Online Sales Tax Law Closer To Reality?

    March 26, 2013
    Chris Crum
    Comments are off for this post.

Last week, Senators Mike Enzi and Dick Durbin were accused of trying to “sneak” through legislation similar to the controversial Marketplace Fairness Act as a budget amendment. They succeeded in getting that through the Senate.

The basic premise of the legislation is that it would enable state governments to collect sales tax from online retailers that don’t reside in their state for purchases from residents in their states. As previously noted, the main difference between the actual Marketplace Fairness Act and what was just passed in the Senate, is that the amendment doesn’t include mandatory simplification, and is non-binding. Still, supporters of the Marketplace Fairness Act are considering it a win.

Would such a law be good for businesses? For consumers? Share your thoughts.

CNET’s chief political correspondent Declan McCullagh put it well: “It appears to be intended as a clever political hack: secure plenty of votes on a non-binding Internet tax amendment, then use those vote totals to argue there’s sufficient support for S.336 when it’s up for a binding vote later.” This is a sentiment shared by opponents of the legislation, such as eBay.

Wired quotes Durbin as saying, “Today’s vote proves that an overwhelming majority of Senators support this bipartisan legislation to level the playing field for brick-and-mortar retailers.”

It’s important to note that the Senate didn’t just vote on this issue. It was only one of many amendments to the bigger budget proposal, so it’s hard to say how much real support there was for this legislation itself.

Chris Morran at The Consumerist said on the day the vote took place, “The amendment is one of numerous budget amendments being put before the Senate and passed late Friday afternoon by a vote of 75 to 24. If that number maintains through the voting process on the actual Act, it means that opponents would not have the numbers to force a filibuster. However, it is worth noting that today’s vote does not bind the senators to voting the same way if and when the Act comes up for debate.”

The Alliance for Main Street Fairness, a coalition supporting the Marketplace Fairness Act, shared some reactions to the vote from small business owners:

“It’s about time small business owners like me got some good news from Washington,” said Tee Miller, owner of Black Mingo Outfitters in Georgetown, South Carolina. “Now that the Senate has voted in support of the Marketplace Fairness Act, it’s time for Congress to act quickly and pass this much-needed legislation so I can finally compete fairly with online-only retailers who have enjoyed an unfair price advantage for far too long. Thank you, Senator Graham for showing South Carolina retailers and small businesses your support.”

“I want to applaud Senator Jerry Moran for standing up for Main Street businesses by voting in favor of the Marketplace Fairness Act,” said Wayne DeBey, owner of The Floor Nook in Salina, Kansas. “Today’s vote is a good step toward providing a level playing field for our small businesses and the thousands of retailers across Kansas. It’s important that we promote competition and fairness in the marketplace by closing the online sales tax loophole.”

“Thank you to all of the Senators who showed their support for e-fairness today – and especially to Senators Sherrod Brown and Rob Portman for siding with Ohio’s small business owners,” said Jayson Waits, owner of Bloomtastic Florists in Columbus, Ohio. “Small businesses are the economic backbone of our communities, and when Congress closes the Internet sales tax loophole these businesses will finally have the chance to compete on a level playing field with online-only retailers. It is crucial that fairness and competition are promoted in the marketplace and Ohio took a big step toward in that direction today.”

“Today, Senators Warner and Kaine voted with Virginia’s local businesses to close the online sales tax loophole,” said Sarah Pishko, owner of Prince Books in Norfolk, Virginia. “Their vote in support of the Marketplace Fairness Act is the first step to ensure taxes are applied fairly and government isn’t picking winners and losers by making some businesses collect taxes while others get a free pass. I want to thank them on behalf of Virginia business owners for voting to support Main Street.”

The coalition itself calls the vote a “win” on the Marketplace Fairness Act. Again, this topic was only one of many amendments.

R Street, a Washington-based think tank, has an open letter to Congress calling for opposition to the Marketplace Fairness Act (via Forbes). It was written earlier this month, before the vote. Here’s a sample from that:

Despite what some supporters claim, this legislation is bad news for conservative principles and the cause of limited government. It would dismantle proper limits on state tax collection authority while causing serious damage to electronic and interstate commerce.

S. 336 would countenance an enormous expansion in state tax collection authority by wiping away the “physical presence standard,” a baseline protection that shields taxpayers from harassment by out-of-state collectors. Current law dictates that a state can only require a business to collect its sales tax if it is physically present within its boundaries. Far from a “loophole” intended to advantage the Internet, it is the result of a Supreme Court decision grounded in a bedrock foundational principle of tax policy: states must not be allowed to extend their taxation and regulatory authorities beyond their borders. Dismantling this protection for remote retail sales would create a very slippery slope for states to attempt collection of business or even income taxes from out-of-state entities.

