A Fix on the Horizon for the Online Sales Tax Mess

By :: November 17th, 2011

A bipartisan group of 10 U.S. senators would allow states to require online retailers to collect sales taxes on all purchases, as long as the states first agree to simplify their sales tax rules. And, remarkably, their  idea has broad support in the business community and may actually pass.

The effort, led by senators Mike Enzi (R-WY), Dick Durbin (D-IL), and Lamar Alexander (R-TN), could finally resolve what has been an increasingly ugly battle among on-line mega-retailers such as Amazon.com, big box stores such as Best Buy, local Main Street retailers, and state tax collectors. Amazon, which has aggressively resisted the efforts of several states—most recently California— to make it collect sales taxes, says it supports Enzi’s bill.

Almost 20 years ago, in a case called Quill v. North Dakota, the U.S. Supreme Court practically begged Congress to sort out the thorny question of whether and how a state should collect taxes on sales by retailers that are not physically located in its jurisdiction.

Back in 1992, the squabble was of limited interest since most remote sales were by catalogue companies and the dollars at stake were small. Today, at a time when states are desperate for revenue, the National Conference of State Legislatures estimates that more than $23 billion in online sales tax revenue is on the table.

The fight is not about whether buyers owe tax on their online purchasers. They already do. It is, rather about whether sellers must collect the levy at the point of sale or whether consumers have to pony up when they file their tax returns—through a use tax that most state impose but few people actually pay.

The remarkable thing about the Enzi bill is just how unremarkable it is.

All it says it that a state may—at its option—require remote sellers to collect sales taxes as long as the state first takes one of two steps: It must either adopt on its own some basic rules to simplify tax collection or sign on to an interstate pact known as the Simplified Sales and Use Tax Agreement—an understanding already adopted by 24 jurisdictions.

A state may simplify by creating a single sales tax return or administering state and local sales levies through a single state-level agency. It must also certify appropriate tax collection software. Online or catalogue sellers with annual remote sales of less than $500,000 would not have to collect sales taxes. 

"This bill empowers states to make the decision themselves," Enzi said when he introduced the bill. "If they choose to collect already existing sales taxes on all purchases, regardless of whether the sale was online or in a store, they can. If they want to keep things the way they are, it's a state's choice."

Not everyone has embraced the idea. Auction site e-bay, for instance, is opposed. And so are anti-tax groups such as The National Taxpayers Union and Americans for Tax Reform. But state and local governments as well as a   wide range of retailers--including many big-box firms that operate both online and in bricks-and-mortar stores--are on board.

With Congress mired in gridlock over just about everything, it would be foolish to predict smooth sailing for Enzi’s bill. But chances for resolution of this mess are better than at any time since the Supreme Court asked for
Congress’ help two decades ago.

8Comments

  1. Ralph H  ::  11:06 am on November 17th, 2011:

    Oh no, I better load up at Amazon before this takes place.

  2. Jake Lopata  ::  11:36 am on November 17th, 2011:

    I wonder how carefully E-Bay examined this law.

    E-Bay is mostly made up of small retailers, which would qualify for the the “small seller exemption” granted under the SSUTA. aka, they don’t have to bother collecting sales tax.

    People may seek out websites like E-Bay to avoid paying tax (especially on big ticket items).

    Perhaps E-Bay should consider capitalizing on the ‘Marketplace Fairness Act’ rather than opposing.

  3. Michael Bindner  ::  11:46 am on November 17th, 2011:

    This bill is a good first step and is a necessary hurdle for an eventual discussion on Value Added Tax implementation – which is inevitable if the pressure to make anyone pay some kind of tax continues (counting FICA as insurance rather than taxation) – along with the desire by most people to not have to file taxes at all.

  4. Lee Lewis  ::  7:08 pm on November 19th, 2011:

    It is no wonder Amazon fights collecting sales tax. They realize the unfair advantage they have over local retailers who are forced to collect sales tax. I would be in favor of this bill. I haven’t read the particulars, but would want to make sure there are not loopholes which would enable online retailers to skirt around paying sales tax through the small retailer exemption.

  5. CPA Edison NJ  ::  1:33 pm on November 21st, 2011:

    Ralph H, I think sites like amazon already add it in their sales tax i’m not sure about ebay or other retailers who sell via their own site though.

  6. Weiwen  ::  2:35 pm on November 21st, 2011:

    Actually, Amazon’s scale is already a huge advantage over small retailers. I would still buy from Amazon even if they didn’t collect sales tax.

    It’s heartening to see some bipartisan agreement on this. This law would make it feasible to comply with existing law – the fact is, as Gleckman wrote, that we do owe sales tax on internet retail purchases, but most everyone doesn’t remit them because a) it would be a huge hassle to tally up your purchases every year and b) too many people don’t think they’re legally required to. The current situation breeds contempt of an existing law – either have the Federal government pre-empt such laws, or collect the darn tax. I’m disappointed that conservatives, who normally (and in theory) have high respect for laws, haven’t considered this.

  7. Arkansas Tax Return  ::  6:20 am on November 24th, 2011:

    I like your description about tax filing online. This is the best source for e filing.

  8. Stuart Levine  ::  4:44 pm on November 25th, 2011:

    Howard–One request. When discussing any legislative proposal, please add links to the proposal and such ancillary material as the proponents’ explanation, etc.