U.S. Senate bill would require online retailers to collect sales taxes

Today the United States Senate is scheduled to debate and possibly vote on a bill titled the Marketplace Fairness Act of 2013, which would authorize states to require businesses to collect state and local taxes for products sold via the internet. Currently, states can only require retailers to collect sales taxes if a respective business has a physical presence in a state. And while the tax is still legally due to the state regardless of whether sales occur on-line, consumers don’t always know or comply with this requirement.  

As internet sales have steadily grown as a share of total retail sales, state and local government sales tax collections have been impacted. For 2012, internet sales in the U.S. totaled $226 billion, an increase of nearly 16 percent compared to 2011, according to estimates by the U.S. Department of Commerce. States lost a total of $23 billion due to their inability to collect taxes on out-of-state sales. These dollars could make a real difference for North Carolina in light of the current need to reinvest in core public services.

Moreover, the bill creates a more level playing field for brick and mortar retailers in the state. Right now, main street retailers in North Carolina collect a sales tax rate of up to 7.75 percent whereas many on-line retailers do not collect sales taxes at all. As a result, on-line retailers are provided a price advantage that can distort consumer choices. Accordingly, broadening the sales tax base to include online sales promotes fairer competition among businesses.

Requiring both brick-and-mortar business and online retailers to collect sales taxes of purchase would create a more uniform federal and state tax system. In light of the current debate over tax changes in North Carolina, these decisions in Washington, D.C. will be important to the equity of our tax system.

8 Comments

  1. JeffS

    May 6, 2013 at 2:41 pm

    Did you copy and paste that weak argument from somewhere?

    Level the playing field? Really?

    Have you had any experience with collecting sales tax nationwide? Are you aware how expensive software packages are to facilitate this? How many man hours will go into it?

    If it passes, we will have allowed states to impose their laws on the residents of other states. How do you see that working out in the long run?

  2. Cedric Johnson

    May 6, 2013 at 2:51 pm

    Fair questions JeffS! The bill addesses many of your concerns and requires that states provide certain resources and have certain processes in place to assuage such issues. The bill is worth perusing. Maybe you can identify opportunities to make it even more business-friendly. Bests.

  3. CB

    May 6, 2013 at 3:44 pm

    What about states that do not collect a sales tax? Wouldn’t that drive businesses to those states?

  4. Doug

    May 6, 2013 at 4:22 pm

    Jeff is right, this is a nightmare. Not only are there issues of each locality having different percentages but you also have the issue of which locale is the tax associated with. I guess the ultimate goal is to hinder economic activity on the web since it becomes effectively impossible for a small business to keep up with the tax situation of every customer they sell to.

  5. gregflynn

    May 6, 2013 at 4:29 pm

    (c) SMALL SELLER EXCEPTION.—A State is authorized to require a remote seller to collect sales and use taxes under this Act only if the remote seller has gross annual receipts in total remote sales in the United States in the preceding calendar year exceeding $1,000,000.

  6. Doug

    May 7, 2013 at 8:27 am

    That is quite the low threshold then. Especially when you consider that these companies may be struggling to make what 5-10% profit on their sales. Hiring an accountant for another 100 hours to file all the forms or so would eat up 10-20% of the already slim margin….not that I am against more business for accountants. That does not leave much for continuing to expand the business, and many will probably close up shop just from the hassle and/or pass the fees on by increased prices assuming they can stay in business.

  7. gregflynn

    May 7, 2013 at 10:12 am

    So apparently there are some things the free market can’t figure out? A large part of our electronic economy is based on accumulation of pennies, nickels and dimes. AT&T has been doing it for decades. iTunes collects sales tax on 99 cent purchases. It’s not rocket science.

  8. Doug

    May 7, 2013 at 1:32 pm

    It will figure it out for sure, but government intervention is not a helpful part of the equation. It is inevitable that a successful business in the current environment will be hurt by the burden of this regulation. Who knows…..some of these business owners may even become someone you guys aspire all to be….the needy.