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To Tax or Not to Tax? The Online Sales Debate

The Marketplace Fairness Act would allow states to force Internet retailers to collect taxes from their customers.

by
Rodrigo Sermeño

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May 2, 2013 - 2:34 pm
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WASHINGTON – The Senate moved closer last week to passing a bill that broadens the ability of states to collect sales tax on online purchases, which may cruise through the Senate but will likely hit a hurdle in the House.

The legislation cleared the final procedural hurdle with bipartisan support Thursday evening on a 63 to 30 vote, about a dozen less than it had received earlier in the week. The Senate plans to vote on the bill after returning from recess on May 6.

A 1992 Supreme Court decision currently prohibits states from collecting taxes from business that do not have a physical presence within their borders. Although the original ruling dealt with a catalog mail-order company, it has subsequently applied to all remote sellers. The court said that the numerous state and tax systems were too complex for sellers to manage but stated that Congress could overrule the decision through legislation.

The Marketplace Fairness Act would allow states to force Internet retailers to collect taxes from their customers and remit the proceeds to state and local governments, just as brick-and-mortar retailers have done for years. Currently, online retailers need to collect sales taxes only if they have a physical location in the state. The proposed legislation exempts retailers with less than $1 million in revenue from collecting the taxes.

“The Marketplace Fairness Act is a bill whose time has come in Congress and one that is long overdue for states, local governments and small businesses,” Sen. Dick Durbin (D-Ill.), a sponsor of the bill, said in a statement.

Nevertheless, the bill may face stiff opposition in the House even if it breezes through the Senate. While Democratic leaders were able to bypass the Finance Committee and bring the bill straight to the Senate floor, the GOP leaders in the House have so far shown scant interest in the measure.

House Majority Leader Eric Cantor (R-Va.) and Speaker John Boehner (R-Ohio) have not taken a public position on the bill yet. The new chairman of the House Judiciary Committee, Rep. Bob Goodlatte (R-Va.), whose committee has jurisdiction over the issue, could play a pivotal role in the bill’s passage in the House. A Boehner spokesman deferred to Goodlatte and a spokesman for Cantor said only: “We’ll review what the Senate sends over,” as reported by the Hill. A spokeswoman for Cantor did not return a message from PJ Media seeking comment.

“I do not believe legislation like the Marketplace Fairness Act is sufficiently simplified yet,” Goodlatte said in a statement. “While it attempts to make tax collection simpler, it still has a long way to go. There is still not uniformity on definitions and tax rates, so businesses would still be forced to wade through potentially hundreds of tax rates and a host of different tax codes and definitions…. I am open to considering legislation concerning this topic but these issues, along with others, would certainly have to be addressed.”

When Amazon and Goodlatte’s office announced last year a move to build distribution warehouses in the state, the online retailer was not going to collect Virginia sales taxes. But in January, the online retailer and the state announced they had reached an agreement under which Virginia will start receiving in September sales taxes collected by Amazon.

Amazon now relies less on price than fast delivery, free shipping, and a wide selection of goods, which has led the online retailer to increase its presence across the country by expanding its number of warehouses and shipping centers. Under the 1992 ruling, online giants Amazon and eBay have avoided collecting sales taxes on many transactions.

But when it comes to the sales tax bill, the two retailers are on opposite sides of the issue.

“This is a ‘big retail battle’ in which small businesses and consumers have a lot to lose. But eBay is fighting, as we have for more than 15 years, to protect small online businesses and sellers and ensure healthy competition, value, and selection that benefit consumers online,” wrote eBay’s CEO John Donahoe in a letter asking for support from customers. Donahoe says Amazon supports the bill because “it treats [small business] and big multi-billion dollar online retailers – such as Amazon – exactly the same.”

On the other side, Amazon sent a letter thanking the Senate for the bill.

“Amazon.com has long supported a simplified nationwide approach that is evenhandedly applied and applicable to all but the smallest volume sellers,” Paul Misener, Amazon’s vice president of global public policy, said in his letter to senators.

