Senate looks at state sales taxes for online purchases

 

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All online merchants could soon start charging state sales tax due to two bills gaining steam in Congress after at least a decade of debate.

The Senate Commerce Committee holds a hearing Wednesday on the Marketplace Fairness Act (MFA), which would allow states to collect sales tax on all remote purchases and make it easier for merchants to determine each state's tax rate.

If passed, it would reverse the effects of a 1992 Supreme Court decision exempting many online retailers from collecting state sales taxes unless they had a physical presence in the state, such as a warehouse. The decision argued it was too tough for remote sellers to comply with different state tax rules, says David French, senior vice president of government relations for National Retail Federation, which supports the Senate bill and the House's Marketplace Equity Act (MEA).

But as e-commerce has boomed and states continue to suffer from recession-era budget cuts, proponents of collecting a tax say it's unfair that brick-and-mortar and online retailers are competing on an "uneven playing field." Now technology makes it easier for merchants to follow the thousands of local tax codes.

"With the growth of e-commerce, it's more important than ever for this issue to be addressed," says Daniel Head, press secretary for Sen. Michael Enzi, R-Wyo., who introduced the MFA.

NRF estimates local retailers are at a 6% to 10% price disadvantage because of collecting taxes that most online retailers don't. Research from University of Tennessee shows states will miss out on more than $23 billion in revenue this year from uncollected taxes.

The Senate bill has 240 supporters, including online giant Amazon as well as Best Buy, Target and Walmart. But eBay objects to the small-business exemption in the bill, which maxes out at $500,000 in gross annual sales. The House bill exempts sellers up to $1 million in gross annual sales.

"It's small businesses who would face the biggest new burden if you change this law the way that's being proposed," says Brian Bieron, senior director of federal government relations at eBay.

Still, David Quam, director of federal relations at National Governors Association, says the Senate bill simply creates a uniform, easy way for states to collect a tax that's always been due. Consumers are supposed to note on their tax returns any remote purchases where a state tax wasn't collected, but compliance is very low because it's difficult to keep track of, he says..