Washington Retail Insight

Sales Tax Fairness Clears Test Vote in Senate

By J. Craig Shearman
Washington Retail Insight
March 22, 2013

A proposal that would allow states to require online sellers to collect sales tax the same as local stores easily cleared a non-binding test vote in the Senate tonight, giving an important symbolic victory to supporters of sales tax fairness.

The 75-24 vote came on an amendment offered by Senate Majority Whip Richard Durbin, D-Ill., attaching language to the Senate budget resolution allowing states to require out-of-state sellers to collect sales tax. Under a 1992 U.S. Supreme Court ruling, states can currently require collection only by sellers based in their state or those who have a physical presence such as a store or distribution center.

Durbin is a key sponsor of the Marketplace Fairness Act, which spells out steps states would be required to take in order to collect. While the amendment does not include all provisions of the legislation, tonight's action showed supporters that they have the 60 votes required to overcome procedural hurdles in the Senate and win eventual passage. The budget resolution is non-binding, so additional action will still be required before the measure could become law, but NRF plans to make it a top priority.

“The retail community is unified in our commitment to pass the Marketplace Fairness Act and make it law,” NRF President and CEO Matthew Shay said after the vote. “NRF members will continue to educate and lobby legislators on the importance of leveling the sales tax playing field for all retailers – no matter their preferred channel.”

“As the retail industry evolves and digital commerce becomes a more prominent portion of total retail sales, it is critical that the tax laws not discriminate between similar businesses based on how their products are distributed,” NRF Senior Vice President for Government Relations David French said in a letter to senators earlier in the week. “Leveling the playing field … will create a business climate where retailers have a better opportunity to grow and create jobs in a truly competitive marketplace.”

With cash-strapped states losing billions of dollars in uncollected sales tax online each year, failure of Washington to address the issue could lead to increases in income taxes or property taxes to make up the difference, French said on NRF’s blog.

“Today’s vote proves that an overwhelming majority of senators support this bipartisan legislation," Durbin said. “The Marketplace Fairness Act is a bill whose time has come in Congress and one that is long overdue for states, local governments and small businesses."

The amendment was backed by 18 cosponsors in addition to Durbin, including Senator Michael Enzi, R-Wyo., lead sponsor of the bill.

"Tonight's vote sends a strong message in favor of leveling the playing field for all businesses," Enzi said after the vote.

“As a former small business owner, I believe it is important to level the playing field for all retailers – in-store, catalog, and online – so an outdated rule for sales tax collection does not adversely impact small businesses and Main Street retailers,” Enzi said on the Senate floor. “All businesses and their retail sales and all consumers and their purchases should be treated equally.”

Finance Committee Chairman Max Baucus, D-Mont., called the amendment “premature” and said the legislation should have gone through his committee before receiving even a test vote on the Senate floor.

Under the Enzi/Durbin bill, states that want to require online sellers to collect sales tax would have to simplify their tax codes. But participation would be voluntary, and the bill gives them a choice of either a comprehensive simplification plan proposed in previous sales tax fairness measures or an easier alternative set of requirements. Small businesses with less than $1 million in annual sales would be exempt from collecting tax, up from $500,000 in past versions, and states rather than retailers would pay for software that would handle collection.

© 2013 National Retail Federation