Bills before Congress could allow states to impose tax on online purchases
Online shoppers may be pushed back into storefronts as Congress weighs whether to allow states to collect sales taxes on purchases made online.
Three bills are working their way through Congress now that would give states the authority to collect sales and use tax on purchases made out of state, reversing a 20-year-old decision by the Supreme Court that a business must have a physical presence in a state in order for the state to require the business to collect sales taxes.
If passed, these bills would grant states the option to collect sales tax on Internet sales as long as the state’s tax code fits a list of minimum criteria designed to simplify the process of collecting taxes for Internet retailers.
The bill is intended to drive customers back into showrooms and away from online marketplaces, putting an end to a practice known as “showrooming.”
Showrooming —when a customer visits a physical store to check out a product before going online to purchase it — is one practice that the National Retailers Federation says is hurting retailers’ margins. With sales taxes up to 10 percent or more in some areas, the NRF says retailers can’t compete for customers purchasing online to avoid the taxes.
Midwest Mastercraft of Crystal, Minn., currently generates enough in sales each year through its online marketplaces that it would be required to file tax returns in each state that the company generates sales in, which could mean every state during the busy time of the year, said owner Andy Larson in an interview.
“We do a lot of sales online. We have waterskis.com and wakeboards.com, and we sell a lot of them online,” Larson said. “It would be a nightmare for us to track all of that and figure out how to pay properly. Every county has different sales taxes and trying to stay compliant across the U.S. would be an absolute nightmare to file and keep current with what’s changing.”
Larson said that it comes down to the work of the sales people to keep the customers in store, and the bills would only make life easier for the corporations who are lobbying for it.
“For us, we’ve had no problems with the showrooming concept. It’s about better service to keep pulling customers back into the store,” Larson said.
Since 2000, the Streamlined Sales Tax Governing Board Inc. has been working with states to develop a simplified tax code that would benefit all sellers, on- and off-line, as well as make the enactment of an online sales tax possible.
Three separate bills are currently being debated in Congress that share similar, but slightly different, criteria put forth by the SSTGB concerning what states must achieve in order to be able to collect sales tax on remote sales.
The Main Street Fairness Act (S. 1452, H.R. 2701), Marketplace Equity Act (H.R. 3179) and Marketplace Fairness Act (S. 1832) all provide different criteria for states to achieve the same goal.
Though different, the key requirements are exemptions for small business, a uniform tax code that extends beyond online sellers and adequate technology to assist online retailers in filing sales tax returns.
The National Retail Federation published an extended breakdown of the three online tax bills that are currently being presented to Congress on its website, detailing how each bill would make an online sales tax possible.
Bi-partisan but controversial
The bills have been sponsored by representatives from both sides of the aisle, as well as online, brick-and-mortar and cross-channel retailers. However, a few representatives and e-retailers have come out arguing that these don’t pose a solution for business or for the economy but instead would burden small businesses.
Two retail industry groups have come out in support of H.R. 3179, including the Retail Industry Leaders Association (RILA), which represents Wal-Mart, Target and Sears, and the National Retail Federation (NRF), which has board members including executives from Macy’s.
David French, senior vice president of RILA, told Bloomberg Businessweek, “All that we want is a level playing field. It’s only certain Internet sellers that don’t collect sales taxes.”
However, NetChoice, a coalition of e-commerce and online companies that includes eBay, Expedia and Overstock, said in testimony before the Senate Committee on Commerce, Science, and Transportation that the Marketplace Fairness Act would not drive customers into storefronts and would impose an unfair burden on businesses.
“Most shoppers go online for the convenience and selection available, not to avoid taxes,” said Steve DelBianco, executive director of NetChoice, in his testimony. “S 1832 does not adequately protect America’s small businesses, where these new collection burdens would be disproportionately complex and expensive.”