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Exemption for Business Inputs May Tangle Debate on Web-Based Sales Taxes

Tuesday, April 9, 2013
By Marc Heller

Congressional supporters of internet sales tax legislation have been pushing for a simpler system that will let online retailers seamlessly collect taxes for states around the country.

But in passing their bill through the Senate March 22, they accepted one new wrinkle: a possible exemption for sales of business inputs.

Freeing online sales of business inputs from sales and use taxes was one price the bill's sponsors quietly accepted as their legislation sailed through the Senate on a voice vote March 22 as part of the Democratic budget resolution for the fiscal year starting Oct. 1. But even though economists make solid arguments against taxing business inputs, such a provision could complicate efforts to craft a simple sales tax regime for online purchases, tax experts told BNA.

“That definitely muddies the waters,” Verenda Smith, deputy director of the Federation of Tax Administrators, told BNA April 5.

The exemption on business inputs was the sole material change the Senate made to an amendment by Sens. Mike Enzi (R-Wyo.) and Richard Durbin (D-Ill.) effectively endorsing the Marketplace Fairness Act (S. 336) as part of the nonbinding budget resolution. The Marketplace bill--which will still require separate passage if it is to become law--allows states to require online retailers in other states to collect sales taxes on their behalf, even in states that do not have sales taxes of their own. So an online retailer in Montana, which has no sales tax, would collect tax for New York, for instance, as long as the business has at least $1 million in annual remote sales, an exemption level set in the bill.
Copyright 2013, The Bureau of National Affairs, Inc.

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