- The Progressive Pulse - http://pulse.ncpolicywatch.org -

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 [1], 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 [2] 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.