Online Sales Tax Measure May Come to Vote in 2012

The recent focus on taxes in Washington, D.C., has been concerned mainly with the upcoming “fiscal cliff”, which refers to the various tax cuts and spending programs that will expire effective January 1, 2013.  Many are concerned that if these measures do lapse it could push the nation back into a recession.  However, Congress is also continuing to consider measures that would require online retailers to collect sales tax.

On Friday, Richard J. Durbin, a Senate Democrat from Illinois, introduced the Marketplace Fairness Act that is targeted squarely at collecting sales tax from customers of online retailers.  The Senate bill may be added to the National Defense Authorization Act of 2013 and could come to a vote before the end of the year.

“We are optimistic that once the Marketplace Fairness Act is brought for a vote, it will have enough support to pass,” said Christina Mulka, a spokesperson for Durbin’s office.

More and more members of both Republican and Democratic parties have started supporting measures to enforce online sales tax, as state and local government bodies continue to experience budget shortfalls and brick-and-mortar retailers increase pressure on lawmakers to level the playing field when it comes to sales tax.

“Senator Durbin is focused on working with his colleagues to try to get a vote on the bill before the end of this year, whether as a stand-alone bill or part of a larger piece of legislation,” said Ms. Mulka.  “They are keeping all options on the table at this point.”

The National Retail Federation, which supports the interests of retailers across the nation, is in support of the Marketplace Fairness Act and specifically including it in the National Defense Authorization Act.

“As the nature of retailing evolves and Internet sales become a more prominent portion of total retail sales, it is critical that sales tax collection requirements not discriminate,” said National Retail Federation Senior Vice President David French in an open letter written to senators.  “The current collection disparity has tilted the competitive landscape against local stores, creating a crisis for brick-and-mortar retailers around the country.”

The House of Representatives is likewise working on a measure to establish online sales taxes, the Marketplace Equity Act.  If the Senate bill passes first, it would then go to the House for a vote.  If the bill passes the House, it would go to President Obama’s desk to be signed into law.

“The essence of the two bills are very much along the same flavor,” said Claire Burghoff, a spokesperson for the office of Representative Steve Womack.  Representative Womack is a Republican from Arkansas and the sponsor of the Marketplace Equity Act in the House.

“We’ve just gained a lot of traction this year, and so we’re at a point where we can see it going through,” continued Ms. Burghoff.  ”So having to reintroduce that legislation just takes some momentum out of the process that we have going for us right now.”

Recent studies have provided data that online sales tax would generate approximately $23 billion in additional tax revenue for state governments.

Most shoppers are not aware that when they shop online, if the retailer does not collect sales tax, the shopper is still supposed to pay the sales tax as a part of their state or federal income tax each year.  But in most cases even those who are aware of this fact do not follow through on the payment because the Internal Revenue Service and other bodies do not enforce collection of sales tax.

The sales tax gap between brick-and-mortar stores and online retailers started in 1992 when the Supreme Court ruled in Quill v. North Dakota that a state does not have the power to force a company located outside of the state’s borders to collect sales tax on behalf of the state.  But at the time, Internet sales were only a small fraction of what they are today, which is why the disparity in sales tax has continued to gain attention in recent years.

Many online retailers are concerned about federal measures requiring the collection of sales tax because they see the process of determining what tax rates apply to each jurisdiction and collecting the appropriate taxes to be a costly proposition.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.