Newsletter

July 29, 2010 - Supporters Say Improved Internet Sales Tax Collection Would Avoid Need to Increase Other Taxes

Backers of legislation that would make it easier for states to require Internet retailers to collect sales tax from their residents say the measure would help avoid the need to increase other taxes to make up for revenue currently being lost on online sales.

“We don’t want to raise taxes,” Representative Bill Delahunt, D-Mass., said. “We just want to help local communities and states collect taxes that are already due and owed.”

Delahunt held a news conference on Capitol Hill this morning to call for passage of the Main Street Fairness Act, which he introduced earlier this month. He was joined by South Dakota Governor Mike Rounds, former Iowa House Speaker Chris Rants, NRF Vice President and Government and Industry Relations Counsel Maureen Riehl and other supporters of the measure.

States already have authority to require in-state Internet merchants to collect sales tax from their residents. But the U.S. Supreme Court ruled in 1992 that out-of-state sellers can be required to collect only if they have a physical presence – such as a store or distribution center – 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.

Delahunt’s 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 legislation would apply to all out-of-state retailers, including catalog merchants, not just online sellers.

Rants said sales tax from Internet purchases is already owed to the states because consumers are supposed to report untaxed purchases on their annual state tax returns and pay the sales tax as “use” tax. But most consumers aren’t aware of the requirement and few actually pay.

“We’re not asking the federal government for a penny,” Rants said. “We’re just asking the federal government to collect the sales tax that is currently owed.”

Rounds said his state expects to lose $35 million in uncollected sales tax on Internet sales in 2012, and will be forced to increase other taxes or reduce services if Congress doesn’t act.

“This legislation would make the collection of sales tax fairer than it is today,” Rounds said. “The broader the tax, the lower the rate can be.”

Riehl said NRF supports the legislation both because of states’ budget concerns and the need for equity among retailers.

“This bill would create a level playing field between online merchants and local stores while ensuring that state and local governments can collect the sales tax revenue they need to support vital services like police and fire departments, ambulances and schools,” she said. “The merchandise sold online is no different than what is sold in a store. There is no reason one group of merchants should be given an unfair price advantage over another.”

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

© 2010 National Retail Federation