E-Fairness / Sales Tax Fairness
- Please cosponsor or support the Marketplace Fairness Act (S. 1832) or the Marketplace Equity Act (H.R. 3179).
- Retailers should be allowed to vigorously compete on a level playing field. These bills provide for fair collection of a state consumption tax already owed by consumers without favoring one retail business model over another.
- Congress has the responsibility under its Commerce Clause authority to solve this interstate tax collection problem. The MFA and MEA encourage simplification of state and local sales tax systems, remove the burdens to interstate commerce that were of concern to the Supreme Court, and provide for a reasonable small business exception.
- In fiscal year 2012, it is estimated that state and local governments will lose at least $23.2 billion in uncollected sales and use taxes from remote transactions, including $11.4 billion uncollected from e-commerce transactions alone.
- Failure to address this issue in Congress is creating uncertainty for multichannel retailers.
Online and other mail-order merchants have an unfair price advantage over brick-and-mortar stores when they are not required to collect sales tax. NRF supports a level playing field for all merchants, regardless of whether they sell their merchandise from a storefront, through a catalog or over the Internet. However, NRF also believes that sales tax rules must be simplified. NRF does not support any new taxes on remote commerce or the Internet. NRF believes the solution to the sales tax collection problem must be mandated by federal law; it must fix the problem, be fair and apply to all sellers, and be flexible enough for states to adopt and sellers to comply.
Consumption taxes are imposed on the sale or use of goods and some
services. Such taxes are paid by the consumer and imposed where the
consumption takes place. Therefore, all sales in a given state are subject to the sales tax, regardless of whether the sale occurs in a store in the state or in the home of a resident of the state through their computer or telephone.
In 1992, the U.S. Supreme Court ruled in Quill v. North Dakota that “remote
sellers” – a category that includes mail-order, telephone and Internet
merchants – cannot be required to collect sales tax from customers in
states where the merchant does not have a physical presence or “nexus.”
The court reasoned that the sales tax system was too complex for a
merchant to know what sales tax to charge an out-of-state customer
— 45 states and 7,600 local jurisdictions collect sales tax, each with its
own rates, lists of taxable items and definitions of taxable items. But the
justices suggested that sales tax collection could be required if the system
were simplified and Congress authorized the collection authority because
remote sellers are “purposely availing” themselves to a jurisdiction’s
authority by engaging in commerce.
The two leading bills to establish e-fairness are the Marketplace Fairness
Act and the Marketplace Equity Act. These bills will grant states the
authority to require remote sellers to collect sales tax on transactions
into their respective state if a set of simplification steps are adopted. The
simplification requirements must reduce complexity in tax base and tax
rate, and the states must adopt standardized collection software before
collection authority can be gained.
One emerging concern for the retail community, and particularly remote
retailers, has been recently highlighted with the Connecticut Supreme
Court’s decision that Scholastic Book Club’s relationship with 1400 teachers in the state established a physical presence sufficient to create $3.2 million in retroactive sales tax liability plus 17 years of interest and penalties. With more and more states resorting to novel legislative approaches to spur sales tax collection, remote retailers are increasingly at risk to such adverse outcomes. At a time when e-commerce is a driving force of the U.S. economy, Congress must step in to provide certainty for businesses about what their collection responsibility will be.