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Online Sales Tax for Internet Purchases Expected To Pass in Senate

By    |   Monday, 06 May 2013 12:49 PM

Tax-free online shopping might soon come to an end, thanks to the Marketplace Fairness Act which was expected to pass in the Senate on Monday.

The bill would give states the power to collect sales taxes from purchases made over the Internet.

Although the Senate is expected to pass the measure, it faces opposition in the Republican-controlled House of Representatives, where some conservatives view it as a tax increase.

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Proponents, who consist of a large coalition of retailers, argue the bill represents no new taxes, The Associated Press reported.

Under current law, states can only require retailers to collect sales taxes if the store has a physical presence in the state.

That means big retailers with stores all over the country like Walmart, Best Buy and Target collect sales taxes when they sell goods over the Internet. But online retailers like eBay and Amazon don’t have to collect sales taxes, except in states where they have offices or distribution centers.

As a result, many online sales are tax-free, giving Internet retailers an advantage over brick-and-mortar stores.

The bill would empower states to require businesses to collect taxes for products they sell on the Internet, in catalogs and through radio and TV ads. Under the legislation, the sales taxes would be sent to the states where a shopper lives.

The measure pits brick-and-mortar stores against online services.

As Internet sales have grown, "It’s putting pressure on the brick-and-mortar competitors and it’s putting pressure on state and local sales tax revenues," said David French, senior vice president of government relations for the National Retail Federation. "It’s time for Congress to create a level playing field so that all retailers are treated fairly."

On the other side, eBay says the bill doesn’t do enough to protect small businesses. Businesses with less than $1 million in online sales would be exempt. EBay wants to exempt businesses with up to $10 million in sales or fewer than 50 employees.

"Complying and living under the tax laws of 50 states is a major undertaking because the process of complying with tax law goes far beyond just filling out the right forms," said Brian Bieron, eBay’s senior director of global public policy.

"You have to deal with the fact that all of these government agencies can audit you and can question you and can actually take you into court and sue you if they think you are doing something wrong," Bieron said.

Supporters say the bill makes it relatively easy for Internet retailers to comply. States must provide free computer software to help retailers calculate sales taxes, based on where shoppers live. States must also establish a single entity to receive Internet sales tax revenue, so retailers don’t have to send them to individual counties or cities.

Opponents say online businesses would still have to use resources to account for the taxes they collect and to periodically send the money to each state.

Support for the legislation crosses party lines: The main sponsor, Sen. Mike Enzi, is a conservative Republican from Wyoming. He has worked closely with Sen. Dick Durbin, a liberal Democrat from Illinois.

Supporters say the bill is not a tax increase. In many states, shoppers are required to pay unpaid sales tax when they file their state income tax returns. However, states complain that few taxpayers comply.

In the Senate, lawmakers from three states without income taxes are leading the opposition. They argue that businesses based in their states should not have to collect taxes for other states.

Montana, New Hampshire, Oregon and Delaware have no state or local sales taxes, though Delaware’s two senators support the bill.

Delaware has long benefited from shoppers in neighboring states visiting Delaware to take advantage of the tax-free shopping, said Sen. Chris Coons, D-Del. Tax-free Internet shopping threatens Delaware’s advantage, he said.

Many governors — Republicans and Democrats — have been lobbying the federal government for years for the authority to collect sales taxes from online sales.

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The issue is getting bigger for states as more people make purchases online. Last year, Internet sales in the U.S. totaled $226 billion, up nearly 16 percent from the previous year, according to Commerce Department estimates.

According to a study for the National Conference of State Legislatures, states lost out on an estimated $23 billion worth of taxes in 2012 because they were unable to collect taxes on out-of-state sales.

The same study, which was conducted by three business professors at the University of Tennessee, found that approximately $11.4 billion was lost directly from Internet sales; the remaining purchases were from catalog, mail order and telephone orders.

Related stories:

Rand Paul: States Fantasize Over Internet Sales Tax

A New War Between the States

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Tax-free online shopping might soon come to an end, thanks to the Marketplace Fairness Act which was expected to pass in the Senate on Monday. The bill would give states the power to collect sales taxes from purchases made over the Internet.
Monday, 06 May 2013 12:49 PM
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