November 30, 2011, 11:35 AM

A federal answer to online sales tax gains new momentum in Congress

A federal answer to online sales tax gains new momentum in Congress.

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Bills promising a federal solution to online sales tax collection have popped up in every Congress over the past decade, but none has gotten far. But a bipartisan bill introduced in the U.S. Senate last month is raising new hopes among proponents of broader sales tax collection by Internet and catalog retailers.

The Marketplace Fairness Act would authorize states that have taken steps to simplify sales tax collection to require all online and catalog retailers with more than $500,000 in annual remote sales to collect sales tax from customers in those states. Existing federal law says states can mandate sales tax collection only by retailers with an in-state physical presence, or nexus, such as stores or distribution centers.

The bill resembles an earlier bill submitted in July in that it would authorize states that follow the guidelines of the Streamlined Sales Tax and Use Agreement to require Internet and catalog retailers to collect sales tax on in-state orders and remit the collected revenue to the states. Twenty-four states have signed on to the agreement, which is designed to standardize sales tax rules across states.

But the Marketplace bill goes further by stipulating that states not signed on to the SST agreement could also mandate sales tax collection if they take other minimum steps to simplify tax collection. It wasn't immediately clear what kind of sales tax simplification measures would be required, though experts say they would likely be easier to implement than the guidelines of the SST agreement. That change that could attract more support in Congress from states that have resisted joining the SST, says Daniel Schibley, a state tax expert at CCH, a unit of Wolters Kluwer that publishes tax and business information.

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