Furthermore, the bill would create a decidedly “unlevel” playing field between brick-and-mortar and online sales. Brick-and-mortar sales across the country are governed by a simple rule that allows the business to collect sales tax based on its physical location, not that of the item’s buyer. Under the “Marketplace Fairness Act,” that convenient collection standard would be denied for online sales, forcing remote retailers to interrogate their customers about their place of residence, look up the appropriate rules and regulations in thousands of taxing jurisdictions across the country, and then collect and remit sales tax for that distant authority.

Imposing this unworkable collection standard on remote retail sales but not on brick-and-mortar retail sales would not only be unfair, it would result in enormous complexity while damaging interstate commerce. Online sellers would be weighed down by substantial compliance burdens associated with the existence of over 9,600 separate taxing jurisdictions, each with its own unique definitions, holidays, and rates. The bill’s paltry “small seller exception” of just $1 million (when the Small Business Administration sets the limit as high as $30 million in some cases) in remote sales does little to mitigate the damage.

In addition to R Street, it has signatures from American Commitment, Americans for Prosperity, Americans for Tax Reform, Campaign for Liberty, Center for Freedom and Prosperity, Center for Individual Freedom, Competitive Enterprise Institute, Digital Liberty, FreedomWorks, The Heartland Institute, Institute for Policy Innovation, Less Government, National Taxpayers Union, Rio Grande Foundation and Taxpayers Protection Alliance.

If it becomes law, the Marketplace Fairness Act would only allow states to determine whether or not they want online businesses to collect tax. It would not require states to collect sales tax from online businesses. Either way, it’s going to amount to more taxes for online shoppers. Some believe it’s unlikely that it will make it to law given the fierce debate.

Should this become law? Do you think it will? Let us know what you think in the comments.

  • http://www.heatingandairfilters.com John Mauldin

    Our American governing system is broken. The Spendocrats know no other way. The pressure will be borne by businesses that must comply. That’s the foot in the door. Typically, once they have a “new” revenue stream coming in, they will just find ways to justify taking more and more. Already, business of all sizes are stretched very thin with all the regulations that are out there. This will simply add another layer of beauracracy.

  • squamous

    I feel that alot of heartache will come about for the online business as well as online consumers if this is passed and it also will most definitely be a gateway for more online regulation. The taxing benefit to states could become grossly off balance as not all online sales originate in state or states.

  • http://www.ssrichardmontgomery.com ron

    people will buy from china and outside usa if this is passed,or from states that have lower tax rates than their own,getting the same item cheaper.wont work too complicated,drop it.

  • Lin

    I pray it does not pass. It would mean, as an online seller, I would have to file taxes every month to up to 50 states, not to mention keeping records for each state. Politicians have gone crazy. All they think about is ways to crush the people. The more money they take from us, the more they can waste. State or Federal, they are all the same greedy & corrupt politicians who do nothing for the salaries they are paid.

  • Ben

    Heaven forbid that there should be anything happening that isn’t taxed. Sure I lose sales to places where there is no state sales tax and it sucks BUT the pressure should be on the states to contribute to success and get rid of counter-productive taxes. Man, just think about all the money that we could spend if the government didn’t take it from us with its non-productive overhead to pay for agencies and people who make it harder to produce and survive. They say it’s for our own good.

  • Walker Bennett

    This is the tenth article I’ve read recently on this subject, and none of them mention the two major drawbacks. As a systems and database administrator for 47 years, I will tell you that creating and maintaining a database for taxing software that works for the hundreds of taxing authorities in each state (state, county, city…) will be an absolute nightmare. Every locality adds its own percentage to what the retailer charges…they’re all different. Also, which individual taxing agency will collect and distribute the money to all recipients? A brick and mortar retailer pays to the local agency that then forwards the cut UPSTREAM to the state. The state can go after the city, but good luck for the cities going after the state when the governor decides he needs more cash flow. This will become an absolute nightmare!

    In Canada there is a standardized tax (HST – “harmonized sales tax” a.k.a. “Harper’s sh*t tax”). It’s 15% on anything you buy, period, from gasoline, to McDonalds, to Amazon. The feds collect it, but 100% is sent to the provinces and municipalities. There’s only one tax nationwide and one collection agency.

