For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...
Legislation allowing states to compel businesses in other states to collect sales taxes on their behalf on web-based sales advanced in the Senate May 6.
The vote was 69-27 and reflected bipartisan support for the Marketplace Fairness Act (S. 743). Supporters said they hoped that level of support would translate into action by the House, where lobbyists following the issue say passage--or even consideration--is much less certain.
“I'm really pleased with the outcome. I've been working on it for 12 years, and it's nice to get it over to the House side,” the bill's chief sponsor, Sen. Mike Enzi (R-Wyo.), told BNA. “I've been working with the House folks, and I think they'll be able to resolve it over there and move it forward.”
The bill fills a so-called tax loophole left by the Supreme Court's 1992 decision in Quill v. North Dakota ( 504 U.S. 298), which dictated that states could not force retailers to collect sales taxes from customers in states where the retailer does not have a physical presence. That decision dealt with catalog sales, but the issue now is primarily with internet transactions; the National Governors Association has estimated that states lose as much as $23 billion a year in uncollected sales tax.
The legislation allows states to compel collection from such retailers with at least $1 million in annual remote sales; companies with sales less than that threshold are exempted through the bill, although the level of the exemption has been a point of contention.
Critics say the measure would burden retailers, especially in states with no sales taxes, and leave them vulnerable to aggressive audits from other states.
But supporters of the bill say sales tax software provided free of charge by states--as the bill requires--will simplify sales tax collection based on a customer's ZIP code, for instance. The bill limits audits to no more than one per state per year, even for states that do not join the Streamlined Sales and Use Tax Agreement, a multistate compact for sales tax simplification.
In addition, Sen. Richard Durbin (D-Ill.), who sponsored the bill with Enzi, said some major online retailers in non-sales-tax states, such as Columbia Sportswear and the Adidas Group in Oregon, already collect sales taxes on remote sales and will not be affected by the legislation. Durbin is the Senate assistant majority leader.
Senate passage followed months of hard lobbying by supporters, such as the National Retail Federation, and by opponents, such as the NetChoice Coalition and the Direct Marketing Association. Amazon.com, the nation's biggest online retailer, supports the bill; but Overstock.com opposes it.
In the end, supporters benefited from Durbin's influence with Senate Majority Leader Harry Reid (D-Nev.), who bypassed the Senate Finance Committee to bring the bill directly to the floor (76 DTR G-7, 4/19/13). Finance Committee Chairman Sen. Max Baucus (D-Mont.) opposes the legislation; his state imposes no sales tax.
In a statement May 6, Steve DelBianco, the executive director of the NetChoice Coalition, which opposes the bill, predicted headaches for small and mid-sized retailers if the bill becomes law.
“The Senate's new Internet tax may be cause for celebration in the boardrooms of the big box stores that supported it, but everyone else is in for a rude awakening when hundreds of state auditors are turned loose on thousands of small and midsized employers nationwide,” DelBianco said in a statement.
The National Retail Federation applauded the vote.
“Today's action in the Senate is a significant step for sales tax fairness and we look forward to a robust debate in the U.S. House of Representatives,” said NRF Chief Executive Officer and President Matthew Shay in a news release.
With the Senate action behind them, lobbyists are turning their attention to the House, where they do not have an outspoken ally in the leadership, as they did in the Senate. Instead, they will start in the Judiciary Committee, where Chairman Bob Goodlatte (R-Va.) has expressed concerns about the proposal.
“We're working diligently in the House to build up sponsorships and momentum,” said David French, the chief lobbyist at the National Retail Federation. “The House is a different body. There's going to be a process.”
In the House, the bill is sponsored by Wal-Mart hometown congressman, Rep. Steve Womack (R-Ark.). It has attracted 65 co-sponsors, including Republicans such as Joe Barton of Texas, Spencer Bachus of Alabama, and Ander Crenshaw of Florida.
Supporters are still trying to convince House lawmakers that the measure does not constitute new taxes, but rather enforcement of existing taxes. Consumers are supposed to pay sales tax on internet sales by declaring them on state income tax returns, though both sides in the sales tax debate say few comply.
“The main obstacle is that it looks too much like it's a tax increase,” Carl Davis, senior analyst at the Institute on Taxation and Economic Policy, told BNA May 6.
Americans for Tax Reform, led by Grover Norquist, has pushed that view on Capitol Hill, but the ATR anti-tax pledge signed by lawmakers is irrelevant to the state and local sales tax debate, Davis said. “It's a pledge about federal income taxes.”
Nonetheless, the bill faces challenges with Republican leaders who try to avoid issues that illustrate division within the party.
House Speaker John Boehner (R-Ohio) and Majority Leader Eric Cantor (R-Va.) have not commented publicly on the measure's prospects in their chamber.
“They will try to do something,” said Dan Turrentine, vice president for government relations at Technet, an association of technology industry chief executives that opposes the bill. “I think, though, it's going to be much more deliberative.”
Some version of the bill will probably get a vote in the House this year, said James Valvo, director of policy at Americans for Prosperity, a small-government group based in Arlington, Va., that opposes the bill.
Goodlatte has told reporters that the bill needs more work and that he is concerned about the complexity of sales tax rules across states and localities. His most extensive comments came at a July 24, 2012, committee hearing on a similar bill, suggesting the bill's sponsors may have more work to do on the small business exemption and how enforcement is set up between state tax collection authorities and out-of-state retailers (142 DTR G-4, 7/25/12).
On that day, Goodlatte--then the panel's second-ranking Republican--focused on the bill's small business exemption, which he suggested he might oppose, and on potential competition from foreign retailers who would not be required to collect sales tax, as well as on the power of states to enforce laws on businesses elsewhere.
“We talk about States not collecting sales taxes for businesses in other states, but what about Canada, Mexico, Caribbean Islands, Hong Kong, China, India?” Goodlatte said, according to a transcript of the hearing.
And while Goodlatte said he was “completely sold on the fairness issue” of compelling tax collection on bricks-and-mortar stores but not online retailers, he expressed concern about retailers having no representation in the states enforcing collection.
“We encounter this with business activity taxes and other things all the time, States making businesses out-of-state having to dance on the head of a pin to comply with their laws,” Goodlatte said.
Sponsors set the small business exemption at $1 million in both the Senate and House version of the bill (H.R. 684) but turned away from the approach some supporters urged, including at the July 2012 hearing: letting the exemption shrink gradually and eventually disappear because improved software will eventually make compliance easy.
“My personal view is that the small seller exemption should be eliminated within a 3 to 5 year period,” said Wayne Harper, a representative in the Utah House of Representatives and president-elect of the Streamlined Sales Tax Governing Board, in written answers for the committee's hearing record.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)