Published May 06, 2013
Your online shopping could get a little more expensive.
The Senate passed the Marketplace Fairness Act Monday, which gives states the power to force retailers outside their borders to collect online sales tax. The legislation forces retailers with more than $1 million in annual sales to collect taxes from buyers.
As it stands now, states can only require merchants with a physical presence within their borders to collect taxes, making many online retailers a budget-friendly option for consumers. However, brick-and-mortar stores have said the tax loophole puts them at a disadvantage and makes them a showroom to consumers to check out a product, who then buy it cheaper online.
“Online retailers are increasingly moving toward same-day or next-day delivery which means they have to be close to customers in terms of distribution centers and truck fleets to make this happen,” explained David French, senior vice president for government relations at the National Retail Federation. “This means that very quickly the notion that an online sale without a physical presence is going away and the market demands this and the rules should be the same for brick-and-mortar stores and online retailers should be the same to level the playing field.”
States could garner around $24 billion that currently goes uncollected if the bill passes, according to reports. The amount of tax levied would be based on where the item is shipped.
Steve DelBianco, executive director of NetChoice, a coalition of trade associations opposing the tax, says the tax isn’t designed to help Main Street. “In the past three years Amazon.com has started collecting sales taxes in a dozen states and each time it’s turned on the tax collection sales have continued to grow. There’s not a rush of customers to turn to buy from Main Street retail. People shop online for convenience and value.”
In 1992, the Supreme Court ruled online retailers were only required to charge sales tax if they had a “substantial nexus” or physical presence in the state. The ruling allowed for Congress to tweak the rule down the road, and now more than a decade later, with e-commerce a $200 billion a year industry, lawmakers are taking up the offer.
Five states currently have no state sales tax -- Alaska, Delaware, Montana, New Hampshire and Oregon -- and Sen. Jeanne Shaheen, (D-NH), filed an amendment to the legislation that would exempt businesses from states that don’t impose sales taxes from having to collect sales taxes from other jurisdictions on their online sales.
Opponents say the law would create an administrative nightmare for merchants that have to start collecting the tax. “It will add costs, administrative burdens and audit risks that will discourage businesses from trying online sales to reach new customers,” says DelBianco. “They will have to step up and create a new level of compliance systems and accounting measures that will come at a huge price tag.” The bill does require state to provide software to merchants to help collect the tax.
The White House threw its support behind the legislation in late April with Press Secretary Carney saying the bill “will level the playing field for local small business retailers who are undercut every day by out-of state online companies.”
The legislation faces an uphill battle in the Republican-controlled House over worries it could expand states’ taxing authority and put an undue burden on small businesses.