By  on February 14, 2013

WASHINGTON — A bipartisan, bicameral group of lawmakers introduced compromise legislation on Thursday that would enable states to collect sales taxes from out-of-state online sellers.

The Marketplace Fairness Act of 2013 resolves differences between House and Senate bills from the last Congress and is aimed at giving states the option to collect sales taxes from out-of-state businesses, rather than rely on consumers to pay those taxes to the states.

The debate over taxing Web sales has taken place in Washington for more than a decade without any resolution, but states have been enacting their own laws to close what they say is a loophole created in 1992 in Quill v. 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 have relied on that decision to avoid collecting sales tax on online orders. Brick-and-mortar retailers argued that puts them at a competitive price disadvantage and have lobbied for federal legislation to resolve the issue.

Several retail groups and companies have launched the Marketplace Fairness Coalition to press Congress to pass new legislation. The coalition includes the International Council of Shopping Centers, Retail Industry Leaders Association, National Retail Federation,, National Association of Real Estate Investment Trusts and National Association of Wholesaler-Distributors.

“For far too long, local retailers and small-business owners have been saddled with a competitive disadvantage with online retailers — sales taxes,” said David French, senior vice president for government relations at the NRF. “While store owners collect and remit state and local sales taxes, their digital competitors are off the hook and benefiting because of it.”

French noted this had led to a $24 billion loss in tax revenue for state and local governments. He noted that the bill specifies the areas where states need to simplify and streamline their sales and use tax definitions and obligations, while also requiring states to provide sellers with free software to help them comply.

Katherine Lugar, executive vice president for public affairs at RILA, said the loophole that allows online-only retailers to evade collecting state sales taxes “has given these sellers a perceived price advantage of up to 10 percent.”

Sears Holdings said, “The Marketplace Fairness Act will correct a system that has given a significant and unfair competitive advantage to a handful of online-only retailers, while hurting those that create jobs and invest in local communities.”

The legislation 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.

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