourcing to determine sales tax rates for out-of-state purchases (a purchase made by a consumer in California from a retailer in Ohio is taxed at the California rate, and the sales tax collected is remitted to California to fund projects and services there); and,
5. Provide free software for managing sales tax compliance, and hold retailers harmless for any errors that result from relying on state-provided systems and data.