Sales Tax Slice: Treatment of ‘No Sales Tax States’ Is Latest Obstacle to Remote Collection Authority

Sens. Mike Enzi (R-Wyo.), Richard Durbin (D-Ill.), and Lamar Alexander (R-Tenn.) introduced the Marketplace Fairness Act (S. 336) on Feb. 15, according to a recent story in BBNA's DailyTax Report. The proposed Act would give states the authority to compel catalogue and online retailers ("remote retailers") to collect taxes on internet sales to customers in other states. States seeking this authority would be required to simplify their sales tax laws by either voluntarily adopting simplification measures of the Streamlined Sales and Use Tax Agreement or complying with five specific mandates provided for in the bill.

While the measure continues to gain support in Congress, some of its provisions remain contentious. This is particularly so among states that do not impose a sales tax, where retailers could find themselves collecting other states' taxes.

Sharper focus on this issue is likely to take place now that the bill is pending in the Senate Finance Committee on Finance, which is chaired by Sen. Max Baucus (D-Mont.), according to the Daily Tax Report. Sen. Baucus has been pressing for an exemption for this legislation for retailers in states that currently have no sales tax, such as his home state of Montana. An exemption would mean retailers in states without a sales tax would have no obligation to collect sales tax on sales made over the internet to customers in New York or other states that do have a sales tax. In those states, the obligation would remain on consumers to declare on their state income tax returns out of state internet purchases and pay the tax imposed by their respective state, even though, as sponsors of the Act allege, few consumers follow this procedure.

The question of whether to grant an exemption to retailers in states without a sales tax is likely to force lawmakers to make a difficult choice. Without the exemption, an obligation to collect sales taxes will be imposed on state tax departments with no experience in administering such a levy. With the exemption, retailers located in states that impose a sales tax will be placed at a competitive disadvantage against those located in states such as Montana.

By Jessica Lechuga

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