WASHINGTON — Retailers’ efforts to close the Internet sales tax loophole just found new life on Capitol Hill.
A group of senators, led by Sens. Dick Durbin (D., Ill.) and Mike Enzi (R., Wyoming), have introduced legislation that combined their own bill enabling states to collect sales taxes from out-of-state online sellers with a House-passed bill extending a permanent ban on states taxing Internet access. The new combined legislation is designed to equalize the ground rules for brick-and-mortar retailers.
Retailers have led the fight to close the Internet sales-tax loophole for more than a decade without resolution, but the new legislation gives fresh momentum to the effort.
Retail groups in Washington lauded the revived legislative effort, which had been stalled this year.
“The National Retail Federation applauds the introduction of this bipartisan piece of legislation that seeks to level the playing field between local, brick-and-mortar merchants and online retailers without creating or raising taxes,” said David French, senior vice president for government relations at the NRF. “The retail industry has rapidly evolved over the last two decades with e-commerce and mobile commerce, and it is time for Congress to eliminate the sales tax disparity, which disproportionally impacts community and independent retailers.”
Bill Hughes, executive vice president for government affairs at the Retail Industry Leaders Association, said: “Retailers support keeping Internet access tax-free while closing the online loophole that essentially subsidizes online-only retailers against their brick-and-mortar competitors. It’s time for the government to take its thumb off the scale and give all retailers a fair shot to compete in the free market. “
The bill “signals that leveling the playing field for all retailers is a top priority for Congress this year,” said Michael P. Kercheval, president and chief executive officer of the International Council of Shopping Centers.
While Congress has been unable to find a resolution on the issue of taxing Internet sales, states have been enacting their own laws to close what they say is a loophole created in 1992 in Quill vs. North Dakota, a Supreme Court ruling that stated retailers were required to collect sales tax from out-of-state customers only if they have a “physical presence” in the customer’s state. E-tailers such as eBay and others that don’t have distribution centers or offices in a certain state have relied on that decision to avoid collecting sales tax on online orders. Brick-and-mortar retailers argue that puts them at a competitive price disadvantage and have lobbied for federal legislation to resolve the issue.
EBay has lobbied against such legislation, arguing that it would impose an unfair tax burden on small businesses that use its online platform and lobbying for an exemption for small online businesses.
The new legislation, dubbed the “Marketplace and Internet Tax Fairness Act,” combines two separate bills and essentially maintains the same language on Internet sales tax collection contained in a bill the Senate passed last May. (That bill later stalled in the House and the new combined legislation is seen as a way to revive it.)
In a joint fact sheet released Wednesday by the cosponsors of the new bill, the senators said the bill would “level the playing field for Main Street businesses that are currently at a 5 to 10 percent competitive disadvantage because they must collect sales and use taxes while a growing number of remote sellers do not.”
They also noted the bill will “provide a pathway for states and localities across the country to collect an estimated $23 billion annually in uncollected tax revenue to balance their budgets by collecting taxes already owed instead of increasing taxes or cutting vital services.”
The legislation allows states to collect taxes on online sales in the 45 states and the District of Columbia that collect sales taxes, regardless of whether they have a physical presence in the state. It also provides for a small-seller exemption that prohibits states from requiring remote sellers with less than $1 million in annual nationwide remote sales to collect sales and use taxes.
The other part of the legislation incorporates a House-passed bill related to Internet access and extends for 10 years a long-standing ban prohibiting states from levying taxes on Internet access or multiple or discriminatory taxes on electronic commerce.
The new legislation comes at a politically difficult time in Washington, right before the month-long Congressional recess beginning in August and in advance of the midterm Congressional elections in November.
It could also potentially set up a showdown between the two chambers over Internet sales tax collection.
“The Senate sponsors decided they don’t want to wait for the House to act and needed to force the issue, so they are taking at least one or two opportunities to send it back to the House on must-pass pieces of legislation,” French said. “It is going to be a difficult fight to get it through the House, but again you’ve got determined sponsors in the Senate and I am confident that eventually they can figure out how to get it across the House floor as well.”
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