A New Congressional Push to Let States Collect Tax Online Sales
How many tax bills introduced have bipartisan support in today’s hyper-partisan Congress? Not very many but last week identical bills were introduced in the House and Senate that enjoyed rare bipartisan support. Twenty senators and 37 members of the House from both parties signed on to the Marketplace Fairness Act of 2013 (MFA)—legislation that would allow states to collect taxes on what consumers buy over the Internet.
The measure would finally resolve a decades-old dispute over whether states can collect sales taxes on mail-order and online purchases. Currently, states are barred from requiring out-of-state sellers to collect sales taxes, unless the retailers have a physical presence (or nexus) in their jurisdiction. The MFA would allow states to require sellers to collect these levies no matter where the firms are located.
The MFA is similar to bills that died in 2012 and which my TPC colleagues discussed here and here. Under the new measure, states would be permitted to require online sellers to collect tax, though the decision would be left to each state. Today, online buyers owe tax on their purchases (through use taxes) whether sellers collect the levy or not, though few taxpayers bother to comply.
Increasingly, Democratic and Republican governors have had their eye on online sales taxes. The issue has taken on increasing importance with several GOP governors proposing to repeal their state income taxes, a step that would force them to rely even more on sales levies.
MFA would allow states that establish certain simplified procedures, such as a single point of contact for returns and audits, and limitation of seller’s liability for certain errors, to require out-of-state vendors to collect the tax on items purchased by in-state residents for in-state use. Out-of-state vendors with sales under $1 million would be exempt from collecting sales taxes.
The 24 states that are full members of the Streamlined Sales Tax Agreement (SSUTA) would be automatically eligible to collect the tax. Other states would have to enact legislation that 1) identifies the goods and services in their tax base, 2) establishes a single entity for administration, returns processing, and audits, 3) creates a single form for all taxing jurisdictions in the state, and 4) provides appropriate tax software free of charge to vendors. The SSUTA includes these requirements but also addresses more issues like uniform definitions of taxable items and vendor compensation.
The Commerce Department reports that online sales accounted for 4.4 percent of retail sales in 2010 but grew 16 percent from 2009 compared to 6 percent for all retail sales. However, according to a 2009 study, state and local governments only collect about 75 percent of the tax owed on e-commerce sales.
With so many advocates and with the $1 million exclusion—double the exclusion proposed in Senator Michael Enzi’s 2012 bill—the MFA has a good chance of passing this time around. So, as a resident of Washington, D.C., which should be eligible with its single taxing jurisdiction, I’d no longer have to worry about paying use tax on that waffle maker I bought at a President’s Day sale on Amazon. I’d still have to keep the receipt from the tiny sugar shack in Massachusetts where I got my artisan syrup. But, it is long past time online sellers have the same obligation to collect sales taxes as their bricks-and-mortar competitors.