U.S. Sen. Dick Durbin (D-Illinois) today introduced a bill that would require all retailers to collect sales tax. If passed, the legislation would overturn the status quo backed by a 1992 Supreme Court decision that prevents states from forcing Internet retailers to collect sales tax unless they have an in-state physical presence.
“Main Street retailers collect sales taxes on behalf of consumers, why shouldn’t online retailers do the same?” Durbin said in announcing his legislation. “In 2012, states across the country, including Illinois, are expected to lose as much as $24 billion in uncollected state and local taxes on internet and catalogue sales. From 2005 to 2010 the state of Illinois estimated it lost $153 million each year. The Main Street Fairness Act doesn’t ask anyone to pay a single penny more in taxes. Instead, it would help governors and mayors collect taxes that are already owed.”
The bill was applauded today by both Amazon.com Inc. and the National Retail Federation, a trade group for bricks-and-mortar retailers.
The legislation is designed to authorize states to mandate sales tax collection by all retailers if the states participate in the Streamlined Sales Tax Project, or SST, which is an effort under which states are simplifying their sales tax laws to make it easier for retailers to collect sales tax across multiple states. There are 45 states plus the District of Columbia with a state sales tax; in Alaska, sales tax is charge by some cities. More than 20 states currently participate in the SST.
In a letter today to Durbin, Amazon’s vice president for global public policy, Paul Misener, wrote, “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 … Amazon looks forward to working with you and your colleagues in Congress to help enact sales tax legislation.”
David French, senior vice president for government relations at the NRF, many of whose members already collect sales tax on web transactions because they operate physical stores, says the bill will create a more level playing field for all retailers regarding the prices they charge to customers. “We believe there should be a level playing field where all retailers follow the same rules regardless of whether they sell their merchandise in a bricks-and-mortar store, through the mail or online,” he says. “This bill would end a situation where Internet sellers have held an unfair price advantage over local stores for far too long. Tax policy should be channel neutral and not favor one segment of an industry over another.”
Other retail groups, however, including the Direct Marketing Association and the online retail group NetChoice, contend that a nationwide sales tax would stifle e-commerce—which for many multichannel retailers is their fastest growing channel. While Durbin cites a study from the University of Tennessee that projects states could gain more than $23 billion in revenue by 2012 through a nationwide Internet retail sales tax system, other studies put that estimate much lower.
Brian Bieron, senior director, federal government relations and global public policy at eBay Inc., which operates the world’s largest e-marketplace for mostly small independent sellers, says the Main Street Fairness bill would hurt small retailers. “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,” he says. “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.”
Comments | 18 Responses
I'm fully on board with this change in tax regulations. Internet retailers have been successfully integrated into our financial systems and collecting a tax as their brick and mortar compatriots do is only right and just.
I’m ok with collecting sales tax but I as a retailer I would like a simple way to pay all the states. Would it be possible to pay one organization or maybe the federal government with what we owe to each state and they pay each state. I would be on board with this. Otherwise as a small company this would be a lot of labor. What you thoughts? Tjsvariety
Yes to taxes to support recovery and to work as a tool to control over consumption and subsequently pick away at issues as large as our trade imbalance. The States have lost a great deal of money by not streamlining and managing a collection system. This should have been a priority and a pay friendly system should be developed and introduced with adequate training, implementation, follow up and system management. A quasi approach may be the key.
Again, this is not a new tax. What this bill would do is place the retailer in the position of collecting the "use tax" consumers owe if they purchase from an out of state retailer. Every state that has sales tax has a use tax that consumers & businesses are required to pay on purchases they make from out of state vendors. If you or your business is not paying use tax, technically you are breaking the law. I am not passing judgment, rather stating the facts.
I am sorry, but I disagree with Senator Durbin's tax bill. As the U.S. Economy continues to slump as evidenced in the recent decrease in our GNP, why don't we look at ways to stimulate sales growth? Adding a new tax will do nothing to help our biggest economic problems we are facing. Sorry Mr. Durbin but you need to put this one on the back burner for now.
"To be clear, the bill jointly introduced in the house (H.R.2701) and the senate (S.1452) Friday (known as the Main Street Fairness Act) is not a "new tax" - rather it simply would require online retailers to collect sales tax exactly like local retailers have been required to do for over 50 years (in most states)."
Okay, the bill may not technically indicate a new tax, however if I currently shop on the Internet and purchase from an e- retailer that does not have a physical retail outlet in my state of residence I do not pay sales tax on those purchases. This new bill requires that the consumer now pay sales tax on that same purchase. It becomes a New Application of an existing tax in which the Federal Goverment is mandating. To a consumer it is a new tax.
