Democrats Introduce Federal Bill to Collect Online Sales Tax

A bill introduced Friday by Democrats in Congress would require a federal framework for collecting sales tax from online retailers, essentially providing guidelines for the states. 

As it did during its earnings call, Amazon supported the "Main Street Fairness Act," co-sponsored by Sen. Dick Durbin (D-IL), Sen. Tim Johnson (D-SD), and Sen. Jack Reed (D-RI) as well as Reps. John Conyers (D-MI), Peter Welch (D-VT) and Heath Schuler (D-NC) in the House. The bill was endorsed by Sears Roebuck & Co., as well.

A collection of organizations opposed the bill, which they said would place an unnecessary cost burden on small businesses. Durbin said, however, that small businesses would be exempted from collecting online taxes, subject to the governing board of the agreement.

eBay led the opposition, which was joined by the the Electronics Retailing Association, the Computer and Communications Industry Association, TechNet, and the National Taxpayers Union, among others.

"Consumers shouldn't have to face the burden of reporting all of their online purchases," Durbin said in a statement. "Main Street retailers collect sales taxes on behalf of consumers, why shouldn't online retailers do the same? In 2012, states across the country, including Illinois, are expected to lose as much as $24 billion in uncollected state and local taxes on internet and catalogue sales. From 2005 to 2010 the state of Illinois estimated it lost $153 million each year. The Main Street Fairness Act doesn't ask anyone to pay a single penny more in taxes. Instead, it would help governors and mayors collect taxes that are already owed."

The texts of the two pieces of legislation are now available online: the Senate bill is here, and the House bill is here. A previous version of the Main Street Fairness Act was introduced by Rep. William Delahunt (D-MA) in the last session of Congress.

Although Amazon currently benefits from not having to charge sales tax - the cost savings either factor in as pure profit, or as a price decrease that can attract more buyers - Amazon has also said that it charges tax on more than half of its business around the world.

"I think in terms of the sales tax issue in total, the way you should think about it, we support a federal simplified approach, as we have for more than 10 years," Thomas J. Szkutak, the company's chief financial officer, told analysts during the company's second-quarter earnings call. He reiterated that Amazon thought that the tax issue was a "federal" one and that Amazon continued to work through those issues.

Current law requires retailers which have a physical presence in the states, known as a nexus, to charge sales tax; otherwise, consumers are obligated to pay a "use tax," which they rarely do. In 2008, Amazon first began challenging the law's interpretation, and fought 2008 and 2011 efforts by the State of New York to tax digital goods. Amazon also severed ties with California retailers in response to a new law which broadens the definition of a "nexus," the condition by which sales tax is applied, to include affiliates.

"Introduction of your bill returns the discussion of interstate collection of sales tax to Congress, which the Supreme Court says is the appropriate forum to resolve the issue," Paul Misener, Amazon's vice president for global public policy, wrote in a Friday letter to durbin. "Amazon looks forward to working with you and your colleagues in Congress to help enact sales tax collection legislation."

Durbin said that the Main Street Fairness Act is supported by the National Governors' Association, National Conference on State Legislatures, Governing Board of the Streamlined Sales and Use Tax Agreement, National Retail Federation, International Council of Shopping Centers, Retail Industry Leaders Association, National Association of Real Estate Investment Trusts, and National Association of College Stores.

eBay, which represents a vast network of small businesses and individual sellers, would presumably be forced to require each and every one to charge sales tax.

But Rep. Welch also noted that brick-and-mortar shops are also being used as display cases for products later bought online. "When a consumer can walk into a store, try out a product and then go home and buy it online without paying sales tax, Main Street businesses and downtowns lose," he said in a statement.

And that has been the basis of eBay acquisitions like RedLaser, which allows users to scan a physical bar code on an item and then look for it more cheaply online.

"A collection of state tax commissioners have again been able to get an outdated Internet sales tax bill introduced in Congress, but we are confident that it will be rejected because it would harm small Internet retailers," said Brian Bieron, senior director, of federal government relations and global public policy at eBay, in a statement. "Better policy is reflected by H.Res. 95 from Congressman Dan Lungren (R-CA) and Congresswoman Zoe Lofgren (D-CA) with 27 bipartisan co-sponsors, which says that Congress won't give states 'the authority to impose unfair tax collecting requirements on small online businesses.'"

"The giant retailers jockeying for new Internet sales taxes have national store networks that they combine with their major online sales platforms, a business model they know brings some tax collection duties, Bieron added. "Forcing small businesses to take on the same costs and tax burdens as national retail businesses is unrealistic, unfair and will unbalance the playing field between giant retailers and small business retailers on the Internet." 

 

o