Online Sales Tax Bill Gets Boost in US Senate

Published March 4, 2013

U.S. Sens. Mike Enzi (R-WY), Dick Durbin (D-IL), and Lamar Alexander (R-TN) have introduced the Marketplace Fairness Act, a bill that would allow states to collect sales taxes on Web-based businesses that are headquartered outside their state borders.

The bill is drawing support from many “traditional” retailers with “bricks-and-mortar” stores and opposition from many consumer advocates and others.

“Such proposed taxes travel under the guise of ‘fairness’ when they’re nothing more than a grab for stashing more dollars in government coffers,” said Bruce Edward Walker, a telecom policy adviser for The Heartland Institute, in a statement. “It’s beyond comprehension how a tax that will kill jobs by driving up the cost of doing business in order to collect them is in the interest of fairness for bricks-and-mortar retailers.”

The Alliance for Main Street Fairness, which represents traditional retailers, has long supported requiring online retailers to collect sales tax regardless of where they and buyers may be located.

‘Same Set of Rules’

“For too many years, Main Street businesses have been at an unfair disadvantage when competing against online retailers that are able to evade collecting sales taxes due to a loophole in existing law,” said Alison Joseph, spokesperson for the Alliance for Main Street Fairness (AMSF). “It is time for Congress to close this loophole once and for all by passing e-fairness legislation that requires all retailers, online and on Main Street, to play by the same set of rules.”

Andrew Moylan, outreach director and senior fellow at the R Street Institute in Washington, DC, disputes the notion that the bill establishes the same set of rules.

“Brick-and-mortar sales would be governed by a rule that allows the business to collect sales tax based on its physical location, not the destination of their buyer,” he said. “Meanwhile, online retailers would be denied that convenient standard and would be forced to interrogate their customers about their eventual destination, look up the appropriate rules and regulations in more than 9,600 taxing jurisdictions across the country, and then collect and remit sales tax for that distant authority.”

Boost for Amazon?

The bill has the backing of, the world’s largest online retailer, but critics say Amazon supports it because smaller competitors with fewer resources would be at a further disadvantage if they have to comply with the bill.

“Because they would now have to comply with the complex tax codes in more than 9,600 tax jurisdictions, remote retailers would be weighed down by substantial compliance burdens. In fact, the ‘small seller exception’ in the bill (which is an inadequate $1 million in remote sales when the Small Business Administration definition of a small business is $30 million in sales) is itself an explicit acknowledgment that it will impose significant collection costs and that some should be spared the pain,” said Moylan.