New bill boosts effort to tax all Internet sales

A new bill in Congress would tax all Internet sales, but don’t expect it to pass anytime soon due to mid-term election politics and convoluted state tax laws.
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The decade-long fight to tax all Internet sales got a boost with a bill that was introduced into Congress, but experts say lawmakers won’t’ likely vote on the issue anytime soon.

Bill Delahunt (D-Mass.) introduced a bill on July 1 dubbed the “Main Street Fairness Act,” which would require Americans to pay sales taxes on items purchased via the Internet and mail order. Currently, people buying items from most out-of-state sellers don’t have to pay sales tax as they would when shopping at stores within their state.

The bill has the support of retail advocacy groups, such as the National Retail Federation (www.nrf.org), which has pushed for an Internet tax for a decade.

“The NRF supports this because it’s fundamentally unfair to treat the same item that’s taxable differently because you buy it in a store or on a catalog or online, and we want everybody to be treated the same,” Maureen Riehl, vice president of the NRF government and industry relations council, told SNEWS®.

The bill also has support from trade groups in the outdoor and fitness industries, including the Nationals Sporting Goods Association (www.nsga.org).

“The NSGA generally supports it. We feel it levels the playing field,” Tom Doyle, NSGA vice president of information and research, told SNEWS. Doyle also serves as president of the National Ski and Snowboard Retailer’s Association (www.nssra.com), which “is very strongly in favor of an Internet sales tax,” he added.

The Outdoor Industry Association has not taken a formal position on the bill, but it might address the issue in the fall, said Alex Boian, OIA’s director of trade policy.

Boian told SNEWS it’s unlikely that Congress would take up the bill during its fall session due to the politics of the mid-term elections, and a simple lack of available time. “In my opinion, the time left on the Congressional calendar is very short, and I’m not sure that there will be time for it to go through the committee process,” he said.

Boian also noted that many Republicans might shy away from supporting the bill because their constituents might perceive it as a new tax, particularly in states that do not currently have a sales tax. He said the fact that this is an election year makes it even more unlikely that the bill, which has no Republican co-sponsors, would get bipartisan support.

However, Riehl of the NRF said various Internet tax proposals have received some Republican support over the past decade. “This effort has always has support from both sides of the aisle,” she said. “Even if there aren’t Republican co-sponsors, there’s a lot of empathy and support within the Republican caucus. So we know if or when it gets moving we can count on some of those votes, even if their names aren’t on the bill itself.”

The issue is not going away

Even if Congress does not take up the bill this year, proposals for a nationwide Internet sales tax are not going to go away, said Boian. “The issue is popping up more and more, and it will likely come up next year in the 112th Congress,” he said.

Riehl said an Internet tax bill has a better chance of passing these days because the recession has prompted states to more carefully consider new ways to bring in additional revenue. “The dire straits of the state budgets are a very motivating factor,” she said. “The circumstances are as good for this to happen as they have ever been.”

In the past year, more states have warmed to the idea of taxing Internet sales. As SNEWS reported in March, Colorado passed a law in February 2010 that requires online retailers that do not have a physical presence in Colorado to collect sales tax on Internet purchases by Colorado residents. (Click here to read the full March 5, 2010, SNEWS story on the Colorado law, “New Colorado tax on Internet sales sparks concern, confusion.”)

While the Internet tax could provide states financial relief, some Internet sellers claim that, given the recession, it is unfair to burden consumers and businesses with these taxes.

“At a time when unemployment rates are high and small businesses across the country are closing shop, we are confident that Congress will protect small Internet retailers and the consumers they serve from another Internet tax scheme,” said Tod Cohen, eBay's vice president for government relations, in a July 2 statement.

Sticky issues remain

A major stumbling block for any Internet tax bill is that there are no uniform tax collection laws for all 50 states, making the collection of Internet taxes extremely complex.

“Some of our larger retailers have issues about the complexity of tracking sales tax by various localities,” said Doyle of the NSGA. “And, there are some important states that have not been willing to sign on to some kind of uniform taxation.”

About two-dozen states have adopted the Streamlined Sales Tax Agreement, which was created in 1992 and stipulates that states will agree to simplify their tax codes and also make them uniform with those of other states.

Groups lobbying for the Internet tax have hoped that Congress would adopt the Streamlined Sales Tax Agreement and make it easier to pass a bill, but the problem remains that a significant number of states have not signed on to the agreement.

NetChoice, a coalition of companies including AOL, eBay, Expedia, and Yahoo, claims the agreement does not go far enough in sorting out the convoluted tax codes among the states.

“The actual simplification achieved by the Streamlined Sales Tax Project is not nearly sufficient to convince Congress that it should abandon its role in protecting interstate commerce,” Steve DelBianco, executive director of the NetChoice coalition, told Cnet News recently.

If the states can’t come to a compromise on tax codes, Doyle said, any bill would likely meet the fate of previous proposals.

“In the past it has gone to committee and has just been buried,” he said. “I don’t think (an Internet tax) will come about until there is more of a consensus among the states.”

--Marcus Woolf

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