Of all the taxes paid in the United States, sales tax is perhaps the easiest to understand. Unless you live in one of the five states that do not collect sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon), you are quite used to going down to the store and paying the sales tax on the goods you purchased. Go online, however, and you may pay no sales tax at all. Current regulations do not require internet retailers to collect sales tax in states where they do not maintain a physical presence. A merchant with a store in your state will collect the tax on online purchases, but a vendor with no physical location will not. Brick-and-mortar merchants have long complained that this gives online retailers a competitive price advantage, and support what’s known as The Marketplace Fairness Act, which would allow states to require online retailers to collect state sales tax. State governments, missing out on tremendous revenue, are on the side of those retailers.
The Marketplace Fairness Act would force online retailers across the United States to collect taxes and remit them to each individual state. The online retailers would do this through free sales tax calculation software that would allow them to determine the correct rate based upon where a customer lives. It has passed the Senate, and is now doing battle in the House. At a House Judiciary Committee hearing this month, members of Congress heard from a panel of lobbyists, experts, and attorneys on various proposals to eliminate the sales tax disparity that exists between online and traditional merchants. Several themes became evident:
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There was broad, bipartisan agreement that the current patchwork of state laws and court decisions presents a problem, and that Congress alone can fix the sales tax disparity.
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Congress has the authority to level the playing field so that retailers – no matter whether they sell their merchandise in a store, through the mail, or over the Internet – can compete fairly. Any solution must aim for certainty and take into account simplification requirements, audit protections, and implementation costs.
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Lawmakers were genuinely concerned that any federal legislation aimed at ending the sales tax disparity shield small business owners from overregulation or excessive enforcement actions.
The bill presents a tough decision for federal legislators as they confront the worry that, if they pass this bill, they might be accused of increasing taxes while giving state legislatures a great deal of new tax resources to use on state spending priorities. Opponents worry that small businesses would be saddled with complying with a maze of thousands of state and local tax laws, and that the measure would not level the playing field between merchants. Quite the contrary, they argue, it would favor brick and mortar stores that would not face the new regulations. Regardless, the bill enjoys wide support. Many states need the revenue, and a number of governors have indicated support for the Marketplace Fairness approach. They include Nikki Haley of South Carolina, Bill Haslam of Tennessee, Mike Pence of Indiana, Rick Snyder of Michigan, and Paul LePage of Maine. Former GOP governors like Jeb Bush, Mitch Daniels, and Haley Barbour have spoken in favor of the concept too.
This will be one to watch. Just remember, avoiding the sales tax at checkout doesn’t mean you’ve avoided it forever. You are liable for use tax if you bring the goods into your state or have them shipped to you. States historically have not enforced use tax except against businesses, but that’s changing. You sign tax returns under penalty of perjury, so be sure you’re in compliance with any regulations currently in place.
