No Vote Yet on National Net Sales Tax Collection Bill

Congress adjourned Sept. 21 without further action on a House bill that would require remote sellers to collect and pay sales and use taxes on purchases made by residents of states in which the sellers have no physical presence ' after the states implement a simplified collection and payment system.

House Resolution 3179, the Marketplace Equity Act of 2011, was introduced by Rep. Steve Womack (R-AR) on Oct. 13, 2011. Brick-and-mortar retailers and their lobbying groups say the bill “levels the playing field” for them and online sellers alike.

The legislation would supersede landmark 1992 U.S. Supreme ruling in Quill Corp. v. North Dakota, 504 U.S. 298, in matters of remote sellers collecting and paying to states sales and use taxes due on purchases by people in those states. The Quill decision required only retailers with a “substantial nexus” in a state to collect sales taxes on residents in that state who purchase goods or services from an out-of-state seller.

Instead, H.R. 3179, if it became law, would allow states to require any remote seller to collect sales and use taxes, and to pay those taxes to the state in which people made purchases from the providers, “without regard to the location of the seller.”

The bill defines “remote sale” as sale of “goods or services attributed to a state with respect to which a seller does not have adequate physical presence to establish a nexus so as to allow such state to require such seller to collect and remit taxes.”

Womack's bill, which has 53 co-sponsors, is seen by retailers in general as a fair approach to business and as sensitive to costs that retailers would incur. The bill, for instance, specifies that jurisdictions in which appropriate goods-and-services taxes would be collected could do so “if such states implement a simplified system for administration of sales and use tax collection for remote sellers.”

Not Everyone Is Happy

But many online companies oppose the bill, which has an exception for “small businesses” ' ones that bring in less than $1 million a year.

Steve DelBianco, executive director of NetChoice, an e-commerce advocacy group, says the proposed legislation would hardly deliver equity.

“If this bill were really about equity, it would force all stores to bear the same tax burdens,” DelBianco says. “For instance, think about those outlet malls on I-95, or the souvenir shops here in Washington, where nearly all the customers live out-of-state.”

“Equity,” he adds, “would require customers to show an ID when buying anything, so the clerk could calculate and file taxes for your 'home' tax jurisdiction. Sure, that's ridiculous ' but that's the unfair burden H.R. 3179 imposes on online and catalog sellers in other states.”

DelBianco, whose group represents such Internet presences as eBay, Oracle and Facebook, testified that the Supreme Court wasn't examining fairness in Quill (in which North Dakota argued that Quill, an office-products supplier with no presence in the state except for representatives who used computer floppy disks to place out-of-state orders).

In its Quill decision, the Supreme Court was concerned “about the effects of state regulation on the national economy,” DelBianco says. “The justices understood that having to comply with nearly 10,000 jurisdictions in 46 states is a burden that could severely impact business growth and innovation.”

He adds that small and brick-and-mortar businesses could be hurt by the tax structure H.R. 3179 proposes because “many stores use the Web to reach customers around the country.”

Also, DelBianco says, the bill's proposed exception to sales-and-use tax collection for businesses making less than $1 million a year is “a clear acknowledgement that the system is expected to be costly and complex. But the exemption is not nearly high enough, since a million in gross retail sales is just a mom-and-pop operation at most.”

He contends that the nation's top 500 e-tailers are responsible for “over 90% of uncollected sales tax on e-commerce.”

Retail and Amazon Weigh In

“Our current sales tax system is broken,” Matthew Shay, President and CEO of the National Retail Federation (NRF) says in a press release on the Federation's website (www.nrf.com). “It favors one set of retailers over another, hurts job growth, and threatens the economic health of local communities. We can't allow an antiquated decision to unfairly disadvantage Main Street in a time when it's already fighting to stay afloat.”

The NRF filed comments supporting H.R. 3179 during a July 24 hearing before the Committee on the Judiciary.

“Every single retailer, whether they sell in a store, online or through the mail, should be afforded the opportunity to compete on a level playing field,” according to Shay. “Congress needs to address this for the sake of the millions of jobs supported by local retailers.”

Amazon, the nation's largest online retailer, which has been collecting sales taxes from states in which the company has distribution centers, supports HB 3179.

The Seattle-based seller says on its website:

If an item is subject to sales tax in the state to which the order is shipped, tax is generally calculated on the total selling price of each individual item. In accordance with state tax laws, the total selling price of an item will generally include item-level shipping and handling charges, item-level discounts, gift-wrap charges, and an allocation of order-level shipping and handling charges and order-level discounts.

Amazon drew the ire of some online enterprises when it began collecting sales tax on Sept. 1 in Pennsylvania, where Amazon has six distribution centers. The U.S. Census Bureau estimated Pennsylvania's population last year at 12.7 million people.

