Online Sales Tax Collection Mandate Before Congress

Published August 19, 2010

A bill to tax all online purchases has been introduced in the U.S. House of Representatives.

Rep. William Delahunt (D-MA) introduced the Main Street Fairness Act (HR 5660) in July to impose the “Streamlined Sales Tax Project” (STTP), which would allow states to force retailers to collect sales taxes on purchases by buyers no matter where in the nation they live.

The legislation would overturn a 1992 Supreme Court decision that retailers must collect sales tax only if they have a physical presence in the buyer’s state.

Tax Watchdog Opposition
The National Taxpayers Union calls the attempt to tax all Internet purchases “predatory” and warns it would open the floodgate to a rush of oppressive taxation.

“In this economy, the last thing overburdened consumers need is for the Tax Man to reach his hands even further into yet another vital area of our economy—the Internet,” said NTU Director of Government Affairs Andrew Moylan.

The National Retail Federation supports the bill for “modernizing” the tax system, said NRF Vice President Maureen Riehl. 

Retail Federation’s Support
“It shouldn’t matter how you sell an item, whether it’s in a store, in a catalogue, on the Internet, through a mobile device. It shouldn’t be getting special tax treatment. So either everybody that sells a taxable item collects, or nobody does,” Riehl said.

NetChoice, a coalition of online retailers, worries the cost of compliance would be overwhelming for small businesses that are currently not set up to collect and remit sales taxes for jurisdictions all across the country.

Braden Cox, policy counsel for NetChoice, points to a study by the SSTP governing board, “The Cost of Collection Study,”which shows small sellers (those who do less than $1 million of sales annually) spend 17 cents for every dollar they collect for states. And even if Certified Service Providers (CSPs) were to aid in the collection work perfectly, that would save only 2 cents of the 17 cents per dollar collected.

That would still leave small sellers with a 15 percent cost burden in collecting sales taxes, the study noted.

‘Collection a Huge Problem’
“These collection burdens will be a huge problem for catalog and online sellers who are handling only their home-state sales tax today. Ask any small business, on Main Street or online, and you’ll learn it’s hard enough to collect sales tax for one state; adding 45 more states will increase costs, not reduce them,” Cox said.

This is because there are thousands of sales tax jurisdictions, and local and state officials keep changing their sales taxes.

Collection Solutions
The NRF has worked with state governments to get around the problem, Riehl says. Businesses could opt to sign up with a third-party company that would handle sales tax collection.

“This company would do all the collection and remittance and calculations for you for free,” Riehl stated.

If a company wanted to continue to do its own sales tax collection, an option has been included to allow businesses to purchase an “off-the-shelf calculator” for partial reimbursement.

“Since we also represent small businesses, we’ve worked very hard to make sure that either they have the option to outsource it for free, which is there, or that they get reimbursement of at least a part of their costs,” said Riehl.

Taxes Would Rise
Internet taxation opponents, though, point out the cost of these third-party companies’ services would be paid for in the form of higher state taxes.

Riehl suggests the proposed mandate would be good for consumers.

“The consumers that buy online that don’t have their sales tax collected still have a legal obligation to pay it,” Riehl said. “So basically they’re out of tax compliance right now. This law would basically put them into tax compliance and help them from being tax evaders.”

In response to Delahunt’s bill, Rep. Paul Hodes (D-NH) has introduced a resolution entitled “Supporting the Preservation of Internet Entrepreneurs and Small Businesses.” The resolution states the Delahunt bill could “effectively put an end to the robust e-commerce marketplace that consumers in the United States currently enjoy.”

NetChoice supports the Hodes Resolution.

Alyssa Carducci ([email protected]) writes from Florida.