Internet sales tax gaining headway
75-24 Senate vote energizes backers
Posted: March 31, 2013 at 2:43 a.m.
Congress is now debating legislation, dubbed the Marketplace Fairness Act, that would add state sales taxes to many items shoppers now buy from Internet retailers.
On a 75-24 vote, the U.S. Senate passed an amendment to its 2014 budget resolution that would require large retailers to collect and remit applicable state and local taxes on Internet orders from out-of-state customers based on the tax rates in the customer’s taxing jurisdiction. The amendment would exempt from the tax collection requirement businesses that do less than $1 million in online sales to customers outside their home state.
A 1992 Supreme Court decision involving catalog orders stipulated that sellers could collect sales taxes only in states where the retailer has a physical presence, such as stores or distribution centers.
U.S. Sen. John Boozman, R-Ark., is among the 26 cosponsors of the proposed legislation that would change sales tax collection rules.
“It’s a fairness issue for our Main Street businesses,” Boozman said last week. If the online buyer isn’t paying sales tax, he said, the buyer is paying about 9 percent less than at a brick-and-mortar store. The average combined state and local sales tax rate paid in Arkansas is 8.61 percent, according to the Washington-based Center for Federal Tax Policy, which studies tax policy issues at the federal, state and local levels.
Boozman said that in the early days of Internet shopping, it made sense to exempt such businesses from collecting sales taxes due to the widely varying state and local rates. Since then, however, computer software programs have been developed that can apply the appropriate tax rate based on the buyer’s home address.
“If you start out 9 percent behind, it’s hard to overcome that,” he said. Ultimately, Boozman added, states should be able to set the tax rates on all commerce within their boundaries.
A companion bill in the U.S. House of Representatives, cosponsored by U.S. Rep. Steve Womack, R-Ark., is awaiting action. The pending legislation in both chambers has the support of retail groups including the National Retail Federation and the Retail Industry Leaders Association.
“I have become very optimistic that we might now get something passed,” Womack said. “We still have work to do, but the Senate vote was very encouraging to me. The fact that it got 75 votes might up the ante a bit, or at least be more inviting in the House. I just think it’s an unfair disadvantage to the Main Street retailers.”
The Senate has 100 members, the house 435.
Forty-five of the 50 states levy a statewide sales tax. In addition, other government entities such as cities and counties apply sales taxes, including those in Arkansas.
Alaska, Delaware, Montana, New Hampshire and Oregon have no statewide sales tax. Arkansas’ statewide sales tax is 6 percent.
David French, senior vice president for government relations for the National Retail Federation, based in Washington, said the Senate’s move was “a big deal for us. Getting a level playing field has long been apriority.” The organization, he said, has been working on the issue for more than a decade.
In the early days of online shopping, lawmakers and policy makers were reluctant to tax those transactions, contending that it was a new channel of commerce that should not be burdened with tax collection. That’s no longer the case, French said, with online shopping growing at double-digit rates.
“It wasn’t much of an argument then and it certainly isn’t an argument now,” he said.
French cautioned that state governments will face funding difficulties if online sales remain untaxed.
“It’s been a slow leak in state budgets. It will be a titanic leak in the future,” he said. As for prospects that online sales taxes will be enacted, he said, “I think this is going to be the year that it actually happens. Clearly, most of the challenges have been answered. Now, it’s a matter of finding a piece of legislation to attach it to.”
The Retail Industry Leaders Association is an organization that represents the nation’s largest retailers.
“The overwhelming bipartisan vote in the Senate is proof-positive that the federal government’s special treatment of online-only retailers will soon be a thing of the past. While we take nothing for granted, today’s vote opens many pathways to making theMarketplace Fairness Act law this year, leveling the playing field for Main Street merchants once and for all,” Sandy Kennedy, the group’s president, said in a statement last week.
Brooke Buchanan, a Wal-Mart spokesman, said the company collects sales taxes on all online purchases. Wal-Mart has stores in all 50 states, as well as other facilities.
The sales taxes are owed by the consumer, she said.
“We’re supportive of the Marketplace Fairness Act to level the playing field for the bricks-and-mortar businesses,” she said.
However, Steve DelBianco, executive director of netchoice. org, a trade association of ecommerce businesses and online shoppers, said states should not be given new taxing authority without simplification of the tax codes.Those codes cover about 10,000 taxing jurisdictions in 45 states, he said.
“The biggest impact of this legislation is to erect barriers on any business that wants to reach customers across the country” he said. “Arkansas businesses will face auditors from 45 different states.”
DelBianco said Womack’s bill creates a false hope for bricks-and-mortar retailers that shoppers will be drawn away from the online channel.
“Most consumers buy online for convenience, not to avoid sales tax,” he said.
Business, Pages 67 on 03/31/2013