Late last month, online behemoth Amazon.com, Inc. gave its blessing to a bill – the Main Street Fairness Act (S. 1452) sponsored by Senator Dick Durbin (D-IL) – which would allow states that simplify their tax systems to collect taxes on sales of goods or services received within the state, without regard to the location of the seller. As a result, both virtual and brick-and-mortar retailers would assess taxes similarly. (Rep. John Conyers (D-MI) introduced the same bill, H.R. 2701, in the House.)
As most consumers know, sales taxes are imposed differently, depending on whether a transaction occurs in the real or virtual (or catalog) world. In the case Quill Corp v. North Dakota, the U.S. Supreme Court ruled that requiring Quill Corporation, an out-of-state mail order company to collect and pay tax on good purchased within North Dakota would place an unconstitutional burden on interstate commerce, given the number of tax regulations, many of which vary by state, with which online and catalog retailers would have to comply.
At the same time, the Court's opinion noted that, "the underlying issue here is one that Congress may be better qualified to resolve, and one that it has the ultimate power to resolve."
Indeed, Congress has tried to address this before; govtrack.us identifies four other bills, introduced in previous sessions of Congress, that aimed to simplify and standardize the collection of sales taxes for items purchased online or via catalogs. None made it into law.
In the meantime, the National Governor's Association and the National Conference of State Legislatures, created the Streamlined Sales and Use Tax in the fall of 1999. The goal was to simplify sales and use tax collection and administration by retailers and states, and to minimize costs and administrative burdens on retailers that collect sales tax, particularly retailers operating in multiple states. It also encourages "remote sellers" selling over the Internet and by mail order to collect tax on sales to customers living in the Streamlined states, and levels the playing field so that local "brick-and-mortar" stores and remote sellers operate under the same rules. It does this by, among other things, providing uniform tax definitions and rate simplification.
To date, 24 states have passed legislation that conforms with the Streamlined Sales and Use Tax Agreement (SSUTA). Conforming legislation also has been introduced in nine more states, according to the website, www.streamlinedsalestax.org.
Senator Durbin's bill would authorize each member state under the SSUTA, subject to several criteria, to require all sellers not qualifying for the small seller exception to collect and remit sales and use taxes with respect to remote sales. This would be effective once ten States, accounting for at least 20 percent of the total population of all States imposing a sales tax, as determined by the most recent Federal census, have become Member States under the SSUTA.
In its letter to Senator Durbin, Amazon said, "Amazon.com has long supported a simple, nationwide system of state and local sales tax collection, evenhandedly applied to all sellers, no matter their business model, location, or level of remote sales." Senator Durbin's bill, according to the letter, would return the discussion of interstate collection of sales tax to Congress, where the retailer would look forward to working with Senator Durbin and his colleagues to "help enact sales tax collection legislation."
Senator Durbin, in a release, noted that the bill would not ask anyone to pay more in taxes; instead, it helps state and local government collect taxes that already are owed. This refers to the fact that consumers technically are responsible for estimating and then paying taxes to state authorities on purchases they make over the Internet or via catalogue. However, it's unlikely that many consumers actually do this.
Amazon's support of the bill seems surprising, given that it has battled efforts by individual states to tax online transaction. Some observers contend that it would rather see a uniform national system, rather than a mish-mash of state-imposed tax policies, as outlined in this brief by Fuerst Ittleman.
In fact, eBay and several tech-related professional associations have thrown their support behind H.Res. 95, entitled, "Supporting the preservation of Internet entrepreneurs and small businesses." The bill urges Congress not to enact any legislation that would grant state governments the authority to impose any new burdensome or unfair tax collecting requirements on small online businesses and entrepreneurs, according to govtrack.us.
Senator Durbin's bill currently is with the Committee on Finance. While it's difficult to say whether it will succeed this time around, the tide seems to be turning in its favor.