May 9, 2013
May 9, 2013
By Oregon Tax News,
What You Need to Know About the Internet Sales Tax
This week the Senate passed the so-called Marketplace Fairness Act by a vote of 69 to 27. Here are some important things to know about the bill.
1. Allows states to capture $11 billion in taxable income. it allows the 45 states that currently charge sales tax (and the District of Columbia) to require online retailers to collect sales on their resident’s purchases. The law would apply to all online sellers with sales of over $1 million outside of states where they have a physical presence.In 1992 the Supreme Court ruled in Quill Corp. v. North Dakota that businesses that do not have a physical presence in a state are not required to collect sales taxes from their customers in that state. At the time there were no internet retailers, so it affected only catalog sales. The States claim this now costs them $11 Billion a year.
2. Debate over 9,600 tax jurisdictions. Critics claim that the tax would opens a bureaucratic problem by forcing businesses to keep track of the 9,6000 taxing districts in the county. Another compounding issue is the role of tribal taxing districts in America. The bill is structured so that a business only pays one taxing entity in each state, but how that is implemented is a souce for concern.
3. Wal-Mart supports, eBay against. The Retail Industry Leaders Association and the International Council of Shopping Centers has been supporting the bill. Large brick and mortar retailers with an online store, like Wal Mart, who are required to charge sales taxes to their online customers because of their physical presence in taxing states, support the bill, believing it will eliminate a perceived competitive advantage of strictly online retailers not required to collect state sales taxes. eBay, Free Market groups like the National Taxpayer Union and a small business coalition group called We R Here opposed the bill for its impact on small businesses.
4. Amazon flipped their support. Virtually every online retailer opposes the bill, except Amazon. Why does Amazon, who spent millions opposing similar legislation in California a few years back, and even dropped its California associates to avoid collecting California sales taxes, support the bill? Amazon’s public answer is that it has been expanding into new states to support its same-day delivery service, and thus has to pay sales tax in several new states anyway. What Amazon Is not advertising – yet – is that they have developed a tax collection service for online sellers that charges 2.9% of all sales and use taxes and other transaction-based charges they collect.
5. Destination principle being utilized. Internet retailers are now being asked asked act on the destination principle by trying to locate the residency of purchasers. This is generally not applied to traditional retailers but would be of requested of internet retailers if the law passed and would represent a significant shift on how businesses relate to their customer and the importance of their residency.
6. Steps toward nationwide sales tax. The Marketplace Fairness Act achieves an additional goal of moving moving the states one step closer to the possibility uniform national sales tax structure. State and local government interests have been aggressively advocating for a national sales tax system but are handicapped by the biggest obstacle which is the different tax structures and tax definitions used by each tax district. The Marketplace fairness Act would be the first unifying principle uniting such different states even if it is just a small one.
7. Passage of bill uncertain. The fate of the Internet Tax in the House of Representatives is uncertain. House Judiciary Committee Rep. Bob Goodlatte (R-Va), who will decide if the bill gets to the floor or not, is not a supporter. Speaker John Boehner (R-Ohio) and Majority Leader Eric Cantor (R-Va.) have not taken public positions on the bill.
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