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A new take on web sales tax collection
A House bill would fast-track a system that would lead to more e-retailers collecting tax.
Managing Editor, B2B E-commerce
Topics: catalog retailers, CCH, Congress, Daniel Schibley, Dick Durbin, distribution center, Jackie Speier, Main Street Fairness Act, nexus, online sales tax, physical presence, Retail Industry Leaders Association, sales tax, Scott Peterson, Steve Womack, Streamlined Sales Tax Project, U.S. House of Representatives
A sales tax bill with bipartisan support was introduced in the U.S. House of Representatives yesterday, proposing a fast-track way for states to require online and catalog retailers to collect sales tax.
The bill exempts sales tax collection by retailers with less than $1 million in annual nationwide sales; for individual states, the exemption is based on having annual in-state sales of less than $100,000.
The bill, introduced by Rep. Steve Womack, a Republican from Arkansas, and Rep. Jackie Speier, a Democrat from California, was designed to be simpler to implement than existing legislation introduced in the Senate in July by Sen. Dick Durbin, a Democrat from Illinois. As such, its backers, including the Retail Industry Leaders Association, a trade group representing large retail chains, hope it will win more political support from Republican lawmakers and have a better chance of passing, says Daniel Schibley, a state tax analyst with CCH, a unit of Wolters Kluwer that publishes tax and business information.
“It’s intended to win over Republican freshmen in the House by keeping it simple and positioning it as a matter of states’ rights and free markets,” Schibley says. And with cash-strapped states desperate to raise revenue without creating new taxes, the bill’s supporters hope they will win over more conservative Republicans. “The hope is that the freshmen will put pressure on the House leadership, and provide cover to Senate Republicans who are sympathetic to the states,” he adds.
Durbin’s bill, known as the Main Street Fairness Act, proposes to grant states the authority to mandate sales tax collection for online purchases if they abide by the Streamlined Sales Tax Project, or SST, a multi-state effort that over the last several years has worked to simplify tax collection rules among the 44 states that have a state sales tax. 24 of those states have so far passed legislation to abide by the SST’s rules, which include common definitions of taxable products.
The new bill from Womack and Speier calls for a less stringent system of collecting sales tax across multiple states, though it still includes rules such as providing a single sales tax rate for each state, simplifying how retailers remit sales tax revenue to states, and providing common rules on which items can be taxed.
Both bills are designed to override existing federal law that says states can require retailers to collect sales tax only when merchants have in-state physical facilities, such as stores or distribution centers.
Scott Peterson, executive director of the SST Governing Board, contends that Durbin’s Main Street Fairness Act bill “does more to promote simplicity and uniformity” in sales tax collection by Internet and catalog retailers.
The SST, he adds, has worked hard to make sales tax collection easier for retailers. “States require retailers to collect sales tax based on where they ship their products, and punishes them when they get it wrong,” says Peterson, who is a former South Dakota state tax official. “Retailers came to us and asked why they should have to spend their money trying to learn and keep up knowing the tax rate in effect where they make sales. The Streamline states agreed to create databases of taxable ZIP codes along with the appropriate tax rate and to provide it free of charge to retailers.”
Nonetheless, he speaks favorably of the new legislative proposal from Womack and Speier.
“We welcome their recognition of the issue and appreciate their efforts to achieve remote collection authority,” Peterson says. “Hopefully, we can blend these two concepts and get Congressional approval.”
But there are still hurdles to overcome, Schibley says. Retail chains that support the new legislation hope that it will help to win over support from congressional legislators in big states like New York and California, which are not members of the SST and don’t stand to benefit from passage of Durbin’s bill. However, many Republican state legislators that have worked on the SST, he adds, remain skeptical that many of their Republican counterparts in Washington will stand up to Tea Party opposition to any legislation related to raising tax revenue.