    • John Redstone

      The Streamlined Sales Tax Governing Board was created in March of 2000 to resolve many of these concerns-24 states have already adopted simplified systems to categorize all products within their states. Additionally, software is provided for FREE by the states to track all necessary local rates. Finally, business must sell $1 million dollar worth of merchandise before taxes need to be collected. I’m tired of people shopping in my store and then buying the same product over the internet because they don’t have to pay any tax. This act is long overdue to level the playing field for small businesses that are being run out of business purely because internet sellers from out of state dont have to abide by the same taxation rules brick and mortar shops do. Finally we will be on an equal standing.

    • http://www.coppergaslanternsplus.com Ginger Rushing

      This would work best with 1 internet sales tax that is collected by everyone selling online and paid to 1 agency for distribution to the individual states. That is the only equitable way to do it. We should stop wailing about it and start making suggestions as to how it can work best for us in the ecom business. It is going to happen eventually, we should be lobbying for a way to make it as painless as possible. I feel sorry for e-com dealers who think their only advantage is that they don’t charge tax. If that is the best they have to offer, maybe they are in the wrong business. Stop all the whinning and work for a good solution for the inevitable.

  • ted esch

    this is a bad law. brick and mortar locations only! Certainly there is the appearance of unfairness with local companies having to compete with on line companies but the answer to that is simply to have the on line company collect tax based upon where the item is shipped from and then to remit the sales tax to the state where it is shipped and shield the remote company from the foreign tax collectors. There is nothing more nefarious and persistent than a state tax collector. This issue is nothing more than the states attempt to generate additional revenue. Let the state tax collectors eat cake and bitter cake at that. (I know, she probably never said that)

  • http://www.firstaidglobal.com T West

    The Supreme Court got it right when they said,”States must not be allowed to extend their taxation and regulatory authorities beyond their borders.” PERIOD!

    • Ra Gee

      Agree. And why should we charge tax to those living in our own State…that is madness and hurts business.

  • http://www.thesolarbiz.com Tom Duffy

    The only reason brick and mortar wants passage to make the field level is because we have allowed states and local entities to go nuts, greedily levying obscene taxes on local consumers. Government now taxes everything. It has gotten to the point that sales tax is sometimes more than the sellers’ markup and that’s crazy.

  • Tom Truthteller

    The Democrats will find every possible way to tax the citizens of this country in order to build the next bridge to nowhere or fund the next useless study. There must be hundreds of different taxes on the books and this is just another way for the Democrats to lighten everyone’s purses and wallets. This way, if they don’t increase income taxes, they can say……….look, we didn’t increase taxes as we have been accused of…….and notbody scrutinizes all the other taxes that have been added or increased. This one is a perfect example…..will it help or hurt commerce? That answer is clear.

    • Ra Gee

      Don’t blame the Democrats. Statistics and facts prove otherwise. Nevertheless the one party ruling us all has too much power. Return the power to the people where the Constitution gave it.

  • Ra Gee

    Taxing any individual just trying to survive online making under $20,000 a year online is very fascistic; I think people need to move toward buying offline for the next decade in protest. Prices are too high due to fees and other games played by Ebay and Amazon and their corrupt partners at the top. Sales tax online should be banned forever. (Something Ebay agrees with but Amazon does not allegedly). And between States is a bad precident that could lead to everyone online and off. Tax of any kind is simply wrong unless we get to vote where the money goes. When more is paid to education and 1/10th of what now goes to the military doesn’t then you can talk about a 3% tax on what people buy and work within that. End all other taxation. No more tax on gas prices. No tax on your first house.

  • http://scangaugesales.com Warren Walters

    I agree with box retailers online selling with no sales tax makes an unfair playing field. But I also believe this is a first step toward an eventual national sales tax. The government doesn’t know how to efficiently budget, only take more like a bunch of thieves. Cyprus is a prime example. Listen to all those saying, hey, that’s a good idea!

  • http://www.coppergaslanternsplus.com Ginger Rushing

    I have no problem with this as long as they come up with a simplified solution to pay the tax. We all have simple software to allow us to set sales tax collection based on states but that should be as far as it goes. If the States want to distribute tax to other taxing authorities in their own states, that should be their responsibility. We need one office or agency to pay the tax to with a report that says who gets what based on our sales and that agency can then distribute the tax to each state. Each state could pay a small fee from the tax revenue to pay for the agency. This would work for me. I own 3 e-commerce sites and while it is a pain in the rear end, it is fair in my opinion and States do need the revenue they are currently losing. TO me, it’s more about that than being fair to Brick & Mortars. B & M’s have the right to advertise & sell on the interent same as e-com only dealers. Most of us already operate with MAP’s that keep us from having an unfair advantage and we also pay fees to manufacturer’s that B&M’s don’t pay along with higher freight charges.I’ve worked both sides of this street so I know what I am talking about.