Amazon has collected and remitted sales tax in California, Texas, New York, Washington, Kentucky, Kansas and North Dakota under the Quill ruling. Along with Pennsylvania, the combined population of states for which Amazon has collected sales tax is 110.3 million ' a third of the national total.

Amazon has a physical presence, whether by presence of fulfillment centers or other entities, in 18 states. Overseas, the company maintains what it calls “primary locations” in China, Costa Rica, France, Germany, India, Ireland, Japan, Luxembourg and the United Kingdom, and has software-development centers in Ireland, Scotland, India and South Africa.

Also, on Sept. 15, California began enforcing a new law, AB 155, requiring collection of use and sales tax ' from all sources, although the Golden State has had a use tax, and law requiring payment of the taxes due on purchases subject to that law, in place since 1934, but, as in other locations, particularly since the dawn and entrenchment of the Internet, hasn't always been followed to the letter.

The new law (available at http://1.usa.gov/SkeirZ), aimed mainly at online and other remote and out-of-state purchases made by Californians, requires any retailer or other business as defined in the law ' essentially, anyone in the trade of making sales for a profit ' with cumulative sales by individuals or groups of individuals of personal property within the previous 12 months of more than $10,000 to collect use and sales tax. Companies with revenues from selling of more than $1 million a year of tangible personal property are also required to meet the requirements of the law.

Commissions and categories of such intangibles as the sale and purchase of media advertising are also covered.

The nitty-gritty of the law is that it requires companies and other retailers, and not consumers, to collect sales tax and pay it to the state. Even so, Californians, as can citizens in other states, are able to pay the tax on their own, should retailers, whether they may be exempt for some reason from collecting the tax or simply do not. Californians may pay sales tax by declaring the amount of tax owed on their personal income tax returns, or may do it online at eReg, the state Board of Equalization's website for tax payments, license and permit applications, and to set up tax and other business accounts (see, http://1.usa.gov/LD7Wxc).

The Board of Equalization estimated in late 2010 that about $1.1 billion in use tax is not collected annually in California.

BOE Chairman James E. Horton last month issued advice to people who may have planned to jump online before 11:59 p.m. Sept. 14 to go on a buying spree.

“Buying before Saturday (Sept. 15.) does not mean you get off tax-free,” Horton said in a statement posted on the BOE's website. “It is important Californians and those who sell products to people in our state do their part and pay the use tax that is owed which helps fund our schools, roads, and other vital services in our communities.”

What the Proposed Law Says

As written as of Sept. 24, The Marketplace Equity Act would require all sellers, online or brick-and-mortar, to collect and pay the same taxes, and to enjoy the same exemptions that localities allow. Remote sellers would not qualify for any exemptions to which other sellers were not qualified. The bill would also limit filings of sales and use tax returns to as many as required of other retailers.

The simplified collection and payment system the bill proposes would be welcomed by many, because online sales-tax software doesn't always properly collect sales taxes. For instance, items not taxed in Pennsylvania, such as shoes, recently were taxed, although a refund was made immediately after a complaint was filed, according to a report in The Pittsburgh Post-Gazette, the newspaper of record in Pennsylvania's second-largest city.

Another factor complicating current sales-tax collection for online purchases is that some large retailers ' Amazon is an example ' have contracts to sell items of and through many vendors, for which the large businesses sometimes collect sales and use tax as directed by those third parties.

Senate Action

A similar measure to H.R. 3179, S. 1832, known as the Marketplace Fairness Act, was introduced in the Senate on Nov. 9, 2011 by Sen. Michael Enzi (R-WY), was also left unadvanced when Congress adjourned on Sept. 21.

Enzi's bill, which has 20 co-sponsors and was last reviewed at an Aug. 1 Commerce Committee hearing, also specifies that a single agency be designated to receive collected sales and use taxes, that single or aggregated sellers are subject to states' tax-collection provisions, and that sellers be given 30-day notice of local tax-rate changes.

Enzi's bill would set the small-business exception at firms bringing in less than $500,000 a year.

“I have been working on this sales tax fairness issue since joining the U.S. Senate in 1997,” Enzi said Aug. 1 in a statement on the Marketplace Fairness Act bill before the Senate Commerce Committee. “As a former small business owner, it is important to level the playing field for all retailers ' in-store, catalog, and online ' so an outdated rule for sales tax collection does not adversely impact small businesses and Main Street retailers. ' We never intended to give out-of-state businesses an advantage over those businesses that are a part of the community. Yet that is exactly where we sit unless Congress allows states the opportunity to fix it if they so choose.”

