Online purchases that were once exempt from sales tax may soon be taxable. The House of Representatives is considering a bill that would close a sales tax loophole that exempts online businesses from collecting the taxes that “bricks-and-mortar” businesses are required to collect. H.R. 5660, the Main Street Fairness Act, would eliminate a tax-collection discrepancy by granting states the authority to require sales-tax collection from online retailers.
Under current law, online retailers are not required to charge sales tax on goods unless the business has a physical plant or location in the same state as the customer. Since online sales tax typically applies only to customers residing in the state(s) in which the online company has a physical presence, it is the out-of-state consumer’s responsibility to remit sales tax on internet purchases to their states of residence (though many people fail to do so). While many states have entered into an interstate compact (The Streamlined Sales and Use Tax Agreement) that creates uniform guidelines for collecting sales tax from remote sellers, the compact requires congressional approval to take effect.
H.R. 5660 was introduced by U. S. Rep. Bill Delahunt, who explained his rationale for the bill on his website. The current system, he notes, “allow[s] many online retailers to avoid collecting sales taxes from out of state consumers, and place[s] retailers on local Main Streets at a competitive disadvantage simply because they collect and remit sales tax revenue.” According to Delahunt, sales tax constitutes up to one-third of most state budgets and he estimates that over 18 billion dollars of tax revenue is lost annually under the current system. The bill is designed to help close the budget deficits many states are facing without imposing new taxes. Delahunt’s statement claims that no state will be forced to join the agreement, but states who want online retailers to collect sales tax will have authority for enforcement.
“The Main Street Fairness Act provides Congressional authority for th[e] interstate compact to take effect. This does not compel any state to join, but those that choose to adopt this system would then have the authority to require online retailers to collect and remit sales taxes the same way that businesses on local Main Streets do now.”
The Main Street Fairness Act is supported by National Retail Federation and the International Council of Shopping Centers, as well as many other state-level retail associations.
Opponents of the bill argue that small online businesses cannot afford to navigate the complex tax codes of every state and jurisdiction; such compliance would place too much of a financial burden on online retailers at an already-difficult time, ultimately slowing the growth of the internet economy. Opponents of the bill include Ebay and the Computer and Communications Industry Association as well as online retailers and various advocacy groups.
The full text of the bill can be found at:
- http://delahunt.house.gov/mainstreetfairnessact.pdf
- http://delahunt.house.gov/2010/07/delahunt-introduces-main-street-fairness-act.shtml
- http://delahunt.house.gov/2010/07/delahunt-introduces-main-street-fairness-act.shtml
Let’s hope this never engages. Congress does not understand that the Internet has no geography. By that, I mean that if the USA now has all these new sales taxes on products, then customers will not shop online in the USA and will go to places like Canada or wherever. In fact, the reverse effect will occur for the USA if they add web sales taxes because it means that web businesses will see dramatically dipped revenues, and therefore will not be able to post good corporate income returns, and thus poor corporate income tax revenues to local, state, county, and/or federal government returns.
Man I hate lobbyists, but it looks like I need to pay into a lobbying firm to block this — because that’s what the opposition is doing, I’m sure, and is why this particular congressman has decided to create this bill.
Volomike . . .
You’re convinced that online shoppers faced with paying sales tax will instead turn to Canada and other sellers abroad to avoid paying sales tax?
Fine, but then they have to deal with increased transit times, security issues, duties, customs and likely increased freight costs. When they see what the alternative brings them, they’ll gladly order from U.S. based e-sellers that are required to collect sales tax for the jurisdiction of the shipping address.