Holiday Sales Tax Cheer for Online Retailersby
By Ken Berry
The figures for holiday sales aren't in yet, but online retailers already have reason to celebrate: a proposal to tack onto a defense authorization bill an amendment that would impose sales tax on out-of-state sellers was booted at the last minute. Thus, small businesses that rely on the Internet to generate most of their revenue can toast their good fortune . . . for now.
Last week, Senators Dick Durbin (D-IL), Mike Enzi (R-WY), and Lamar Alexander (R-TN) proposed a version of the Marketplace Fairness Act as an amendment to the National Defense Authorization Act. But the amendment was thwarted before the final Senate vote on the military spending bill, which was approved. Nevertheless, the issue is far from dead, and this or similar legislation could be added to another bill.
Under the Marketplace Fairness Act, originally introduced in the Senate in November, and its companion legislation, the Marketplace Equity Act, introduced in the House in October, the individual states will be granted authority to collect sales tax from "remote sellers" like online and catalog retailers, no matter where they're located. Just like local outfits, the tax will be levied at the time of the transaction. This would level the playing field between Internet-based businesses and mom-and-pop stores that have complained bitterly about the distinct sales tax advantage enjoyed by online sellers.
But the Marketplace Fairness Act also requires that states simplify their sales tax laws to ease the burden of multistate tax collection. Specifically, states seeking collection authority would have two options.
1. A state can join up with other states that have voluntarily adopted simplification procedures of the Streamlined Sales and Use Tax Agreement (SSUTA). This system has been developed over the last decade by a consortium of states and businesses. Any state that's in compliance with the SSUTA and has achieved full-member status as a SSUTA state will have collection authority on the first day of the calendar quarter that is at least ninety days after enactment. To date, twenty-four states are in the SSUTA fold.
2. Alternatively, states can meet the simplification requirement by agreeing to:
- Notify retailers in advance of any rate changes within the state;
- Designate a single state organization to handle sales tax registrations, filings, and audits;
- Establish a uniform sales tax base for use throughout the state;
- Use destination sourcing to determine sales tax rates for out-of-state purchases; and
- Provide software and/or services for managing sales tax compliance, and holding retailers harmless for any errors that result from reliance on state-run systems and data.
Don't confuse the Marketplace Fairness Act with the Main Street Fairness Act, also spearheaded by Senator Durbin earlier in the year. Although the objectives and means are essentially the same, the Main Street Fairness Act only provides authorization for states that are part of the SSUTA.
As Congress begins to wrap up its lame-duck session, Senator Durbin and his supporters are looking for another landing place for the sales tax legislation. In this case, the seller, not the buyer, must beware!