WASHINGTON - A bipartisan group of Senators have reintroduced a bill that would allow states to require out-of-state businesses selling products over the Internet to collect taxes on those sales if their states had simplified their sales tax requirements.
The Marketplace Fairness Act of 2015, whose main sponsors are Sens. Mike Enzi, R-Wy., and Dick Durbin, D-Ill., Lamar Alexander, R-Tenn. And Heidi Heitkamp, D-ND, is virtually identical to a bill they sponsored last year that was approved by a vote of 69 to 27 in the Senate.
The bill was never taken up by the House Judiciary Committee during the 113th Congress because its chairman, Rep. Bob Goodlatte, R-Va., has taken a different approach to online sales taxes for Internet sales.
This new Marketplace Fairness Act, the text of which is not yet available, differs from the earlier one only in that it would delay the date that states could exercise authority and would exempt the first holiday shopping season after enactment, according to an aide to Enzi.
The bill is also supported by Sens. Roy Blunt, R-Mo, Jack Reed, D-RI, Bob Corker, R-Tenn., Sheldon Whitehouse, D-RI, and Angus King, I-Maine, as well as more than 280 businesses and state and local government groups, the sponsoring Senators said in a release.
The bill is important for state and local governments, which have increasingly been losing sales tax revenues from transactions done over the Internet. Internet sales have generally escaped such taxation, even though taxes are due under most states' "use tax" requirements, because consumers just don't pay the taxes.
Generally, states have been blocked from requiring Internet retailers to collect sales taxes by a 1992 Supreme Court ruling in Quill v. North Dakota. In that case, the high court said states could not impose a tax on an office supply retailer because the retailer did not have any physical presence in the state. The court was concerned there were thousands of separate sales tax jurisdictions that could severely restrict interstate commerce if they adopted varying sales tax requirements. It said Congress was responsible for granting authority in this area.
The Marketplace Fairness Act of 2015 is aimed at leveling the playing field for Main Street brick and mortar businesses that are currently at a disadvantage because they must collect sales and use taxes while a growing number of businesses selling over the Internet don't.
The Senators estimate the bill would provide a pathway for states and localities across the country to collect up to an estimated $23 billion of sales taxes annually, which currently are not collected.
The bill contains a small seller exemption under which states would be prohibited from requiring businesses selling over the Internet that have less than $1 million in annual nationwide remote sales from collecting sales and use taxes on Internet sales. The Small Business Administration estimates that 99% of online sellers are "small" under this definition, according to the release.
The Senators stressed that the bill would not create new taxes or increase existing taxes.
Goodlatte released a draft discussion draft of an online sales tax bill earlier this year that takes a very different approach. He would allow sales taxes on Internet purchases to be collected at the rate of the "origin state," the state where the retailer had the greatest average number of employees on business days during the previous calendar year.
The National Governors Association has warned this would create a "taxation without representation" situation because the buyer would pay taxes in a state in which he did not receive services and where he cannot vote.
