Sep 30th 2011
By Ken Berry
As more Americans continue to shop by entering just a few keystrokes, new proposed legislation could return foot traffic to traditional retail outlets. Under the Main Street Fairness Act of 2011, Internet and mail-order sellers would be required to collect and remit sales tax to states that elect to participate in a federal program.
The controversial new bill was introduced in August by Senator Dick Durbin and U.S. Representatives John Conyers and Peter Welch. The Main Street Fairness Act doesn't ask anyone to pay a single penny more in taxes," said Durbin in a press release. "Instead, it would help governors and mayors collect taxes that are already owed."
To qualify, a state must sign up with the Streamlined Sales and Use Tax Agreement (SSUTA) and adopt legislation implementing its use. This comprehensive interstate system coordinates various sales tax rules and administrative matters. Currently, twenty-four states have joined the SSUTA.
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Proponents of the Main Street Fairness Act point out that online sellers have a distinct advantage over brick-and-mortar retailers who must charge state and local sales taxes in jurisdictions where they have a "physical presence." Naturally, revenue-hungry states are also strong supporters of the bill. On the flip side, online retailers have long cited a U.S. Supreme Court case (Quill Corp. v. North Dakota (91-0194), 504 U.S. 298, 1992) as authority to avoid charging sales tax to consumers in states in which the retailers lack a physical presence. They also argue that imposing this responsibility would create a logistical nightmare.
Among other aspects, the Main Street Fairness Act:
- Certifies the SSUTA;
- Provides states with definitive authority requiring all retailers to collect sales tax;
- Releases consumers from their sales tax remittance obligations; and
- Extends the same sales tax collection responsibilities to all retailers.
The proposed legislation has touched a nerve in the business community. "Businesses continue to struggle with making nexus determinations and naturally become concerned when states work to expand activities that create nexus," says Bill Schenkelberg, National State and Local Tax (SALT) Director for Clifton Gunderson. "My clients regularly look at me with disbelief when I explain to them that an extremely limited or minimal connection to a state, even if it is by another independent business, can create a filing requirement. Combine that with the complex nature of sales tax laws – even under the Streamlined Sales and Use Tax Agreement – and a multitude of jurisdictions and the administrative considerations become scary."
But Schenkelberg doesn't necessarily agree that the law levels the playing field. "I find it interesting that most articles written about the Main Street Fairness Act are written from the perspective of the bricks-and-mortar businesses and the 'unfairness' of Internet sales avoiding sales tax," he comments. "Another perspective is that the bricks-and-mortar businesses also have advantages Internet businesses do not, such as the immediate gratification of their customers; the ability to be part of the community; the ease of returns; and the availability for customers to actually see, touch, and hold the product prior to purchase. While 'in practice,' the Internet allows the ability to avoid sales tax (nobody ever mentions the use tax responsibility of the purchasers) and to shop in your pajamas, it cannot offer these other advantages. Could it be argued that the Main Street Fairness Act is actually 'unfair' to the Internet retailer?"