Senate approves online sales tax. Is it fair, or a tax increase?
The Senate voted late Monday to require e-commerce businesses to collect sales taxes from buyers. The Marketplace Fairness Act may bring as much as $23 billion, by one estimate, in online sales tax revenue to states and cities. It faces an uncertain future in the House.
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The dispute over collecting sales tax dates back to a 1992 US Supreme Court decision, Quill Corp. v. North Dakota, that barred states from requiring a retailer to collect sales taxes on its behalf unless the retailer had an actual physical presence such as a warehouse or sales office in the taxing state. However, the court left open the possibility that Congress could change the law.Skip to next paragraph
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Immediately after the MFA cleared the Senate, Representative Goodlatte said he was disappointed that the latest version did not follow “regular order” in the Senate, but instead bypassed the Senate committee with the subject-matter expertise.
“Consideration in the House will be more thoughtful,” he said in a statement.
Goodlatte has already indicated that he has deep reservations about the MFA. For one, the legislation does not make tax collection simpler, he said. “There is still not uniformity on definitions and tax rates, so businesses would still be forced to wade through potentially hundreds of tax rates and a host of different tax codes and definitions,” he said.
Goodlatte is also worried that aggressive state tax bureaus could try to pry money out of e-retailers in other states that the bureaus did not think complied with the legislation.
“The Committee will also look at alternatives that could enable states to collect sales tax revenues without opening the door to aggressive state action against out-of-state companies,” he said.
Goodlatte’s reservations prompt some independent analysts to wonder if the legislation has a future.
Immediately after the Senate passed the legislation, the conservative R Street Institute issued a statement lamenting the Senate's vote. The organization suggested that the House consider “origin sourcing,” in which businesses collect sales taxes using the rate for their own physical location, not that of their customers. For example, a New York consumer purchasing an item from an e-commerce business in Maryland would pay the Maryland sales tax rate, not the New York rate.
“An origin sourcing approach could address the concerns of Marketplace Fairness Act proponents while preserving proper limits on taxation, due process rights, and privacy protections for consumers," said R Street senior fellow Andrew Moylan.
A major change, such as going to origin sourcing, would require a House and Senate conference to work out differences in the legislation.
“No one is in favor of piling new tax burdens on hard-working Americans, least of all the two of us, and this bill does not impose any new taxes,” they wrote in a letter to House and Senate Republicans.
MFA proponents hope that this argument ultimately sways the House to approve the legislation. “This is a tax already on the books,” says Kercheval. “It is a collection issue.”