  • BK

    I haven’t heard any online retailers voicing their opinion on shipping issues. I see this as an unfair disadvantage for online retailers as brick & mortar businesses don’t have to pay this out of pocket expense … at least sales tax expenses will be passed on to the consumer. We have many shoppers who ask us all the questions they need answers to … only to have them shop elsewhere so that they don’t have to pay shipping. Online shoppers expect & even DEMAND free shipping no matter how small their orders are. Shipping has killed our online business over the last several years. It’s a shame, too, since shipping is the only way to get the goods to consumers. We have to pay freight to get our inventory shipped to us! Shipping charges keep going up & up … it cuts into the bottom line drastically. I do not look forward to having to keep track of 1000’s of different tax rates & filing multiple monthly tax forms for our seasonal business. In fact, it may spell the end of our 15 year old business if this passes.

    • http://www.sfpincchicago.com Shadow Fire Promotions, Inc.


      If your customers are allowed by you to demand (and they receive) free shipping on all orders, and this is not something your store would do, then you are in the WRONG line of work. The notion of “the customer is always right” is a notion that a CUSTOMER created.

      Businesses provide a service to their customer. The customer should NOT have the right to dictate their terms to ANYONE. If they want free everything, and the ability to buy something, and then return for buyer’s remorse, or they didn’t read something right, or because they felt like it, or any other silly reason is pure GARBAGE. Big box retailers like Target and Wal-Mart have spoiled shoppers into believing that every store in the world should cater to their whims, and the threat of “taking my business elsewhere” or “bad feedback” will be like a gun to the head, where the seller must (by law) immediately back down and grovel at the virtual feet of the customer, giving them everything they demand.

      Brick and mortar stores don’t change their rules to satisfy their customers. If you say your store closes at 6, and your customer DEMANDS to be let in at 6:30, or they will take their business elsewhere or let’s say the customer thinks your $19.95 item really should be about five bucks, because that’s all they want to pay is BULL. You don’t go into a bar and expect to get your drinks for free or you’ll “Take your business elsewhere”; you don’t go to a restaurant and get your steak dinner for a buck because you don’t think it was worth the twenty on the menu price. It’s ridiculous.

      Bottom line, your customer should not be dictating terms to you. If they don’t like your terms, they need to open their own store. Unless your store is Burger King, they do not get to “have it your way”. If you are that desperate to keep “one” customer, who will either a) never come back or b) continue to make more and more outrageous demands, under the continuing threat of “I’ll take my business elsewhere” (which you will continue to cave into), then you should get out of business, FAST.

      Rather smaller numbers of loyal customers, than larger numbers of customers who are a hassle to deal with.

  • John

    America is descending into a banana republic, faster every day.

  • http://www.msinteractive.com Moonstone Interactive

    I truly hope this doesn’t pass, online sellers will be forced to keep an outlandish about of seperate records. How will they be able to stay on top of other states changing their tax rates (not to mention the states specific city/county taxes)? This has the potential to ruin small businesses.

  • http://www.odinartcollectables.com Brad Blanski

    I keep hearing from senators, business owners, and many others with a stake in Marketplace Fairness Act. With such quotes as: Wayne DeBey, owner of The Floor Nook in Salina, Kansas. “Today’s vote
    is a good step toward providing a level playing field for our small
    businesses and the thousands of retailers across Kansas. It’s
    important that we promote competition and fairness in the marketplace
    by closing the online sales tax loophole.” is only an illusion to the small business. Every brick and mortar company, would think or would known, or have implemented a website to support their Brick and mortar store? I can say with high degree of certainty, to be competitive on a web based business, a person needs to relentlessly promote the web store to generate more sales. A Taxation will only cause me or my business to only promote more on the web to generate lost sales due to taxation. To state as a matter of fact it will “close a loophole” is an illusion to other businesses or to the state level. I am sorry to say that sales occur in the brick and mortar all the time and the state does not see a dime when it should. State should go after lost revenue from the brick and mortar and leave the Websites that have been long implemented, grandfathered into, and to remember the additional costs web based businesses will incur to implement taxation on its website, just for a “Level Playing field” The Marketplace fairness Act is over reaching and is unconstitutional to free market trade. You want level playing field? Get a website, then work relentlessly.

