The issue of the online sales tax is heating up in the Senate these next few weeks, and retailers are duking it out in a very public way.

Senate bill S.336, the Marketplace Fairness Act of 2013, would address the longstanding issue of the online sales tax.  The Washington Post has a good rundown that outlines in simple terms the issues pertaining to the bill: “Everything you need to know about the Senate’s online sales-tax bill.”

The Marketplace Fairness Act, as it’s called, would allow states and local governments to require large Internet retailers and other “remote sellers” with sales over $1 million annually to collect sales taxes and send the revenue to the appropriate location.

But this wouldn’t be automatic. The states would first have to pay for software that makes collection easier. States and localities would also need to simplify their tax system to make things easier for retailers — they’d have to have a single tax agency, a single tax return, and a single audit before they could require online retailers to collect.

The way things work today, an online retailer isn’t necessarily required to collect sales tax unless it has a physical retail presence in the state in which the buyer resides.  Logistically speaking, that’s usually based upon the “ship-to address” on the order.  Though few realize this or comply with the rule, the burden otherwise actually falls on the buyer today, who is supposed to keep track of such transactions and pay the taxes directly to his/her state.  States complain that they are missing out on revenue opportunities as a result of the minimal amount of compliance.

But the issue of collecting online sales tax also creates numerous challenges.

To start, collecting taxes online in every state can be a technical nightmare for many smaller companies.  The technical issues in mapping all the appropriate state and local taxes to their proper destinations can be complex and cumbersome for retailers that aren’t necessarily equipped with all the technical resources of larger companies.  It would also require changes from many states and localities.

Retailers like eBay argue that the bill favors larger retailers, especially those that have many physical stores in addition to their online sales, which are already equipped to collect these taxes.

Obama has indicated that he supports the bill, according to White House spokesman Jay Carney.

White House spokesman Jay Carney says the Senate bill would level the playing field for small businesses and brick-and-mortar retailers that are undercut by online companies.

Larger retailers like Amazon, which once opposed an online sales tax, now support the bill as well.

In fact, Amazon has gone to battle over the issue.  In return, eBay recently took to recruiting its own sellers to help oppose the measure, and it took direct aim at Amazon.  The company began sending emails Sunday, the first wave to its 40 million users, illustrating the challenges for small merchants and encouraging them to contact Congress on the issue.

In the emails, [eBay Chief Executive] Donahoe said the legislation, known as the Marketplace Fairness Act, unfairly burdens small online merchants and asked eBay users to send an email message to members of Congress asking for changes. […]

Donahoe argued in the emails that merchants with less than $10 million in annual out-of-state sales, or fewer than 50 employees, should be exempt. Reuters viewed copies of the emails.

In emails to eBay sellers, Donahoe singled out Inc, eBay’s main rival, which supports the current legislation.

“This legislation treats you and big multi-billion dollar online retailers – such as Amazon – exactly the same,” Donahoe wrote. “Those fighting for this change refuse to acknowledge that the burden on businesses like yours is far greater than for a big national retailer.”

Amazon generates more than $10 million in sales every 90 minutes, giving the world’s largest Internet retailer more resources than a typical small merchant to collect sales tax in all states, Donahoe argued.

A procedural vote on the bill is expected to be held in the Senate on Monday.


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