Tax-Free Online Sales Under Threat
WASHINGTON—Online shoppers will have to pay sales tax if a bill allowing states to require it from Internet retailers is passed in the Senate this week.
Presently states can only direct Internet retailers to collect sales tax if the company has a physical outlet in that state. Buyers are supposed to pay the sales tax to the states they reside in but most are unaware of the requirement or just ignore it.
Senators voted 74 to 20 on Monday to debate the bill, which would require Internet retailers to collect state and local sales taxes in the same way as brick and mortar retailers. The revenue would be sent to the states where the shoppers live.
Sponsor of the Market Place Fairness Act, Sen. Mike Enzi, (R-WY.) says it is about creating “a level playing field” for businesses.
“Thousands of local businesses are forced to do business at a competitive disadvantage because they have to collect sales and use taxes and remote sellers do not,” he said in a statement.
Enzi said presently there are price disadvantages for “bricks and mortar” businesses of up to 15 percent. “We should not be subsidizing some taxpayers at the expense of others,” he said.
Dan Crippen, executive director of the National Governors Association, says sales tax is an important contributor to revenue for cash strapped states.
“This philosophy is not only fair, it also promotes competition, which is good for consumers; helps with collections, which keep other taxes down and helps pay for essential services,” he said in an op-ed for Politico.
Opponents of the bill say the tax favors big businesses that already have the means to accommodate the change and will impose further regulations on small businesses.
“This legislation doesn’t help businesses expand and grow and hire more employees,” said Sen. Max Baucus (D-MO) in a statement. “Instead, it forces small businesses to hire expensive lawyers and accountants to deal with the burdensome paperwork and added complexity of tax rules and filings across multiple states.”
In a letter sent to Senate Majority Leader Harry Reid, a bi-partisan group of five senators complained that the bill would disadvantage small businesses and was being rushed through the Senate without a “regular committee process.”
The group consists of Senators Kelly Ayotte (R-NH), Senators Ron Wyden (D-OR), Jon Tester (D-MT), Jeanne Shaheen (D-NH), Marco Rubio (R-FL), Mike Lee (R-UT) and Ted Cruz (R-TX).
“Though the official title of the bill references states’ “sovereign rights” it does nothing but erode them,” the letter reads.
The legislation includes an exemption for online retailers that generate less than $1 million in annual out-of-state revenue, but some online merchants like Ebay say the bill will still undermine small Internet businesses.
Amazon, which has become one of the world’s biggest retailers on the strength of its low prices, has not expressed opposition to the bill. Analysts suggest it is because Amazon has become so big it can not only overcome compliance difficulties but, with physical warehouses in most states, it is already paying sales taxes.
According to White House spokesman Jay Carney, President Obama has indicated support for the bill on the strength of appeals from both mayors and governors who have told him they are losing much needed revenue.
The Senate is expected to vote on the Market Place Fairness Act this week.