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.
Dick Durbin
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.
5 Comments
Marketplace Stupidity Act
Make it simple. Make it easy. This bill is neither. Yet is described as such. Only politicians can spin this crap into gold.
The only criteria that matters is where the sale will be recorded for income tax purposes.
The fed law will change the definition of a SALE. This will no longer be clearly a SALES TAX. It will become a PURCHASING TAX.
Businesses SELL, customers PURCHASE.
Michigan organizations should collect ONLY Michigan sales tax from EVERY sale, no matter where the purchaser is sitting at the time
of the order/sale. No matter how the sale/order was made: fax, phone, message,....
The current bill is a poster child for why the general population hates elected officials. No SENSE! This bill is extremely
complicated. It will create another 50+ layers of government. It opens the door to cross-state malicious investigation and
prosecution. It requires the development of compliance software, which will not always work correctly. And provides more
opportunities for fraud.
And, to moderate the burden on small organizations, exemptions for internet sales revenues (1 million, 10 million?) will provide
relief. So, add in the need for an organization to prove, regularly, it is covered by the exemptions, and we have significant
openings for fraud, and obfuscation. With another great reason for lawyers to do whatever to exploit the grey areas for their
benefit.
This bill will cost more in time and money and resources to implement than it will ever collect.
I am sitting in Lansing, Michigan::::
I purchase a product from a company "located" in Cleveland, Ohio
I have it sent to an address in Wisconsin , my second residence
I pay with an American Express card (HQ: New York)
That is accessed via PayPal (HQ: California)
The product is shipped from an Amazon (HQ: Washington) warehouse in Los Angeles, California
UPS (HQ: Georgia) transports the package
The product is transferred between trucks in Phoenix, Arizona Denver, Colorado Indianapolis, Indiana Milwaukee, Wisconsin
I pay my American Express (HQ: New York) bill via the internet provided by ATT (HQ: Texas)
I transfer payment from Bank of America (HQ: North Carolina)
I visit Milwaukee, and transport the product to Lansing, Michigan
Can all of these states lay claim to a portion of the sale's tax revenue? Why Not?
Which state's tax should be assessed? The state in which I reside? The state I am in when I order the product? The state to which the product is shipped? The state where the product will be used?
Will I have to provide proof of residence for the state to which the product is delivered?
This is Kafkaesque!
This is just plain stupid!
Somebody needs to stop this train!
Posted by: FredBobo | May 3, 2013 7:54 AM
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@tego
Actually, I support a national sales tax solution, but not the plan Congress proposes. I prefer to have the CC processors collect/remit taxes directly to the States. States get instant funds; it's the most cost effective method; 95%+ compliant; paper free for retail; and the system would work for B&Ms as well as online.
The 'winner' here is Visa, Mastercard, AMEX, Authorize.net, PayPal, Google Checkout, Amazon Payments, and other plastic processors. All plastic and online purchase have a processing fee, which includes a fee on the Sales Tax. This cost alone is 2-5% depending on your provider, but the cost is not reimbursed by your State DOR. The CC/Online Payment Industry stands to make $600M or better/yr. It's a DUH moment. Let the States cut a deal w the processors.
Feel free to join my FaceBook Group stop.sales.tax.fees.now
The list is long for the argument of B&M v Online: Which is better? - but Sales Tax as an equalizer is a myth at best.
Sales Tax will not make it equal for the 'cheap warehouse space' as you claim. Granted, online eBay sellers do not need to solicit city fathers to buy bonds to build a 6 lane highway to the mall, nor do they require the same fire, police, sanitation as a B&M, but they do have to charge shipping. A price included @ the B&M
The $100 B&M item will always be found @ $75 online, with or without Sales Tax as an added cost factor. Studies so far in CA and TX have only seen a shift of 5% in sales. It's not the 'we will gt more storefronts' as retail associations claim will happen.
You buy online, you owe use tax. We all do. In most States, it's a line item on the tax form. Few know of this 85 year old law, and who is to blame for that? State DORs have done nothing to educate the public. Opportunity to get 30% or better compliance is easy to reach, but no, writing new bad law is a better idea.
> they are getting the right to sell to a customer > in another State, without a tariff, through the > Commerce Clause. so they are being represented > by the United States Government.
And as a US Citizen, I am bound to the law of the Feds, and my State (SC). Not CA, NY or yours. As long as I do not have physical presence in another State, I am covered by the Quill decision.
Posted by: xcergy | February 20, 2013 10:56 PM
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To xcergy: Curious about your actual position (economic) in this matter.
Are these companies you are talking about afraid of competition? Now they will have to compete on service as well as price. and they still have the advantage of cheap warehouse space as opposed to expensive retail space.
This "This is taxation without representation" argument gets to be old hat. they are getting the right to sell to a customer in another State, without a tariff, through the Commerce Clause. so they are being represented by the United States Government.
And go back to my initial comment: "Curious about your actual position (economic) in this matter."
Posted by: tego@verizon.net | February 20, 2013 2:53 PM
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I have to echo Jim DeMint's comments. This is taxation without representation. Businesses will be force to become a tax collector for 'foreign' states and have no say so over tax policy, and neither are they being compensated for the processing costs. Compliance costs reach beyond the 'free' software offered. You need to pay an IT guy to install the software; the entire product line will need to be coded into it's own tax class for possible exemptions w food/clothing items for example, and then there is the time spent filing/remitting the tax forms. For non SSUTA members, this would be 20 or more quarterly tax forms. Last is the money 'stolen' by the CC Processors. Sales Tax is subject to the 2-5% processing fee. $$ that does not belong to the processor or the merchant, but rather the respective State DOR. Yet but another out-of-pocket expense retail endures. Last, is it really fair to expect sellers in non Sales Tax States to collect tax for the other 45? Their cost will be go out of business or raise prices to cover compliance costs.
Posted by: xcergy | February 20, 2013 11:38 AM
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I strongly support and urge Congress to immediately pass the Marketplace Fairness Act. My small business recently discovered new efficiencies and savings made possible by freely available modern technologies that seamlessly automate sales tax calculations, collections and remittances for any jurisdiction in any state. Misinformation championed by only a few opponents frightened of increases in competition seem to be the last hurdle remaining.
Posted by: stenrw | February 19, 2013 9:06 PM
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