Internet Sales Tax Bill Gaining Momentum

The days of tax-free sales on the Internet may soon be coming to an end. At least, that's what Rep. John Conyers, D-Mich, said during a House Judiciary Committee hearing on Tuesday. At issue was whether Congress should pass a bill -- H.R. 3179, the Marketplace Equity Act of 2011 -- that would allow states to collect sales tax from online purchases.

As it stands now, online retailers like Apple, Google and Amazon can collect sales tax only if they actually have a physical presence in the state where the customer resides. Otherwise, online shoppers are supposed to pay that sales tax -- or rather use tax -- directly to their states each April. Data shows that use taxes are easily avoided, rarely paid and difficult to enforce.

Online sales have been a sore spot for brick-and-mortar stores for years, citing an unlevel playing field between them and their online retailer counterparts. The competition is reportedly causing mom-and-pop businesses to close shop. And thanks to the introduction of Internet-connected smartphones and tablet, consumers have found an easier way to shop for the things they need, saving a trip to the local market. State and local governments, who are pushing residents to buy local, are increasingly feeling the loss of sales tax revenue.

With the proposed bill, the government isn't actually adding another tax -- it's simply forcing Internet retailers to collect taxes that are already due to each state. "I am a Republican governor that does not believe in increasing taxes,” started Gov. Bill Haslam of Tennessee. "This discussion isn’t about raising taxes or adding new taxes. This is about states having the flexibility and the authority to collect taxes that are already owed by their own in-state residents."

Back in 1992 in the case Quill v. North Dakota, the Supreme Court held that under the dormant commerce clause, a state may not compel a retailer to collect and remit the state’s sales tax if the retailer lacks a physical presence in the state. The Supreme Court felt that forcing a retailer -- especially a small business -- to collect and remit taxes would place a serious burden on the retailer’s ability to sell in interstate commerce.

Even more, the Constitution does not allow one state to reach into the pockets of another state’s retailers to exact taxation without representation. Yet now brick-and-mortar retailers are claiming that their online competitors have an unfair advantage, offering lower prices because there's no added sales tax. Tack on free shipping, and consumers have no need to leave the house.

"The Court’s decision in Quill was based on the observation that compliance with numerous taxing jurisdictions’ laws would be burdensome and confusing.  The Constitution does not require a physical presence standard as a tax collection criterion," said Judiciary Committee Chairman Lamar Smith.

The Marketplace Equity Act will replace the physical presence requirement with a requirement that state and local governments significantly simplify their tax policies if they want to collect sales taxes from out-of-state retailers. It will also contain an exception from the tax collection duty for small sellers.

"Any bill to enable sales tax collection from remote vendors should contain a robust small seller exception. This way America’s job creating small businesses do not become mere tax collection agencies for those 45 states with a sales tax," Smith said.

The Marketplace Equity Act is sponsored by Rep. Steve Womack, R-Ark., and Rep. Jackie Speier, D-Calif. The Senate Commerce Committee has scheduled a hearing next week on similar legislation.

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  • Anonymous
    It wasn't taxes it was having taxes without representation -- all the colonies asked for was a place in the House of Commons.
  • Solandri
    Do note that online retailers like Amazon are do not have an advantage due to there being no taxes on interstate commerce. Rather, the states choose to put their own brick and mortar stores at a disadvantage by having a high state sales tax on intrastate commerce. Subtle distinction.

    From a financial standpoint it makes no difference, but it makes a huge difference when assigning blame for or thinking of solutions to the problem. The solution seems pretty simple to me - eliminate all sales taxes. States with sales taxes can make up the revenue by shifting it to other taxes, like income taxes. I'm kinda confused why this idea doesn't have more support. Conservatives should like it because sales taxes are a tax on businesses, and getting rid of them will help businesses. Liberals should like it because sales taxes are completely flat, and are thus some of the most regressive taxes we have. They should be all in favor of phasing out sales taxes and shifting the government revenue to a progressive income tax.
  • Kami3k
    kcorp2003please no. i'm tired of this. tax on everything! this is the main reason why we had a revolution. I enjoy buying things from newegg because i pay no tax and free shipping mostly.

    Um what? Oh god did you even bother to listen one in history class?

    "No taxation without representation"

    It wasn't just no taxation.
  • Other Comments
  • g00fysmiley
    on the one hand... i don't want to have to pay sales tax on online purchases though i alrready have to on newegg, but amazon has been tax free when i buy stuff from them... on the other hand i live in a state with no income tax so i am not happy about it but will agree it will help more revenue to my state and thus help fund schools, have nice roads to drive on, fund police, fire fighters and emt's along with all the other advantages tax dollars bring to a state... i just feel like a 10 year old being forced to eat my vegtibles.. i realise they are good for me i just still don't want to do it... but i want my ice cream so i'll hold my nose put some spray cheese on it and bottome up
  • kcorp2003
    please no. i'm tired of this. tax on everything! this is the main reason why we had a revolution. I enjoy buying things from newegg because i pay no tax and free shipping mostly.
  • Anonymous
    It wasn't taxes it was having taxes without representation -- all the colonies asked for was a place in the House of Commons.