Internet Sales Tax Bill Gains Traction, Consideration

The Senate Commerce Committee is considering a bill, the Marketplace Fairness Act, which would grant states the authority to require Internet retailers to remit sales taxes on purchases shipped to their residents, even if the seller has no physical operations within that state.

By Kenneth Corbin
Thu, August 02, 2012


Internet sales tax, online sales tax
Members of the Senate Commerce Committee Wednesday considered a bill that would grant states the authority to require online retailers to remit sales taxes on purchases shipped to their residents, even if the seller had no physical operations within that state.

Backers of the Marketplace Fairness Act argue that the measure is necessary to put brick-and-mortar sellers back on the same playing field as their online counterparts. They are quick to point out that online purchases are currently subject to taxation in states that have a sales tax, but most consumers either aren't aware of their obligation to pay or ignore it.

"This isn't a new tax. This is a tax that is already owed. The bill doesn't tax Internet use. The bill doesn't tax Internet service. The bill doesn't raise taxes. It collects what's owed by the purchasing individual," said Mike Enzi (R-Wyo.), the sponsor of the bill.

Under the current framework, codified in a 1992 U.S. Supreme Court ruling, online sellers without a physical presence in a state such as a warehouse or a call center cannot be compelled to collect taxes on purchases there, though several states have advanced novel measures in an effort to force the collection issue. The high court ruled that the issue is a matter of interstate commerce, so only the U.S. Congress could modify the physical presence requirement.

The general absence of a collection requirement on retailers has meant that states are losing out on a significant and growing supply of tax revenue as the Internet accounts for an ever-larger share of retail activity.

"State and local governments are losing billions," said Commerce Committee Chairman John Rockefeller (D-W.V.), a co-sponsor of the measure. Rockefeller warned that if states are not permitted to mandate the collection of the sales taxes, they will seek other avenues for boosting revenue, such as raising income taxes or property taxes. "That doesn't seem like the right solution to me," he said.

As of Wednesday afternoon, the Marketplace Fairness Act had 19 co-sponsors, several of whom serve on Rockefeller's committee. But support for the bill is not unanimous. In the industry, for instance, eBay has emerged as a vocal opponent, arguing that the measure would create complex new burdens for small sellers.

Meantime, some conservative lawmakers have protested against the bill for effectively levying an additional tax burden on small sellers with a Web presence. South Carolina Republican Jim DeMint suggested that the bill would create a double standard by saddling online sellers with a more complex tax calculation than their brick-and-mortar counterparts, which only have to keep track of the tax code for the area where are physically located.

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