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Congress takes up online sales tax
A bill seeks to make it easier for states to collect web sales taxes.
Chief Technology Editor
Topics: Amazon, Dick Durbin, e-commerce and taxes, e-payments and security, eBay, International Council of Shopping Centers, Lamar Alexander, legal and regulatory, Marketplace Fairness Act, Michael Kercheval, Mike Enzi, National Retail Federation, NetChoice, nexus, Overstock, Paul Misener, Sears, Second 500, Steve DelBianco, Top 500, U.S. Congress
A new bill that has attracted bipartisan support in Congress would make it easier for states to collect sales taxes on online purchases.
53 U.S. senators and representatives joined in sponsoring the bill, called the Marketplace Fairness Act of 2013, which was introduced today in both the U.S. House and Senate. Backers say the proposed law addresses weaknesses in prior legislation designed to increase the collection of sales tax by online and catalog retailers.
Among the main differences in the new bill—in addition to having a broader support among Republicans as well as Democrats—is giving states more options about how they can streamline their sales tax laws, such as in how they set rules for what products are subject to sales tax, to make it easier for retailers to collect tax across multiple states.
The bill seeks to grant states the right to mandate sales tax collection by retailers, whether or not they have an in-state physical presence or nexus in legal terms. Such a presence includes stores or distribution centers. If enacted, the legislation would overturn existing federal law that says states can mandate tax collection only by retailers with nexus in their states.
The new bill applies only to retailers whose online sales outside of their home state exceed $1 million annually. (A prior Marketplace Fairness Act provided for a small-retailer exemption at $500,000 and would have covered many more e-retailers.) A University of Tennessee study in 2009 estimated that such legislation would enable states to bring in more than $20 billion a year in tax revenue that currently goes uncollected. Consumers are supposed to pay their own “use” tax when retailers don’t collect sales tax in the 45 states plus the District of Columbia that have a sales tax law, but few of those shoppers ever do.
The bill was introduced today at the United States Capitol by sponsors including Senators Mike Enzi (R-WY), Dick Durbin (D-IL) and Lamar Alexander (R-TN), and Representatives Steve Womack (R-AR), Jackie Speier (D-CA) and John Conyers Jr. (D-MI). Sponsors hailed the bill as a measure that stands up for states’ rights in collecting tax revenue and is fairer to bricks-and-mortar retailers that collect sales tax on in-store purchases. “It’s time to stop discriminating through the tax code and put local Main Street retailers on a level playing field with their out-of-state online counterparts,” Sen. Enzi said.
A number of retail chains and other retail groups, including Amazon.com Inc., Sears Holdings Corp., the International Council of Shopping Centers and the National Retail Federation, issued statements in support of the bill. “Closing the online sales tax loophole so that all retailers can compete on a level playing field is sound public policy and will protect the economic health of states, cities and neighborhoods,” said Michael P. Kercheval, president and CEO of the International Council of Shopping Centers.
Paul Misener, vice president for global public policy at Amazon.com, said in a letter to Durbin and Alexander today that Amazon was prepared to support the legislation. “We look forward to working with you and your colleagues to ensure the law is appropriate for states and for interstate sellers of all sizes,” he said in the letter. “Software and services will make compliance easy for all but the very smallest volume sellers, which will be exempt under the law.”
But others disagree, contending that the new bill still fails to address the challenge small retailers will face in calculating and collecting tax from thousands of taxing jurisdictions and remitting it to states.
“This bill is like a box of stale chocolates on Valentine’s Day. It’s the same old stuff, without any of the promised simplifications,” says Steve DelBianco, executive director of NetChoice, a lobbying group for retail companies and organizations including eBay Inc., Overstock.com Inc. and the Electronic Retailing Association, which represents TV-based and other merchants.
NetChoice contends, for example, that states can still make their own definitions of some taxable goods—defining granola as “food” in one state but “candy” in another, for instance—making it difficult for web retailers, which can sell to consumers in every state, to calculate tax across the country. It also argues that the small-retailer exemption of $1 million in remote sales “isn’t even enough to cover a mom-and-pop retail operation,” as many of those merchants earn more than $1 million in sales outside their home states.
By comparison, the United States Small Business Administration defines small electronic retailers as those with $30 million or less in annual sales, or 30 times the threshold set by the Marketplace Fairness Act, notes Brian Bieron, senior director of global public policy for eBay. He adds that eBay hasn't called for an exact exemption threshold, but contends that $1 million is too low. “This bill would make it harder for many small businesses to use the Internet to engage in retail,” he says.
Mark Griffin, general counsel for Overstock.com, says any new federal legislation should include four provisions for remote sellers not currently addressed in the Marketplace Fairness Act:
● Reimbursement of at least part of the costs of collecting sales tax in states where retailers have no physical operations, and therefore are not large users of state services and infrastructure;
● A federal court review process for state tax disputes;
● Protection from liability for tax calculation errors in state-provided software;
● Clarification that a new federal law would override existing state sales tax laws, such as laws in New York and Illinois that require online retailers to collect sales tax if they get sales through in-state affiliate web sites.
The bill’s sponsors, however, note the bill requires states to provide simplified tax collection rules either under the Streamlined Sales Tax Agreement, or SST, which has been adopted by some 25 states, or by implementing their own measures outside of the SST, such as by enabling retailers to deal with a single state entity for processing sales tax. The bill doesn’t specifically name such entities, but notes that retailers would be able to use a single state agency, for example, for processing statewide as well as local district sales tax and for dealing with tax audits.