Newsletter

July 28, 2010 - Congressman, Governor to Push for Action on Internet Sales Tax

The sponsor of legislation that would make it easier for states to require Internet retailers and other out-of-state merchants to collect sales tax the same as local bricks-and-mortar stores will rally supporters on Capitol Hill tomorrow to call for action on the bill.

Representative Bill Delahunt, D-Mass., is scheduled to hold a news conference on Thursday morning and is expected to be joined by South Dakota Governor Mike Rounds and former Iowa House Speaker Chris Rants, both Republicans, and a number of small business owners.

Delahunt’s Main Street Fairness Act would help create a level playing field between online sellers and local merchants, but the congressman said it would also let states retrieve billions of dollars in sales tax revenue that currently goes uncollected.

“Without question, states and local municipalities are facing an unprecedented budget crisis,” Delahunt said. “Instead of raising new taxes, this bill is a common sense approach that allows them to collect taxes that are already owed while coming to the aid of struggling small businesses in our communities.”

“This bill is about fairness and competition,” Rounds said. “It will help make sure that the store on the corner and the store on the Internet are playing by the same rules. This will create fair competition that benefits consumers. Tax law should not favor out-of-state retailers over our own corner stores.”

Across the country, states are facing a collective budget deficit of $68 billion, Rants said.

“States aren't asking the federal government for a handout,” he said. “States just need the federal government to give them the ability to collect the … sales taxes that are already owed."

Sales tax revenues comprise up to a third of most state budgets. This year, an estimated $18.6 billion will go uncollected, and by 2012 the states will be losing at least $23 billion annually, according to Delahunt. From 2009-2012, the losses amounted to $55 billion and in some cases can comprise up to half of a state's budget shortfall.

Under 1992’s Quill v. North Dakota, the U.S. Supreme Court ruled that retailers are required to collect sales tax from out-of-state customers only if they have a physical presence such as a store, warehouse or office in the customer’s state. The court held that the 45 state and 7,600 local sales tax systems across the nation were too complicated for a retailer to otherwise know how much tax to collect.

The Delahunt bill would allow states that have adopted the Streamlined Sales and Use Tax Agreement to require out-of-state sellers to collect sales tax whether they have a physical presence or not. The agreement was developed to simplify sales tax laws in response to the Supreme Court ruling and has been adopted by 24 states since 2005. The pact establishes uniform definitions of taxable items, sets up mechanisms to facilitate collection and distribution of sales tax across state lines, and provides retailers with software and free databases to tell them how much tax to charge.

The bill would cover all “remote sellers,” which include online retailers, catalog merchants and “1-800” offers on radio and television. The Streamlined Sales Tax Governing Board, which overseas the simplification agreement, would be allowed to determine levels at which all retailers – both online and traditional – would be reimbursed for the costs of collecting sales tax. The Governing Board would also determine an exemption level for small retailers.

© 2010 National Retail Federation