Congress was scheduled to reconvene on Sept. 25.

Congress adjourned Sept. 21 without further action on a House bill that would require remote sellers to collect and pay sales and use taxes on purchases made by residents of states in which the sellers have no physical presence ' after the states implement a simplified collection and payment system.

House Resolution 3179, the Marketplace Equity Act of 2011, was introduced by Rep. Steve Womack (R-AR) on Oct. 13, 2011. Brick-and-mortar retailers and their lobbying groups say the bill “levels the playing field” for them and online sellers alike.

The legislation would supersede landmark 1992 U.S. Supreme ruling in Quill Corp. v. North Dakota , 504 U.S. 298, in matters of remote sellers collecting and paying to states sales and use taxes due on purchases by people in those states. The Quill decision required only retailers with a “substantial nexus” in a state to collect sales taxes on residents in that state who purchase goods or services from an out-of-state seller.

Instead, H.R. 3179, if it became law, would allow states to require any remote seller to collect sales and use taxes, and to pay those taxes to the state in which people made purchases from the providers, “without regard to the location of the seller.”

The bill defines “remote sale” as sale of “goods or services attributed to a state with respect to which a seller does not have adequate physical presence to establish a nexus so as to allow such state to require such seller to collect and remit taxes.”

Womack's bill, which has 53 co-sponsors, is seen by retailers in general as a fair approach to business and as sensitive to costs that retailers would incur. The bill, for instance, specifies that jurisdictions in which appropriate goods-and-services taxes would be collected could do so “if such states implement a simplified system for administration of sales and use tax collection for remote sellers.”

Not Everyone Is Happy

But many online companies oppose the bill, which has an exception for “small businesses” ' ones that bring in less than $1 million a year.

Steve DelBianco, executive director of NetChoice, an e-commerce advocacy group, says the proposed legislation would hardly deliver equity.

“If this bill were really about equity, it would force all stores to bear the same tax burdens,” DelBianco says. “For instance, think about those outlet malls on I-95, or the souvenir shops here in Washington, where nearly all the customers live out-of-state.”

“Equity,” he adds, “would require customers to show an ID when buying anything, so the clerk could calculate and file taxes for your 'home' tax jurisdiction. Sure, that's ridiculous ' but that's the unfair burden H.R. 3179 imposes on online and catalog sellers in other states.”

DelBianco, whose group represents such Internet presences as eBay, Oracle and Facebook, testified that the Supreme Court wasn't examining fairness in Quill (in which North Dakota argued that Quill, an office-products supplier with no presence in the state except for representatives who used computer floppy disks to place out-of-state orders).

In its Quill decision, the Supreme Court was concerned “about the effects of state regulation on the national economy,” DelBianco says. “The justices understood that having to comply with nearly 10,000 jurisdictions in 46 states is a burden that could severely impact business growth and innovation.”

He adds that small and brick-and-mortar businesses could be hurt by the tax structure H.R. 3179 proposes because “many stores use the Web to reach customers around the country.”

Also, DelBianco says, the bill's proposed exception to sales-and-use tax collection for businesses making less than $1 million a year is “a clear acknowledgement that the system is expected to be costly and complex. But the exemption is not nearly high enough, since a million in gross retail sales is just a mom-and-pop operation at most.”

He contends that the nation's top 500 e-tailers are responsible for “over 90% of uncollected sales tax on e-commerce.”

Retail and Amazon Weigh In

“Our current sales tax system is broken,” Matthew Shay, President and CEO of the National Retail Federation (NRF) says in a press release on the Federation's website (www.nrf.com). “It favors one set of retailers over another, hurts job growth, and threatens the economic health of local communities. We can't allow an antiquated decision to unfairly disadvantage Main Street in a time when it's already fighting to stay afloat.”

The NRF filed comments supporting H.R. 3179 during a July 24 hearing before the Committee on the Judiciary.

“Every single retailer, whether they sell in a store, online or through the mail, should be afforded the opportunity to compete on a level playing field,” according to Shay. “Congress needs to address this for the sake of the millions of jobs supported by local retailers.”

Amazon, the nation's largest online retailer, which has been collecting sales taxes from states in which the company has distribution centers, supports HB 3179.

The Seattle-based seller says on its website:

If an item is subject to sales tax in the state to which the order is shipped, tax is generally calculated on the total selling price of each individual item. In accordance with state tax laws, the total selling price of an item will generally include item-level shipping and handling charges, item-level discounts, gift-wrap charges, and an allocation of order-level shipping and handling charges and order-level discounts.

Amazon drew the ire of some online enterprises when it began collecting sales tax on Sept. 1 in Pennsylvania, where Amazon has six distribution centers. The U.S. Census Bureau estimated Pennsylvania's population last year at 12.7 million people.

