BOULDER, CO (BRAIN) — Most brick-and-mortar retailers would benefit from federal legislation that would allow states to collect sales taxes from online retailers, industry leaders say. But opponents of the legislation say it would burden small online businesses by forcing them to collect taxes for multiple states.
Last week the Senate — in a non-binding vote — expressed bipartisan support for the Marketplace Fairness Act, which would allow states to collect sales tax on online sales, even if the online vendor does not have a presence in the state.
"This would be a big step forward for bike shops — to at least eliminate that one little bit of government-mandated advantage that Internet vendors enjoy," said Fred Clements, president of the National Bicycle Dealers Association. Clements joined other leaders of small retail business groups to lobby for the passage of similar legislation in Washington last year.
The act would authorize states to collect sales tax from out-of-state online and mail-order catalog vendors, but only if the state simplifies its tax collection system. Many states have already adopted the Streamlined Sales and Use Tax Agreement, which would allow them to benefit from the federal act.
Not perfect
Clements said the act is not perfect. It would exempt businesses that do less than $1 million a year in online sales from having to collect the taxes.
Some discount online retailers are based in the U.K. and would be unaffected by the legislation.
"From our point of view, a small (brick-and-mortar) retailer is not exempt, so why would a small Internet player be?" Clements said.
Clements also noted that some of the discount online retailers who are the biggest thorns in the side of brick-and-mortar retailers, like Chain Reaction Cycles, are based in the U.K, and would be unaffected by the legislation.
While Friday's 75-24 Senate vote looked lopsided, the legislation is far from becoming law. The budget resolution vote was to show support for adding the act to an amendment to the Senate's budget bill.
The act has the support of retail groups like the NBDA and the National Retail Federation, as well as major retailers like Sears, Target, Best Buy and Wal-Mart. A surprise supporter is Amazon.com, which apparently has decided that a uniform national sales tax collection system would be better than negotiating state-by-state agreements, as the online giant has been doing for several years.
eBay's got your back
Other major online retailers, including eBay, oppose the act. Brian Bieron, the company's senior director of global public policy, said in a statement that the online auction site opposes the act because it would burden small businesses.
"Why wouldn’t customers overwhelmingly prefer to buy from local retailers?" — Rick Vosper
"The current bill would force small-business owners who sell online to become tax collectors for every state across America, threatening them with audits and litigation by tax collectors from states that are thousands of miles away from where they live, work and create jobs," Bieron said. He called the legislation "not ready for prime time."
But Rick Vosper, client services director for SmartEtailing, a company that helps small retailers develop online sales programs, said the act would be "a huge win for local retailers who do business on the Internet, because it levels one of the big advantages previously enjoyed by behemoths like Amazon."
Vosper said eliminating the sales tax advantage of large players — combined with supplier minimum pricing policies and "buy local" online sales programs where consumers order online and pick up their purchases at stores — tilts the playing field back toward local sellers.
The combination can produce incremental sales, new customers and market-share increases among existing customers, Vosper said. "Why wouldn’t customers overwhelmingly prefer to buy from local retailers, either for at-home delivery or for pickup in store?"
State sovereignty
In 1992 the U.S. Supreme Court ruled that it would be too much of a burden on small retailers to collect sales tax from out-of-state customers (Quill v. North Dakota). Currently most retailers must collect sales tax from out-of-state customers only if they have a store or other physical presence in the customer’s state. The court's opinion opened the door for Congress to set up a system for sales tax collection across state lines, which is what the legislation does.
Budget-strained state governments are eager to collect the estimated $23 billion in sales taxes that go uncollected each year.
But lawmakers from the handful of states that don't have sales taxes are less enthralled, because the act would reduce the advantage its businesses already enjoy.
Sen. Kelly Ayotte, Republican from sales-tax-free New Hampshire, told the Senate last week that the act was a threat to state sovereignty.
"For non-sales tax states like New Hampshire, this is simply an unfair burden for our businesses to bear," Ayotte said.
Although the bill does not create a new tax — it only facilitates the collection of an existing tax — it may not fare as well in the Republican-controlled U.S. House as it did in the Senate. The House Judiciary Committee has yet to take up its version of the legislation.
