August 1, 2012
Legislation would close “online sales tax loophole”
U.S. Senators Mike Enzi (R-Wyo.), Dick Durbin (D-Ill.), and Lamar Alexander (R-Tenn.) testified today at a Senate Commerce Committee hearing in favor of their legislation – the Marketplace Fairness Act, S.1832 – that would give states the option to collect the sales taxes they are owed under current law from out-of-state businesses, rather than rely on consumers to pay those taxes to the states—the method of tax collection to which they are now restricted.
Under the current tax loophole, while brick-and-mortar retailers collect sales taxes from customers who make purchases in their stores, many online and catalog retailers do not collect the same taxes. Under the Marketplace Fairness Act, states would have the option to collect sales and use tax revenues from out-of-state sellers through a new, simplified tax system.
Enzi said: “The Marketplace Fairness Act is simple, it is about states’ rights, and it is about fairness. At a time when state budgets are under increasing pressure, Congress should give state and local governments the ability to enforce their own laws. This will give states less of an excuse to come knocking on the federal door for handouts and will reduce the problem of federally attached strings. It will give states a choice to reduce property taxes or other taxes.”
Durbin said: “Brick and mortar retailers – the backbone of many communities – are required to collect sales and use taxes while internet retailers do not. That gives online retailers a 5 to 10 percent price advantage over local businesses that create jobs and invest directly in our communities. This price difference is killing our small brick and mortar retailers. That’s not fair and it’s not right. Small businesses in my home state of Illinois don’t want a handout from Washington. They don’t want special treatment. All they want is a level playing field. The Marketplace Fairness Act would level the playing field for small businesses by allowing states – only if they choose – to treat brick and mortar retailers the same as remote retailers.”
Alexander said: “I have a conservative governor, a conservative lieutenant governor, and a conservative state legislature that think it’s their business, not Washington’s, to decide whether Tennessee should collect state sales taxes from everybody, or just some people, and whether to give out-of-state businesses a 10-percent discount when they sell things in Tennessee. This is an 11-page bill about two words: states’ rights. Washington’s biggest problem is that it makes too many decisions that ought to be made in Tennessee by families, communities, and the state.”
The legislation would streamline the country’s more than 7,500 diverse sales tax jurisdictions and provides two options by which states could begin collecting sales taxes from online and catalog purchases.
States that voluntarily become Member States of the Streamlined Sales and Use Tax Agreement (SSUTA) would be able to require remote sellers to collect and remit sales and use taxes after 90 days. A total of 24 states have permanently changed their tax laws and implemented the requirements of the agreement. The agreement would help harmonize states sales and use tax rules, bring uniformity to the definitions of items in the sales tax base, reduce the paperwork burden on retailers, and incorporate new technology to modernize administrative procedures.
States that do not wish to become members of SSUTA would be allowed to collect the taxes only if they adopt certain minimum simplification requirements and provide sellers with additional notices on the collection requirements.
The legislation exempts sellers who make less than $500,000 in total remote sales in the year preceding the sale to qualify for an exemption and will not be required to collect the tax.
To find out more about the specifics of the bill, click here for a section-by-section. Click here for a copy of the bill.