Amazon has collected and remitted sales tax in California, Texas, New York, Washington, Kentucky, Kansas and North Dakota under the Quill ruling. Along with Pennsylvania, the combined population of states for which Amazon has collected sales tax is 110.3 million ' a third of the national total.

Amazon has a physical presence, whether by presence of fulfillment centers or other entities, in 18 states. Overseas, the company maintains what it calls “primary locations” in China, Costa Rica, France, Germany, India, Ireland, Japan, Luxembourg and the United Kingdom, and has software-development centers in Ireland, Scotland, India and South Africa.

Also, on Sept. 15, California began enforcing a new law, AB 155, requiring collection of use and sales tax ' from all sources, although the Golden State has had a use tax, and law requiring payment of the taxes due on purchases subject to that law, in place since 1934, but, as in other locations, particularly since the dawn and entrenchment of the Internet, hasn't always been followed to the letter.

The new law (available at http://1.usa.gov/SkeirZ), aimed mainly at online and other remote and out-of-state purchases made by Californians, requires any retailer or other business as defined in the law ' essentially, anyone in the trade of making sales for a profit ' with cumulative sales by individuals or groups of individuals of personal property within the previous 12 months of more than $10,000 to collect use and sales tax. Companies with revenues from selling of more than $1 million a year of tangible personal property are also required to meet the requirements of the law.

Commissions and categories of such intangibles as the sale and purchase of media advertising are also covered.

The nitty-gritty of the law is that it requires companies and other retailers, and not consumers, to collect sales tax and pay it to the state. Even so, Californians, as can citizens in other states, are able to pay the tax on their own, should retailers, whether they may be exempt for some reason from collecting the tax or simply do not. Californians may pay sales tax by declaring the amount of tax owed on their personal income tax returns, or may do it online at eReg, the state Board of Equalization's website for tax payments, license and permit applications, and to set up tax and other business accounts (see, http://1.usa.gov/LD7Wxc).

The Board of Equalization estimated in late 2010 that about $1.1 billion in use tax is not collected annually in California.

BOE Chairman James E. Horton last month issued advice to people who may have planned to jump online before 11:59 p.m. Sept. 14 to go on a buying spree.

“Buying before Saturday (Sept. 15.) does not mean you get off tax-free,” Horton said in a statement posted on the BOE's website. “It is important Californians and those who sell products to people in our state do their part and pay the use tax that is owed which helps fund our schools, roads, and other vital services in our communities.”

What the Proposed Law Says

As written as of Sept. 24, The Marketplace Equity Act would require all sellers, online or brick-and-mortar, to collect and pay the same taxes, and to enjoy the same exemptions that localities allow. Remote sellers would not qualify for any exemptions to which other sellers were not qualified. The bill would also limit filings of sales and use tax returns to as many as required of other retailers.

The simplified collection and payment system the bill proposes would be welcomed by many, because online sales-tax software doesn't always properly collect sales taxes. For instance, items not taxed in Pennsylvania, such as shoes, recently were taxed, although a refund was made immediately after a complaint was filed, according to a report in The Pittsburgh Post-Gazette, the newspaper of record in Pennsylvania's second-largest city.

Another factor complicating current sales-tax collection for online purchases is that some large retailers ' Amazon is an example ' have contracts to sell items of and through many vendors, for which the large businesses sometimes collect sales and use tax as directed by those third parties.

Senate Action

A similar measure to H.R. 3179, S. 1832, known as the Marketplace Fairness Act, was introduced in the Senate on Nov. 9, 2011 by Sen. Michael Enzi (R-WY), was also left unadvanced when Congress adjourned on Sept. 21.

Enzi's bill, which has 20 co-sponsors and was last reviewed at an Aug. 1 Commerce Committee hearing, also specifies that a single agency be designated to receive collected sales and use taxes, that single or aggregated sellers are subject to states' tax-collection provisions, and that sellers be given 30-day notice of local tax-rate changes.

Enzi's bill would set the small-business exception at firms bringing in less than $500,000 a year.

“I have been working on this sales tax fairness issue since joining the U.S. Senate in 1997,” Enzi said Aug. 1 in a statement on the Marketplace Fairness Act bill before the Senate Commerce Committee. “As a former small business owner, it is important to level the playing field for all retailers ' in-store, catalog, and online ' so an outdated rule for sales tax collection does not adversely impact small businesses and Main Street retailers. ' We never intended to give out-of-state businesses an advantage over those businesses that are a part of the community. Yet that is exactly where we sit unless Congress allows states the opportunity to fix it if they so choose.”

Congress was scheduled to reconvene on Sept. 25.