History of Internet Sales Tax
In a 1992 ruling, the Supreme Court said out-of-state sellers can only be required to collect sales tax if they have a store or other physical presence in the customer’s state. The court reasoned that sales tax rules in the 45 states and more than 7,000 local governments that charge sales tax were too complicated for an out-of-state seller to know how much to collect. States responded by creating the Streamlined Sales and Use Tax Agreement, which would simplify sales tax laws to address the court’s concern. The Main Street Fairness Act was first introduced 10 years ago to allow states that had complied with the agreement to require out-of-state sellers to collect. But Congress was slow to pass the legislation because few states had initially signed the agreement, and states were slow to sign because Congress had not voted. The two new bills under consideration would simplify the conditions for states to participate, and are expected to break the stalemate.
The National Retail Federation, the world’s largest retail trade group, has long supported a level playing field where all retailers operate by the same tax rules regardless of whether they sell merchandise in a traditional store, through the mail or over the Internet. Currently, online retailers who are not required to collect sales tax from the majority of their customers enjoy an unfair price advantage over local merchants who are required to collect sales tax from everyone. In addition to placing local merchants at a disadvantage, this disparity deprives state and local government of tax revenue they need to provide essential services. As a result, NRF strongly supports federal legislation that would make it easier for states to require all Internet retailers to collect sales tax in the same way as local stores.