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October 18, 2012

Congress May Soon Try to Enact Compromise Law Regarding Expanded Sales Tax on Online Purchases



There’s mounting speculation that Congress may quietly try to enact a complex bill that would allow for expanded state sales taxes on online purchases – perhaps even after the November election.

With state and local governments needing revenue sources, taxes on online sales would be one option. States claim they are missing out on $23 billion a year in taxes, according to a report from the National Journal.

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For example, last month Massachusetts Treasurer Steven Grossman said the state could raise $339 million to fund transportation projects if it were able to collect taxes on Internet sales, TMCnet reported.

State officials find allies in brick-and-mortar store owners, even large chains, as well as owners of malls and shopping centers. They are increasingly losing business to the online retailers.

But online retailers themselves are banding together to fight the proposal.

Under current law, online retailers and catalog retailers do not collect state sales taxes from consumers who live in states where they do not have a facility.

“Congress is seriously considering three bills that will create new tax burdens for online and catalog sellers,” according to a recent statement from NetChoice, which represents trade associations and eCommerce businesses. “Under these bills, Congress would unleash sales tax collectors across state borders.”

The bills cited by the organization include S 1832, S 1452/HR 2701 and HR 3179.

“These bills would add new costs and complexity for every sale a business makes to customers from other states,” the group added.

But potential revenue from sales taxes are “grossly overstated,” NetChoice said. One study said that currently, uncollected sales tax on e-commerce in 2012 represented “1/3 of one percent of total state and local tax revenue.”

Instead, NetChoice is requiring each state to have a single rate for remote sales, standard definitions, and a single audit for all states. 

WE R HERE, (Web Enabled Retailers Helping Expand Retail Employment), another industry group fighting sales taxes on online retailers, said “requiring everyone, regardless of size, to collect sales tax will stifle economic growth, job creation and competition.”

“It's a blanket approach that favors big national players while penalizing entrepreneurs and small businesses that we want to grow and prosper,” WE R HERE said in a recent statement.

On the other hand, the National Retail Federation claims that the current sales tax system gives advantages to the online retailers.

Small brick-and-mortar retailers “are asked to match that and they can’t,” Rachelle Bernstein, vice president and tax policy counsel for the National Retail Federation, told the National Journal. “They can’t absorb the sales tax.”

Even if a bill isn’t approved by the current Congress – one may be successful next year, according to news reports. Current proposals in Congress are trying to reflect compromises between the different stakeholders.

“I feel more optimistic today than I have in a while,” Jennifer Platt, vice president for federal operations for the International Council for Shopping Centers, told the National Journal.

“As retailing evolves and Internet sales become a more prominent portion of total retail sales, it is critical that Congress support pro-small business reform of broken sales and use a tax collection system,” NRF senior vice president David French said in a statement earlier this year. 




Edited by Braden Becker
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