Sales Tax Slice: Federal Remote Vendor Collection Requirement Faces Year-End Battle

In recent years, there has been a nationwide debate on whether to subject online retailers to state and local sales tax. This concept has gained favor with business group coalitions such as the Marketplace Fairness Coalition, as well as brick-and-mortar retailers such as Wal-Mart, who argue that the current system gives unfair advantage to remote sellers who are not subject to the same sales tax as brick-and-mortar establishments.

Additionally, online giant Amazon has joined in support of an online sales tax. This seems curious at first glance because Amazon derives a majority of its sales from online purchases. However, it appears that Amazon would not stand to benefit from avoiding having to collect sales or use tax. The company has grown in size and presence in the past few years and now has warehouses in nearly every state. This gives them physical presence and subjects them to current state sales taxes. Instead, it is Amazon’s smaller online retail competitors, who have no physical presence in certain states, who stand to lose if a tax collection obligation is put into effect.

In recent months, Congress has been wrestling with the implementation of such a tax collection obligation. In May 2013, the Senate passed the Marketplace Fairness Act (S.743) to allow for such tax collections, which was sent to the House. Under the Act, states that met certain simplification requirements would be allowed to compel remote sellers to collect sales tax at the time of the transaction. States are currently barred from doing so because of the 1992 U.S. Supreme Court decision Quill v. North Dakota.

Additionally, a similar bill (S.2609) would combine the sales tax provisions with a continuation of the Internet Tax Freedom Act (ITFA), which imposes a 10-year ban on state and local taxes on Internet access. The popular IFTA ban has been in effect since 1998 but is set to expire on December 11th, making this measure especially urgent for lawmakers.

Both measures have received pushback, mostly by House Republicans. House Speaker John Boehner (R-Ohio) announced last week that any such legislation would not be allowed to pass in the House this year. On Tuesday, Senator Cruz (R-Texas) said that it would be “the height of lunacy” for Congress to approve any online sales tax measure by the year end, citing a study that projected such a tax would cost taxpayers $340 billion over the next decade.

With Republicans set to take control of the Senate and bills set to die in between sessions, the battle over Internet sales tax issues continues, both on and off Capitol Hill.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What are the likelihood of an Internet sales tax going through and what are the economic implications? 

For more information about this and other state tax issues, sign up for a free trial of the Bloomberg BNA Premier State Tax Library. 

By Mark J. Kennedy

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