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Death of internet sales tax law helps online sellers, hurts Main Street

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Republicans in Congress have all but killed off the Marketplace Fairness Act, a long-debated bill that calls for online retailers to collect sales tax in the same way as brick-and-mortar stores. The news is a victory for e-Bay and small online retailers, but a defeat for Wal-Mart and traditional retailers who say that internet sellers have an unfair advantage because they can sell their inventory for at cheaper prices without the tax.

The final demise of the bill, which has been kicked around Congress for years, came this week when House Majority Leader John Boehner (R-Oh) said he would not take action to move the bill forward in the lawmakers’ final session next month. There is little chance the next Congress will revive the bill since most Republicans, who won big in mid-term elections, are opposed to the idea of expanding online tax collection.

This doesn’t mean all online retailers are excused from collecting state sales tax, however. Currently, the law requires retailers with a physical presence in a state, such as a warehouse, to collect the tax if they sell to someone residing in that state.

[company]Amazon[/company], for instance, already collects sales tax in states like New York and California, and even came out in favor of the Marketplace Fairness Act. The Wall Street Journal, however, attributed a more cynical motive to Amazon’s support for the bill:

“Amazon and other retail giants see it as a way to hobble their smaller competitors by burying them under a blizzard of audits and collection burdens that don’t exist offline,” said the Journal in an editorial.

The publication has long taken the side of conservatives who have opposed the bill, arguing that it would subject small online businesses to more than 9,600 state and local taxing authorities. Supporters of the bill, however, have said such concerns were overblown and pointed out that the law would have provided the businesses with free tax software to collect and remit sales.

Lobbyists for the retail industry, who say sales taxes mean higher prices of five to ten percent for brick-and-mortar stores, had tried to tie the Marketplace Fairness Act to another piece of internet tax legislation that is expected to pass in December — that bill concerns a ban on internet access taxes, now in force, that will expire in three weeks unless Congress renews it.

The failure of the Marketplace Fairness Act is also a victory for states like New Hampshire and Oregon that have no sales taxes, but whose online merchants would have had to collect it in the case of out-of-state customers.

12 Responses to “Death of internet sales tax law helps online sellers, hurts Main Street”

  1. Son Mi Kim

    Jeff John Roberts, please admit that Brick and Mortars will be next to comply with Marketplace Fairness Act, so be careful what you wish for. And Congress (or individual states…b/c of the loophole in the bill) will remove the $1million gross exemption.

    Do you think turning businesses into tax collectors is good for commerce? It’s not simply collecting one tax rate for one state, it is 45 possible rates for 45 possible states. Then, within each of those states there are different categorization of products in order to understand if that product is taxed or not taxed, and so on. (e.g. is a belt an accessory or clothing and does Harris County–where the purchaser is shipping the belt, NOT where the customer lives–on tax holiday.)

    Additionally, there are privacy concerns. Every single purchase is categorized and attributed to an address and shared with private organizations (SSTGB, Inc. and CSPs) as well as all the states to keep…creating an NSA-like consumer profile…unintended or not.

    Plus, I don’t know how one can argue it’s good for American business when it does not require foreign business to collect this tax, file tax returns to every state, every month, or be subjected to onerous/expensive/paralyzing audits by 45 states.

    It’s also a new tax for sales tax free states as they have to collect it now, and charge tax to residents if they wish to mail products elsewhere.

    Compliance will be a nightmare, integrating govt mandated software w/o free support and requiring APIs from multiple states will be totally impossible, and prepping data in a new way for this unwanted software will create so many errors for business (and costs) it makes this legislation a tax trap! (Auditing wagons and services are already gathering their wagons, muskets and cannons. Using your misplaced Tea Party reference.)

    This is not a partisan issue in terms of Republican/Democrat, but it is between Big/Sm biz. Big biz has paid millions to lobby for MFA. What does that tell you?

    See the eMainStreet Alliance video series on MFA on Youtube and see if it changes your mind. Jeff John, please rebut. I’m only scratching the surface here.

  2. If MFA passes, the compliance costs will be more than the tax collected.

    Unfair advantage to Main Street? Another MYTH That $400 item can be had for $350 online w or wo Sales Tax.

    Fact is, the BigBox.coms dominate the internet now and 83% of sales collect Sales Tax now. The revenues States project does not exist.

    • Son Mi Kim

      That # is true. I’ve read it many times. 83% of online sales are from big businesses and the large majority of those cases, they collect the tax already. In 2012 only 6% of all retail sales were made online. Less than 3% were $300 or more.
      Folks search online for video, tutorials, reviews, expert knowledge and buy in brick/mortars all the time! Online businesses should get reparations! Level playing field!

      I don’t begrudge success. I hope eMain St and Main St. both do well, but it’s important to point out that 70% of businesses today are started at home, online by families. And in most cases, when those businesses grow, they get a storefront. (Just as storefronts grow their businesses online.)

  3. The original purpose of a Sales Tax was to offset the cost of services (police, fire department, etc.) provided to the physical location, not as a Consumption Tax. As is to be expected, these taxes are passed on to the buyer at the time of sale. Since retailers with no physical presence place no burden on local services or infrastructure (the delivery system pays fuel and local taxes for road wear) why should they be forced to collect taxes?

  4. This tax will change dramatically the conditions under which tax is collected. Now, sales tax is collected at the point of sale and charged at the sales tax rate of that sales location – not the home address of the customer. If this concept passes the sales tax collected will depend on what physical address (of the customer’s residence, presumably) the customer discloses to the seller at the time of purchase. A big concept change and a major change in sales tax collection. Cash only sales will be subject to debate at the check-out counter (i.e. What is your address, sir? We cannot compute your sale tax unless your provide your address.). Credit card sales will need to be taxed at the rate of the tax jurisdiction of the address associated with the credit card. Imagine the manipulation of addresses to avoid the tax.

  5. The “complexities” of collecting sales tax as presented by the opponents of this are ridiculous. This is all about who buys influence, and it is hard to imagine that the R’s really believe they should be the enemy of “Main Street”, but maybe the $ involved are compelling and they believe the electorate doesn’t really care about “Main Street” but only about saving a buck by avoiding paying sales tax.

  6. As a consumer I’m sad to hear this news. Here’s why: my state has instituted a “use tax”, meaning that when I file my income tax returns for the state I have to report the total value of out-of-state online purchases I made during the previous year, and then I have to pay a separate tax on it. It’s a pain. I would prefer to pay a sales tax at the time of purchase.

  7. This post is sort of framed as a partisan issue (or maybe it’s just too difficult for readers to disentangle the mere mention of a party from the generally partisan climate), but is it? I’m guessing there are advocates and critics on both sides of the political spectrum.