A group of Democratic lawmakers has introduced a bill in Congress aimed at leveling the playing field for sales tax charges between online retailers and brick-and-mortar stores.
The bill, known as the Main Street Fairness Act, has won the support of Amazon.com, which has been fighting Internet tax laws at the state level around the country. Another major supporter is Sears Roebuck & Co., representing traditional brick-and-mortar retailers.
The bill was introduced Friday by Sen. Dick Durbin, D-Ill., who has been promising to introduce such legislation this year. In the House, it is being introduced by Rep. John Conyers, D-Mich., and Peter Welch, D-Vt. Co-sponsors in the Senate include Senator Tim Johnson, D-S.D., and Jack Reed, D-R.I., and Rep. Heath Shuler, D-N.C., in the House.
The Main Street Fairness Act would certify the Streamlined Sales and Use Tax Agreement across the country, which is an agreement that many states already have written into law. It would provide states who choose to use it with the clear authority to require retailers to collect the sales taxes they already owe. It also would require the Streamlined Sales and Use Tax Agreement to meet a lengthy list of simplification requirements to ease administrative burdens for sellers; and exempt small businesses (as defined by the Governing Board of the Agreement) from collecting sales taxes. The bill would also compensate retailers for the startup administrative costs associated with collecting sales taxes, particularly online; and treat all retailers equally regarding sales tax collection.
Taxpayers are currently required to report sales taxes they haven’t paid for items they purchased online on their tax forms, though few choose to do so. The bill would release consumers from their existing sales tax remittance obligations. It would also help states and localities collect billions in taxes that are already owed to them, helping them balance their budgets and reducing the need to raise new taxes to fill gaping holes in their budgets.
“Consumers shouldn’t have to face the burden of reporting all of their online purchases,” Durbin said in a statement. “Main Street retailers collect sales taxes on behalf of consumers. Why shouldn’t online retailers do the same?”
He noted that in 2012, states across the country are expected to lose as much as $24 billion in uncollected state and local taxes on Internet and catalogue sales.
Amazon.com has opposed many state-specific attempts in the past to compel online retailers to collect state sales tax, most recently in the state of California, where it plans to introduce a budget referendum to repeal a recently passed online sales tax law.
In a letter to Durbin, Amazon vice president for global public policy Paul Misener wrote, “Amazon.com has long supported a simple, nationwide system of state and local sales tax collection, evenhandedly applied to all sellers, no matter their business model, location, or level of remote sales. To this end, I am writing to thank you for your bill that would allow states that sufficiently simplify their rules to require collection of sales tax by out-of-state sellers.”
Sears Holdings also agreed with the legislation. “We believe it will restore balance and fairness to the system by enabling states to enforce the collection of taxes that are already owed by every customer making a purchase, whether the purchase is online or in a retail store,” said Sears vice president William Harker. “This is a critical step in addressing an issue that has resulted in over a decade of unfair competition between retailers who collect the sales tax and those who refuse to do so.”
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 a result, 44 states and the District of Columbia responded to the Quill decision by working with local governments and the business community to adopt a comprehensive interstate system to harmonize and simplify their sales tax rules and administrative requirements called the Streamlined Sales and Use Tax Agreement. To date, 24 states have changed their laws to comply with this interstate agreement. But the Quill decision made it clear Congress would need to authorize and sanction such an agreement. The Main Street Fairness Act does that while providing assistance for online retailers and small businesses to implement the requirements.
The Main Street Fairness Act is supported by the National Governors’ Association, the National Conference on State Legislatures, the Governing Board of the Streamlined Sales and Use Tax Agreement, the National Retail Federation, the International Council of Shopping Centers, the Retail Industry Leaders Association, the National Association of Real Estate Investment Trusts, and the National Association of College Stores.
However, eBay said it opposed the bill. “A collection of state tax commissioners have again been able to get an outdated Internet sales tax bill introduced in Congress, but we are confident that it will be rejected because it would harm small Internet retailers,” said Brian Bieron, eBay’s senior director of federal government relations and global public policy at eBay Inc. “Better policy is reflected by H.Res. 95 from Congressman Dan Lungren, R-Calif., and Congresswoman Zoe Lofgren, D-Calif., with 27 bipartisan co-sponsors, which says that Congress won’t give states ‘the authority to impose unfair tax collecting requirements on small online businesses.’ The giant retailers jockeying for new Internet sales taxes have national store networks that they combine with their major online sales platforms, a business model they know brings some tax collection duties. Forcing small businesses to take on the same costs and tax burdens as national retail businesses is unrealistic, unfair and will unbalance the playing field between giant retailers and small business retailers on the Internet.”
Another technology company, FedTax, and merchants who use its TaxCloud service, said they support the bill. “Modern technology now makes it easy for businesses to comply with the Main Street Fairness Act,” said FedTax CEO R. David L. Campbell. “In fact, our TaxCloud service handles every aspect of sales tax management for free, making collecting sales tax easy and affordable for any business—from sole proprietors to the Fortune 500. We’re happy to see the Main Street Fairness Act introduced, and we hope that politicians from both sides of the aisle will support it—it’s truly a bipartisan issue, a matter of fiscal responsibility and tax equality.”