Senate introduces Internet sales tax bill
Following similar action in the House of Representatives, two U.S. senators introduced a bill that grants states the authority to mandate collection of tax on Internet-based sales. Both bills exempt retailers doing less than $5 million in annual sales. The legislation is endorsed by the National Retail Federation, which contends that it would remove an unfair advantage of online retailers, but it’s opposed by the Direct Marketing Association on the grounds that it’s too difficult for direct merchants to collect tax across multiple states.
The Senate’s Streamlined Sales and Use Tax Act of 2003, or bill number S.1736, a companion to House bill H.R.3184, would allow states that have enacted streamlined tax laws under the Streamlined Sales and Use Tax Agreement to require that Internet retailers collect sales tax from out-of-state consumers. The legislation would replace the current law that exempts online merchants from sales tax collection from consumers in states where the merchant has no physical presence. The Senate bill was introduced by Senators Michael Enzi (R, WY) and Byron Dorgan (D, ND) and co-sponsored by 12 other senators.
About 20 states have passed legislation to modify their tax law in support of the Streamlined Sales and Use Tax Agreement, and at least 10 more are expected to follow suit, state tax officials say. The sales and use tax agreement was designed by the Streamlined Sales Tax Project, an effort coordinated by 30 states working toward federal approval of an Internet sales tax collection system.
"Remote sellers have claimed for years that state sales tax systems were too complicated for a retailer in one state to know what tax to charge a customer from another state," says Maureen Riehl, vice president of the NRF, where she also serves as counsel on state and government relations. "That’s no longer true. The states have been busy simplifying their sales tax systems and giving retailers the clarity we need in order to know what gets taxed and at what rate. There’s no longer any excuse for not collecting the sales tax customers owe. Federal legislation is the final piece in the puzzle and will bring sales tax fairness to all merchants."
But the DMA contends that a fair and workable Internet tax collection system is still far off. "It is clear that past continues to be prologue in this debate, with states and lawmakers creating more complications to an already flawed system," says Jerry Cerasale, the DMA’s senior vice president of government affairs. He argues that, despite efforts by states to streamline tax collection, there are still too many taxing jurisdictions and that retailers don’t yet have access to good tax-collection software.
Such disagreements will make final passage of the legislation in Congress unlikely this year, says John Logan, a tax expert with CCH Inc., a publisher of tax and legal information. "Although chances for this legislation are better because of the momentum with the Streamlined Sales and Use Tax Agreement, it’s far from certain that this legislation will pass Congress this year," he says. And with the anti-tax leanings of the Bush administration, any bill that made it through Congress could still have a hard time getting signed into law under the current administration, he adds.
The sales tax legislation is separate from pending legislation designed to permanently ban state sales tax on Internet access fees. Although the House of Representatives has passed the Internet Tax Nondiscrimination Act to permanently ban such tax, a Senate version of that legislation is still in committee, Logan says.
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