Sen. Richard Durbin, D-Ill., has introduced a bill allowing states to collect online sales taxes — legislation that has broad support from the business community as well as state and local officials, but so far has not attracted any Republican co-sponsors.
The Main Street Fairness Act would authorize states to collect sales taxes on online transactions from out-of-state retailers. The Supreme Court ruled in 1992, in Quill Corp. v. North Dakota, that retailers are not required to collect out-of-state sales taxes when the business does not have a presence in the state.
Companion legislation has also been introduced by Democrats in the House. Both bills authorize the roughly 20 state participants in the Streamlined Sales and Use Tax Agreement to collect sales taxes from transactions conducted in other member states.
The issue has grown into a significant concern for state and local governments, which are losing an increasing amount of revenue as more purchases are made online. Durbin estimated that states will lose up to $24 billion in 2012 as a result of uncollected taxes from sales over the Internet and through catalogues.
State and local government groups, such as the National Governors’ Association and the National Conference of State Legislatures, have endorsed the bills.
“NGA is a long-time supporter of the Main Street Fairness [Act],” said David Quam, the group’s director of federal relations. Having the Durbin bill introduced “is an important step,” he said.
The bill has also won support from Internet retailers and traditional, brick-and-mortar companies alike.
Amazon.com LLC said in a July 29 letter to Durbin that the bill’s introduction “returns the discussion of interstate collection of sales tax to Congress.”
“Amazon looks forward to working with you and your colleagues in Congress to help enact sales tax collection legislation,” Paul Misener, the company’s vice president for global policy, wrote in the letter.
Sears Holdings Corp. also endorsed Durbin’s bill, saying in a release that the legislation “will restore balance and fairness” so that states can collect taxes they “are already owed.”
The online sales tax issue has been much more confrontational at the state level. Amazon’s support for the federal sales tax legislation comes as it battles several states to prevent them from imposing taxes of their own. In South Carolina earlier this year, Amazon successfully lobbied against a bill that would have required it to collect sales taxes on purchases made within the state. A coalition of big-box retailers, including Wal-Mart Stores Inc., fought to have the sales tax approved.
The success of Durbin’s legislation in Congress is likely to hinge on whether he can gain Republican support, sources said. The bill was introduced without GOP co-sponsors, though in previous Congresses the issue has drawn bipartisan support.
“We’re going to work to get other co-sponsors on the bill now that it’s introduced,” Quam said. The NGA hopes to get Republican support for the legislation after the congressional recess in August, he said.
With lawmakers’ attention focused on federal and state fiscal operations in light of the debt-ceiling requirements, “I think there are going to be a lot of opportunities to talk about what is good fiscal policy,” Quam said. “From our standpoint, the Main Street Fairness [Act] is a bill that just makes a lot of sense.”
But Republicans may be avoiding the issue this year because of its perception as a tax increase. Frank Shafroth, director of the State and Local Government Leadership Center at George Mason University, said there is “a very small minority of members in the House and Senate [who] remotely understand” this issue.
“The issue is how to collect the taxes that are already owed,” he said. Given the extreme partisanship in Congress stemming from the debt-ceiling battle, “the timing here is horrible,” he said of the bill’s introduction.
Gaining support from Republican Sen. Michael Enzi of Wyoming will be crucial, Shafroth said. Enzi introduced similar streamlined sales tax legislation as recently as 2009. “The single-most important Republican from day one has been Mike Enzi,” Shafroth said.
A spokesperson for Enzi said the senator “remains supportive” of the legislation, “but he is working with his Republican colleagues to build greater support for this legislative concept before co-sponsoring an actual bill.”
Meanwhile, a Durbin spokesperson said the senator “has been working with Enzi on this bill and the issue in general.”