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Top Rated Comments   
I'm tired of the gov't finding new ways to tax me. They get enough of my money already. Next you'll need a license and tax number to hold a garage sale or sell in the local thrifty nickel newspaper. The gov't can take a flying leap.
1 year ago
1 year ago Link To Comment
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All Comments   (13)
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Actually, this complication exists in spades in telecom. What happens is that there are companies that specialize in figuring out the tax down to the zip+4. You got amoney, you use Vertex, say - national coverage. You got less, you contract with someone like DPC (programmed by Satmar Chassidim, no kidding), now part of CCH, and buy a few states. They all send you updates every month, and the guys who do your billing osftware (like us :-)) interface their product to theirs.

Telephone VAR's have to do this. I'm not sure your shoestring operation could.
1 year ago
1 year ago Link To Comment
In the interest of fairness, Texas needs to raise taxes to stop the hemorrhage of business and people from California to Texas. And why would all cities not have a 10% sales tax as NYC does? How unfair is that?

Only a fool would think that this interest was "fairness". That would require the bill to be tax neutral. This internet tax scheme is obviously expected to bring in more tax revenue. But we have plenty of fools and the politicians who love them.

An internet tax fairness bill that lost tax revenue would never see the light of day.

Like an overweight person, the bigger that government gets the hungrier it becomes. There is not a single state or local government that needs money. What they need is privatization. Sandy Springs, Georgia.
1 year ago
1 year ago Link To Comment
“[The Marketplace Fairness Act] rectifies the discrimination against brick-and-mortar retail outlets of all sizes. Internet sellers now receive a subsidy of 8%-10% because they don’t collect sales tax on retail sales outside their states, a subsidy that harms other sellers,” said NGA’s Executive Director Dan Crippen.

Keeping your own property is not a "subsidy". I wish journalists/bloggers would call out this ingeniousness every time some pro tax a-hole calls it a subsidy when they don't get to wet their beak. WTF?
1 year ago
1 year ago Link To Comment
As has been noted, the out of state seller uses no services, he gets no police or fire or EMS protection, his customers don't use the local roads or sewer systems, his children don't use the local schools. Additionally, requiring businesses to collect for states outside their location is more than just the money: there are byzantine state and local taxes throughout the country, some things are taxed one place but not another, multiple rates apply, it's a compliance nightmare for any smaller business. Of course Amazon would like nothing better than to slow down any new start-ups that might challenge them.

It also penalizes those state who have low or no sales taxes to foster a better business climate for the benefit of higher-taxing states.

It's a tax hike, without doubt, and only a liar would try to claim it isn't.
1 year ago
1 year ago Link To Comment
Gee, whatever in the world did we do before sales taxes?

Very well. More money in my pocket and less money in the gov't's pocket to finance absurd schemes. Give me street lights, schools, bridges - I'm okay with that. Stop with the social engineering and de facto reparations.
1 year ago
1 year ago Link To Comment
---- "House Majority Leader Eric Cantor (R-Va.) and Speaker John Boehner (R-Ohio) have not taken a public position on the bill yet."

And they wonder why they are despised by the rank & file. How is it that the GOP blew Pelosi out of office, in no uncertain terms, in 2010, and we ended up with these clowns (Boehner & Boys) in control of Congress? These guys are five steps behind on EVERYTHING. Is it no longer a basic tenet of the conservative party that raising, or creating new, taxes in time of economic distress is always a bad thing? Tap tap! Hello? Tap tap tap ... They're not listening. Must be dining out with Obama again, while Moochelle is off shopping. I don't know who I despise more: Barry or Johnny. Neither one of them gives a crap about the American Taxpayer.
1 year ago
1 year ago Link To Comment
Your mistake is in thinking that the GOP is a conservative party. The GOP is demorat lite.
1 year ago
1 year ago Link To Comment
I'm tired of the gov't finding new ways to tax me. They get enough of my money already. Next you'll need a license and tax number to hold a garage sale or sell in the local thrifty nickel newspaper. The gov't can take a flying leap.
1 year ago
1 year ago Link To Comment
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