  • http://www.edbeardjr.com Ed beard Jr

    To the contrary of those who claim that online stores have any cost advantage over brick and mortar, this is simply not true as we have just a different rubric of expenses such as warehousing internet maintenance fees and webdesign fees, far more marketing and advertising fees as out competition is at everyone’s Google fingertips. This means we do not have the advantage of a “Hold Hostage market place” as in Brick and Motar locations, where people have far more limited choices and thus less competition.

    brick and mortar businesses do not have to pay many of these expense sales tax would create a serious imbalance of favor to the brick and Mortar as their customers do not have to pay shipping which raised the cost of an item in many cases no less than $9 on average for online stores as compared to the same item at brick and Mortar stores.

    The current way it is is a roughly fair trade off between online and physical locations.

  • Online seller

    The bottom line on this is that the big box stores think online is cutting into their sales and they want an advantage. The best way to do that is by promoting “fairness”, which is NOT fair at all.

    Ask yourself this question: How many tax districts does a brink & mortar store have to track & report? (The answer is 1, the one they are in)

    Here’s another question: How many times do they ship to their customer? (Answer is none)

    Another Question: If I go to a store in another state, what tax rate do I pay? (hint: The tax rate of where the store is)

    Another Question: If I open a website and someone from New York comes to me to buy who’s warped mind thinks I should have to collect tax for New York? (The Supreme court has said I don’t have to, on more than one occasion)

    So here’s my solution to this idiocy: Let me collect tax based on MY location, for MY local tax district. At least then I can move my business to the lowest tax district in my area and carry on without all this crap.

    This POS legislation is tantamount to carding anyone who buys anything, anywhere and making the store determine their tax rate, collect & remit accordingly.

    What would brick & mortar think about that?

    • John redstone

      Presently anyone who buys online owes a use tax to their HOME state- but virtually noone pays this. The marketpalce fairness act finally captures this- and closes a loop hole which consumers have been avoiding. How many people actually put this use tax on their tax returns like the law says they have to?? I would argue no one in this blog….yet everyone wants to complain when a bill finally corrects the loophole that everyone has been exploiting for years and years

      • Online seller

        Wired quotes Durbin as saying, “Today’s vote proves that an overwhelming majority of Senators support this bipartisan legislation to level the playing field for brick-and-mortar retailers.” BULLSHIT!!!

        Looks to me like they “sneaked” it in, mixed with other stuff and then put it before the Senate and passed late Friday afternoon !!!

        Let’s sneak it in and mix it up with other stuff and vote on it at the last minute on Friday when everybody is ready to get off “work” for the weekend, if you can even call it work. They probably didn’t even take the time to read it before they voted on it since they were ready to get out of there?

        To call this Bi-partisan support is crap.

        This is not about closing any “loophole”, this is about creating an advantage pure and simple. If you want to subject online sellers to 10000 tax districts then it’s only “level” when ALL retailers are subject to the same thing.

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  • http://www.wallpaper-inc.com Chuck Ferrell

    This battle will most likely be lost in the coming years. Why is collecting sales tax for any state other than the state your business is located in even being discussed. Our constitution prohibits the states from doing that in the commerce clause, and most citizens and every politician is aware of that fact and even the US Supreme Court has agreed. So when was the last time that the facts and the constitution determined the legality of a tax increase? Our elected officials need only to change the constitution and then the states could be allowed to set up taxing districts among and/or between each other without federal approval. Well, they would if they could but in 99.9% of the time these changes to the constitution would never be approved by the states. So today our government uses the courts to get these issues approved and they never have to seek the peoples approval to change our laws and/or constitution.

  • http://proposedsolutions.blogspot.com Thomas Blankenhorn

    The online retailers have greatly benefited but the consumers have really not benefited that greatly because of shipping costs that are more inefficient as opposed to large suppliers shipping to brick and mortar stores.

    The problem that is not being addressed is the high cost of commercial real estate that need not be in private hands (I know many will hate the socialistic component of this but the wealth divide gets larger and larger partly based on the lucky few who own such property and may stay in their families forever and which takes away from everyone else in society-this property could be owned by the people but administered with minimal amount of money involved-not the overpaid government workers confounding – I could offer specifics if necessary). Now if the brick and mortar companies didn’t have to pay sky-high rents, they could compete better with online companies, still be taxed at the current rates, be able to pass on greater savings to consumers to LOWER the cost of living, but of course many of the government employees are bi commercial real estate owners and represent such persons who would rather keep their greed continuing to hurt everyone else financially till the end of time.