March 1, 2013, 12:04 PM

Online sales tax bill targets web retailers with more than $1 million in remote sales

Online sales tax bill targets web retailers with more than $1 million in remote sales.

Legislation introduced in both houses of Congress last month would make it easier for states to collect sales tax from online and catalog retailers.

Compared with prior bills, the new version of the so-called Marketplace Fairness Act gives states more options in how they can streamline their sales tax laws, such as in how they set rules for determining what products are subject to sales tax, to make it easier for merchants to collect tax across multiple states. The legislation was introduced with the backing of 53 sponsors among U.S. senators and representatives, including Sen. Dick Durbin (D-Ill.) and Rep. Steve Womack (R-Ark.).

The bill grants states the right to mandate sales tax collection by retailers, whether or not merchants have an in-state physical presence such as stores or distribution centers, if they do at least $1 million a year in sales to states where they have no physical presence. If enacted, the legislation would overturn existing federal law that says states can mandate tax collection only by retailers with an in-state physical presence.

A number of retail chains and other retail groups, including Inc., Sears Holdings Corp. and the National Retail Federation, support the bill. "The Marketplace Fairness Act will correct a system that has given a significant and unfair competitive advantage to a handful of online-only retailers, while hurting those that create jobs and invest in local communities," Sears said in a statement. Amazon said it would work with the legislators to help get the bill passed.

But Brian Bieron, senior director of global public policy for eBay Inc., which hosts thousands of sellers that would be forced to collect sales tax, contends that the $1 million threshold 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 Inc., says any new federal legislation should include a federal court review process for state tax disputes, and at least partial reimbursement to e-retailers for the cost of collecting sales tax.

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