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Fight Over Online Sales Tax Bill Heats Up in Senate

Fight Over Online Sales Tax Bill Heats Up in Senate

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 Amazon.com 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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Comments

This may be too simplistic, but if the Internet retailers are “forced” into this, why not make it a flat tax, nationwide, say 2 or 3% on the sale price. This way, each state gets something (where it now gets very little) and it will be a whole lot easier for even the small retailer to collect/process/remit the tax.

    jdkchem in reply to Rich B.. | April 23, 2013 at 4:29 pm

    Why stop there? Eliminate all federal taxes and implement a flat tax of 12% with 2% going to the states distributed according to population.

1. In today’s America, any legislation with a name like Marketplace Fairness Act is a special-interest ripoff by the ruling class. Period. It remains only to determine what the special interests are and who is being ripped off.

2. 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

That’s a feature, not a bug.

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

But of course. The very tax environment that helped Amazon et al grow to large size, they want to deny to agile innovative upstart competitors.

4. I’ve suggested before that Republicans make it clear that they support a market economy, not big business. Fat chance of that, not least because Republicans actually favor big business over a market economy & the welfare of American citizenry.

5. In principle I do not object to an online sales tax, but I have no confidence—none—that the current political system will implement such a tax fairly and constructively.

legalizehazing | April 23, 2013 at 4:08 pm

Who could support this. more pocket book reaching and just sick power grab that would usher in the inevitable internet control legislation

Fairness = Screw Citizens. ‘nough said

TraditionalOldGuy | April 23, 2013 at 4:26 pm

Several years ago, in my capacity as software developer for internet applications, we reviewed how many taxing authorities there were in the US. 4,000+!!!!! Every state, every county, many cities, school districts, and any where the local gov’t decided to levy a tax, i.e. some airports have their own taxing authority.

Here in Florida, they’re just wild about taxing tourist services, often with good reason, but it does get ridiculous – sometimes.

This is just some more of the post Romney defeat re-branding of the Republican party. They are fast becoming the conservative wing of the Progressive movement.

Amazon has graciously offered to help small retailers collect the taxes. For a fee of course.
The big lie told here is that the sales tax is the reason for the increase in online sales and the fall of brick-and-mortar sales. Not true, prices online(with shipping) can be half or less than the same item in a store. Makes a 5 or 10% sales tax irrelevant.

Let me know when they lower, or eliminate a tax in the name of “fairness”…

(I’ll be busy looking for the Constitutional requirement mandating the government regulate “fairness”)

I have a small hobby business. I specialize in painting pet portraits. I do not make a lot of money from this. I do it because I love to paint and love to see how people enjoy seeing their pets in a portrait. It truly brings joy to their life remembering pets that have passed or have a painting of their current pet. I keep my prices low so people can afford an original oil painting of their pet.

I sell most of my paintings thru the internet. This will put me out of business. I do not sell many per year and the increased burden of learning all the tax regulations for all 50 states and local municipalities is just not worth continuing. Last year I made approximately $1200.00 from sales all over the US. Most of that was spent on supplies and expenses. Two years ago I spent over $2000.00 purchasing a small enclosed trailer to use at trade shows. Not very useful if I am forced to close.

If this tax goes through I will not be able to continue. This is a hobby business! I work full time. If this legislation passes and I need to add the burden of collecting taxes country wide, not to mention exposing myself to every tax jurisdiction in the country, just for an additional $1200.00 it truly is not worth the effort.

There will many people in my position who just will have to close up their business because of the increased burdens our government keeps piling on us. That’s the world we are being forced to accept.

    Breathe easy – they are after the million dollar retailers.

      They will never be satisfied with that threshold. When they find out that they are actually loosing money because businesses are closing, they will go after everyone.

      Their track record of making promises on who they are going to tax are highly suspect.

      Browndog in reply to gad-fly. | April 23, 2013 at 7:28 pm

      Gadfly-

      They are after more money, period. Telling a small business owner there is nothing to worry about is ludicrous.

Forty-five states have complex sales tax laws that exempt different things and consumers as well. Manufacturers do not pay sales tax on materials used in products. Some states tax food, some do not, some tax services, and some don’t. Just think of the software complexities involved in handling the exceptions I noted. Then we can talk about 45 or more additional checks to be calculated and paid each month and more accounting people to look after this new function.

Perhaps it is time for sales taxers to adopt the B & O (business and occupancy) tax used in Washington state which taxes gross revenues at the business tax return level. Collection procedures would be far less complex. This would really put all taxers on an even keel, whereas this latest fairness doctrine does not affect consumers in seven states.

There are currently 5 States with no sales tax.

You have to love the names on these bills – do they simply consult an antonym thesaurus? This trash has absolutely nothing to do with “Marketplace Fairness” – I mean, come on….it’s all about tax revenue.

I would think that they should just say that taxes should be collected as if they are a local sale. All businesses should have that ability already in the POS systems, no fancy updates needed to support all 50 states. Also, this would mean that everyone is treated as a B&M and there are no unfair tax advantages…unless you move the business with a lower tax rate…hey! competition at the state level.

So… if you are a business that sells over the internet in a state that has no sales tax (and you meet the gross receipts criteria), you’d be forced to play tax collector for every state that does have a sales tax?

My state doesn’t have a sales tax, we have a gross receipts tax on goods AND services. The tax rate varies between municipalities from 5% (government sales) to 8.6875%. This tax is always passed on to the purchaser, no matter where they live and is generally itemized on the receipt. A high volume internet seller in New Mexico would not only be required to charge the New Mexico GRT, they’d also have to collect sales taxes from individual states. Why would anyone pay a double tax? New Mexico isn’t going to change from a GRT to a sales tax because under the current system, they rake in tens of millions of dollars in taxes from government vendors that wouldn’t be allowed if it were a sales tax.

Oregon makes it easy. No sales tax 🙂

Don’t worry about this tax. I’m sure it’s only for millionaires and billionaires who don’t pay their fair share.

    snopercod in reply to conductor. | April 24, 2013 at 8:05 am

    I’m glad you brought that up. Those in opposition to this new tax are mostly arguing that it’s unconstitutional (I agree), but we’ve seen how much the Senate cares about that. I have a different reason for opposing it: Just like the federal gas tax, it’s a tax on rural people. I sent this to my two Senators yesterday:

    I urge you to vote NO on the Internet Sales Tax. I am one of your many rural constituents who depend upon purchasing items online that aren’t available locally. Being on Social Security, I really can’t afford to spend $10 or $20 in gasoline to drive to the big city just to buy the things I need.

    Rich city folks have hundreds of stores to chose from, but we poor country folks don’t. For us, the lack of sales tax on out-of-state Internet purchases helps to offset the shipping charges.

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