States are in a grab for revenue, and taxing online, catalog, and “1-800” sales is one way to achieve their goal. It has been estimated that states in 2012 are expected to lose $24 billion in uncollected state and local sales taxes on Internet and catalog sales.
In 1992, the U.S. Supreme Court, a case called Quill v. North Dakota, said that sellers should only be required to collect sales tax in locations where they have a physical presence in the customer’s state: a store, office, warehouse, or sales force. The court recognized the challenge of sellers to deal with the 45 state (and 7,600 local) sales tax systems in the country.
In response to the case, a number of states (24 to date) joined the Streamlined Sales and Use Tax Agreement, which was adopted on November 12, 2002. The Agreement creates some uniform definitions to simplify sales tax collections across jurisdictions.
Now, the Main Street Fairness Act (H.R. 5660), which was introduced in Congress on July 29, 2011, would sanction the ability of states to collect taxes, regardless of a seller’s physical presence. In effect, “remote sellers” (as they are called by the bill) would have to collect sales tax from customers based on the sales taxes applicable to the customers’ locations. However, the bill would exempt “small sellers,” a term that will be defined by the Governing Board of the Agreement. Small businesses would continue to do business as usual and would be exempt from sale tax collections in states in which they do not have a physical presence.
The bill would also require the Streamlined Sales and Use Tax Agreement to further simplify collection rules for sellers.
Impact on small business
The NFIB, in a press release issued on July 29, supports the bill on the grounds that it will “help present Main Street jobs by requiring Internet retailers to collect sales tax the same as local bricks-and-mortar stores.” The bill would end the unfair advantage that Internet sellers have enjoyed thus far. Other supporters of the bill include the Retail Industry Leaders Association (a trade group representing large retailers, including Best Buy, Apple, Old Navy, and Wal-Mart), and Amazon.
However, not all groups with the interest on small business at heart support the bill. For example, the Computer and Communications Industry Association, the Information Technology Industry Council (ITI), and NetCoalition (a trade group in which Google and Yahoo are members) oppose the measure. They argue that it would impose costly collection obligations on small businesses that are not exempted and that the Agreement is far away from simplifying multi-jurisdiction sales taxes. Also, eBay sellers have voiced opposition to the bill.
Who wins? Who loses? Besides the states that will boost their coffers, the biggest beneficiaries of the measure (if it is enacted) would be certified sales tax providers, which are companies authorized by the Agreement to automate sales tax collections. At present, certified providers include:
Small online sellers who will not receive exemption will be the losers. They will have to shoulder increased administrative work to collect and remit the taxes.
Where do you stand on this bill?