The Free Tax Ride Could Soon Be Over for Online Shoppers

A bipartisan trio of Senators has introduced a bill that gives states the authority to collect online sales taxes. The measure, cosponsored by Senators Mike Enzi, R-Wyo., Dick Durbin, (D-Ill., and Lamar Alexander, R-Tenn., carves out an exception for small businesses, one of the main objections to this issue in the past.

The legislation exempts sellers that make less than $500,000 in total out-of-state sales in the year.

While the bill manages to unite some members of both parties on this issue, the tech community is divided as to whether it will do more harm than good. eBay, for example, reportedly does not like it, arguing that small businesses would not be adequately protected. Amazon, which not long ago was adamant about not collecting taxes from its customers, favors the measure.

The small business exemption won over Shel Horowitz, CEO of Frugal Marketing and author of several books.

“My big objection in the past to these sorts of proposals has been the bookkeeping and remittance nightmare — but the exemption for businesses with less than $500,000 in sales means that only those companies that can afford to invest in the software will be bound by the requirement,” he told the E-Commerce Times.

Right now, the playing field is far from level, Horowitz said, especially for brick-and-mortar mom and pops. “It’s very hard for local retailers who have to charge 5 percent to 10 percdent extra to compete with online merchants not burdened by this requirement.”

A Simplified System

Under the Marketplace Fairness Act, states would have the option to collect sales and use tax revenues from out-of-state sellers instead of relying on consumers to report the purchases, as the current system prescribes.

There are two ways states would be able to do this, under the bill.

They could become member states of the Streamlined Sales and Use Tax Agreement (SSUTA) and thus gain authority to require out-of-state sellers to collect and remit sales and use taxes after 90 days.

Twenty-four states have become members of SSUTA, changing their tax laws to meet the requirements of the agreement, which benefits retailers by harmonizing states sales-and-use-tax rules and reducing paperwork.

A state that does not wish to join SSUTA can collect taxes by adopting certain minimum simplification requirements. It also would have to provide sellers with additional notices on collection requirements.

Sens. Tim Johnson, D-S.D., John Boozman, R-Ark., Jack Reed, D-R.I., Roy Blunt, R-Mo., Sheldon Whitehouse, D-R.I., Bob Corker, R-Tenn., and Mark Pryor, D-Ark., are cosponsors of the legislation.

The E-Commerce Times received no response from the offices of Enzi, Durbin and Alexander to requests to comment for this story.

A Potent Argument

The requirement to collect sales taxes from their customers is not going to sit well with many online retailers. One mitigating factor, however, is the harmonization of state tax laws, said Daniela Saunders, SVP of sales and marketing at FedTax.

The flexibility in the bill also resonates with states, Saunders told the E-Commerce Times.

“In our view, it does address a lot of issues, because it gives states two options for collecting sales tax from online retailers: They can join the Streamlined Sales and Use Tax Agreement, or they can adopt the minimum simplification requirements specified in the bill,” she said.

Indeed, the situation had been worsening for retailers in recent months as states such as California and Connecticut were moving to put their own laws into place so they could collect online sales taxes, Saunders noted.

Assuming this act becomes law, she said, “those measures are no longer necessary.”

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