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Congress Considers Internet Sales Tax Bill

July 13, 2010

Internet Sales Tax Draft Bill, the “Main Street Fairness Act”

by Joseph M. Wallin                                                                                        

If you are interested in knowing what Congress is up to with respect to allowing states to require out-of-state internet retailers to collect and remit sales tax, the latest bill making the rounds, the “Main Street Fairness Act” (the “Act”), is attached. You can find a summary of the bill here.

The highlights of the proposed Act are:

  • Once ten states, comprising at least 20% of the total population of all states imposing a sales tax, have become Member States under the Streamlined Sales and Use Tax Agreement (the “SSUTA”), the states that implement the SSUTA are authorized to require remote sellers to collect and remit sales and use taxes (with or without physical presence or the Quill standard having been met). A state’s authorization terminates if the state falls out of compliance with the SSUTA, or the SSUTA as amended no longer meets the minimum simplification requirements in the Act.
  • The minimum simplification requirements include, among other things: a centralized, one-stop, multistate registration system that a seller may elect to use to register with the Member States.
  • Nothing in the Act is to be construed as subjecting sellers to franchise taxes, income taxes, or licensing requirements of a state or political subdivision of a state.
  • No obligation imposed by the authority granted under the Act is to be considered in determining whether a seller has nexus with any state for any other tax purpose.

It is unclear how much traction this bill may garner. Prior attempts to change the federal law to allow states to collect and remit sales tax from out-of-state retailers with no physical presence in a state have failed. However, with state and local governments under threat of significant budget deficiencies, and a Congress apparently unwilling to fund more without offsetting tax increases or other budget cuts, a bill like this may become law.

What would this mean for startup Internet retailers with no physical presence except in their home state? At least with respect to Member States they would be required to collect and remit sales tax in those states even if they had no physical presence there. As you will see from reading the bill, its provisions are complex and more difficult to understand than the simple physical presence rule from Quill. Would this be unfortunate for startups? I believe so. More complexity makes life more difficult for startup companies, and businesses in general.

The Hill’s On the Money Blog is carrying continuing coverage of the politics around this bill.

  
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Discuss this article

Beatrice Vaccaro July 13, 2010

Wanted to make a comment about the complexity issue. Technology has made it easy for sellers to manage inventories, shipping, targeted marketing etc. And there are companies that have automated the sales tax collection process. Our company, offers such a service (called TaxCloud). It is completely free to the online retailer. It is certified to comply with the Streamlined Sales Tax Agreement, which means that TaxCloud calculates the tax due for any transaction in the US, and offers merchants advantages in terms of tax amnesty and tax indemnification from States that participate in the Streamlined Sales Tax initiative.

steve stallard July 24, 2010

I am the owner off a small businesses for 15 years. I have watched the internet kill small businesses. As I read about the “bill” of creating a tax for internet sales all I hear is how it would hurt new start up internet businesses. What about existing businesses. I have about 20 employees, If I only sold online I would have about 3 employees. We are a ski and snowboard retail operation, and I am tired of being a try on store. Tax the internet and SAVE SMALL BUSINESS. Think about it.
Steve

Linda Herman October 19, 2010

I am the owner of a small business. The internet has become the great equalizer. Without the internet we probably would not be in business at all. There would be no way to compete with larger businesses selling made in china merchandise. A internet sales tax would hurt small businesses savy enough to compete with the large chain stores. I am not a tax collector and becoming one will only hurt my business, both the “brick and morter” store and our internet business. Don’t support this bill, not in these economic times, not now not ever. It will give one more advantage to large business and HURT SMALL AMERICAN BUSINESSES!

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