I'm sorry but this legislation is bad news for small and medium size internet retailers. I can't believe that the comments on this thread are even from internet retailers. Take a look at the large companies on the top 100 list. Most of them are already collecting taxes. This legislation will reduce the growth of small and midsize internet retailers without adding a lot to tax collections. Plain and simple.
@tjsvariety: There is a simple solution: TaxCloud (http://taxcloud.net). The statements by Ebay in the article confuse me. My company currently uses a PayPal checkout button that works with TaxCloud's service so my business (with less than $50k in annual sales) already calculates, collects and remits sales tax for any jurisdiction in any state. It is simpler in most cases for my business to calculate and remit sales tax than to deal with shipping. If my business can manage to collect the legally due sales tax for my customers, why is it so hard for Ebay? Technology available freely on the internet (like taxcloud) is more than capable of handling sales tax calculation and remittance. Sorry everyone, the "too burdensome" argument carried merit in 1967 and in 1992 (when SCOTUS last ruled on this matter), but in the era of modern computing where Ebay maintains a dominant position, multijurisdictional sales tax calculation and remittance is easily accomplished. So what is the real reason Ebay chooses to evade supporting your schools, hospitals, infrastructure, libraries, parks and so much more?
We are an already over taxed society. The problem isn't the amount of money collected, The problem is how our leaders spend it. Adding more money for them to spend corruptly isn't the solution anyone should be applauding.
This is no different than SMBs who compete with big box brick and mortar retailers in cities who have been taken over by large retail locations. This will challenge SMBs to build more technology and marketing savvy applications. They now are challenged to create a better value proposition. If you take a look at the customer segment that shops at the custom long tail retailer, I believe you'll find they are shopping there for a very unique item that they can't find at a big box retailer. The tax is not going to prohibit the sale but rather add to the revenue states clearly need.
How many of us try to buy online to save money by not paying any sales tax? Many to most of us. Pure online retailers have the additional advantage of no brick and mortar costs. If you are against taxes, i.e. libertarian/tea party...then the Durbin idea bites. If you believe in taxation...then sales taxes should be collected fairly. That means everybody.
New York State already collects the Use Tax: If you file an Income tax return in New York, there is a separate line that calculates your Use Tax due based on your income. If you don't agree with that number, you can put in your own number based on out of state purchase receipts you have, but are then subject to audit. If all the states with an income tax did this, there would not be an issue about collecting Use tax on out of state purchases.
The subject here is STATE SALES TAX. Why the Hell is the Federal govt getting involved in STATE sales tax? Collecting STATE sales tax is the States' problem, not the feds! It should be up to the States to come up with something to satisfy their greed; keep my Federal tax dollars out of trying to legislate this issue. As a small Internet seller with no nexus in any but my State, why should I go out of business keeping track of, collecting and remitting sales tax to 40-some states and hundreds of city/county entities?
@seawardco -- that is the best idea put forward yet. It is much simpler, streamlined and doesn't burden small businesses. What drives me mad about this issue is that I NEVER hear or read of anyone correcting the idea that online retailers have a price advantage by not having to tax. Hello! --- customers have to pay shipping costs for internet or catalog purchases and it is generally not chump change. ADD taxes, in addition to the shipping fees, to the purchase cost? *It will certainly hammer sales.* Of course the big retailers (who already have to collect tax) are okay with this. It will stifle their smaller competition. Whether the Durbin bill passes or not, I figure it is only a matter of time before some legislation does. However, let's be clear --- it will be an ANTI-competitive measure for small to medium online retailers!
Taxation always reduces demand. One has to look no further than the failed effort some years ago to tax luxury yacht companies. Sales dried up, jobs died and those who could afford to buy them bought them somewhere else. If sales taxes must be collect it MUST be simplified: One rate across the board, one collection point. As it is, prices will necessarily rise to cover the expense of the accounting. In the case of many small businesses, they'll close (or go underground) because they don't have the wherewithal to do the work.
If we live in a state that collects sales tax, we are required to pay it. If a net retailer isn't collecting and paying for us, we are required to report it when we file our taxes each year. The honor system doesn't work here. What if our employers didn't deduct state and federal taxes and we were on the honor system at the end of each year?
What a bunch of ignorant idiots on this thread! Agreeing to new taxes and loving it!! Its against the "Constitution". Don't ever complain about the state of your country when you give away all of your rights shamelessly.
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