Legislation authorizes states to mandate collection of Internet sales tax
Legislation prepared for both houses of Congress authorizes states participating in the Streamlined Sales Tax Project to mandate the collection of sales tax for Internet sales. The measure is supported by the National Retail Federation, which maintains that online retailers who don’t charge sales tax enjoy an unfair advantage over traditional retailers, but it’s opposed by direct merchants who say it would impose costly and onerous tax-collection duties. The legislation, the Simplified Sales and Use Tax Act of 2003, was submitted to the House of Representatives today and will be introduced soon in the Senate, its sponsors say. It exempts retailers doing less than $5 million a year.
The NRF and other proponents of the legislation, including officials from some 30 states working toward a common sales tax collection system, say that new software available for figuring and collecting sales tax across multiple states will make it far more easier than in the past for direct merchants to handle sales tax collection.
"Online and other mail-order merchants benefit from an unfair price advantage when they don’t have to collect sales tax," said Maureen Riehl, vice president of the NRF, who also serves as the organization’s counsel for state and government relations. "NRF supports a level playing field for all merchants, regardless of whether they sell their merchandise from a storefront, through a catalog or over the Internet. All retailers should be required to play by the same rules, and tax policy should not be allowed to determine the winners and losers in our industry."
But the NetChoice Coalition, a direct-merchant industry group that includes eBay Inc., the Electronic Retailing Association and the Association for Competitive Technology, says that the bill’s proponents overlook the complexity of integrating tax collection systems with e-commerce platforms.
"While it’s true that a shopping cart web site will benefit from a state-certified tax calculation tool, the real complexity and costs of retail information systems are in handling what goes on behind the web site," NetChoice said in prepared statement today. "That is, the back-office staff and systems to process partial orders, exchanges, returns, and credits. It’s therefore likely that the state-supported tax software won’t agree with the retailers’ back-end systems when figuring the taxes due to each jurisdiction."
NetChoice also contends that the bill’s proponents over-estimate the growth of online retail and its impact on tax revenue.
The legislation, the Simplified Sales and Use Tax Act of 2003, was submitted in the House by Representatives Ernest Istook (R., Okla.) and William Delahunt (D., Mass.). Senators Michael Enzi (R.-Wyo.) and Byron Dorgan, (D., N.D.) say they plan to soon submit a Senate version. The legislation would allow states that have implemented the Streamlined Sales and Use Tax Agreement to require that out-of-state retailers collect sales tax when selling to their residents. The bill would require that the states provide "reasonable and uniform compensation" to retailers for collecting the sales tax and sets other standards for administration and court jurisdiction. Through the Streamlined Sales and Use Tax Agreement, worked out through the Streamlined Sales Tax Project, participating states agree to simplify the interstate collection of sales tax by such measures as using common definitions of taxable products.
So far, 10 states – representing 20% of the population of states with sales tax – have signed onto the Simplified Sales and Use Tax Agreement, says Diane Hardt, co-chair of the SSTP and tax administrator for Wisconsin. More than 20 additional states are still working on the agreement, she adds.
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