On July 24, prominent U.S. Senators Mike Enzi (R-Wyo.), Dick Durbin (D-Ill.), and Lamar Alexander (R-Tenn.) are scheduled to testify before the Senate Committee on Finance in support of a bill (S. 1832 – The Marketplace Fairness Act) they introduced last November along with a bipartisan group of ten senators. The proposal has growing bipartisan support in the Senate and now appears to be moving forward. OFDA will be following this legislation closely in the weeks ahead.
The bill would give state governments the option of collecting sales taxes owed under current law from out-of-state online businesses, such as Amazon.com, rather than rely solely on consumers to pay those taxes – the tax collection method to which they are now restricted. For states struggling for new revenues, this could mean $23 billion in new revenue annually, according to the National Conference of State Legislatures, which supports the bill.
In 1992, the Supreme Court ruled in Quill Corp. v North Dakota that companies without a “substantial nexus” in the state where their customer lived didn’t have to charge sales tax. However, the Supreme Court has made clear in the decision that Congress could overrule them on this issue, which is what S. 1832 intends to do.
Currently, brick-and-mortar retailers and B2B market resellers collect sales taxes from customers who make purchases from them in states where they maintain a physical location. However, many online and catalog retailers and commercial resellers 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.
After opposing the legislation and government efforts in California and Texas to ensure consumers paid sales taxes on purchases from Amazon, the company acquiesced and now supports the Senate bill. “We strongly support passage of the Marketplace Fairness Act because it’s time to resolve the sales tax issue,” said Scott Stanzel, a spokesman for Amazon.
The legislation would streamline the country’s more than 7,500 sales tax jurisdictions and provide two options by which states could begin collecting sales taxes from online and catalog purchases. It exempts sellers who make less than $500,000 in total remote sales in the year preceding the sale to qualify for an exemption and not be required to collect the tax.
States that 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.
When introducing the bill last fall, Senator Enzi said: “For over a decade, Congress has been debating how to best allow states to collect sales taxes from online retailers in a way that puts Main Street businesses on a level playing field with online retailers. This bill empowers states to make the decision themselves. If they choose to collect already existing sales taxes on all purchases, regardless of whether the sale was online or in store, they can. If they want to keep things the way they are, it’s a state’s choice.”
Senator Durbin, the Democratic co-sponsor added: “Most small business people don’t want a government handout. They don’t want special treatment. They just want to be able to compete fairly against other businesses. That’s why I have worked with Senators Enzi and Alexander to introduce the Marketplace Fairness Act – a bipartisan bill to level the playing field for local main street businesses.”