Senators Resuscitate E-Commerce Sales Tax Issue With New Bill
The push to pass a so-called Online Sales Tax is back in play after languishing for nearly a year. A bipartisan group of senators have introduced the Marketplace and Internet Tax Fairness Act (MITFA), which essentially tacks on a slightly amended Internet Tax Freedom Act to the Marketplace Fairness Act that it passed last year. […]
The push to pass a so-called Online Sales Tax is back in play after languishing for nearly a year. A bipartisan group of senators have introduced the Marketplace and Internet Tax Fairness Act (MITFA), which essentially tacks on a slightly amended Internet Tax Freedom Act to the Marketplace Fairness Act that it passed last year.
The bill was introduced in the Senate yesterday by Mike Enzi (R-WY), Dick Durbin (D-IL), Lamar Alexander (R-TN), Heidi Heitkamp (D-ND), Susan Collins (R-ME) and Mark Pryor (D-AR). It’s a move by the Senate to reclaim the issue of allowing states to collect sales tax on internet orders. The Marketplace Fairness Act has been sitting with the House Judiciary Committee since it passed in the Senate.
First, a look at the two bills that are in the mix of MIFTA:
Internet Tax Freedom Act
The law put a three-year moratorium on imposing taxes on internet access, discriminatory internet taxes, and multiple taxes on electronic commerce. It has been extended every three years since it was first passed in 1998. The current ITFA expires November 1, 2014. Yesterday, the House passed the Permanent Internet Tax Freedom Act (PITFA), which, as it suggests, would make the ban on taxing internet access permanent.
There are a handful of states that were already charging sales tax on internet access when IFTA was first presented, and these states have been allowed to continue taxing internet access since 1998. However, PITFA revokes that grandfather clause, cutting off tax revenue from internet access collected by states such as Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas and Wisconsin. For more background on the bill, I recommend reading Sylvia Dion’s blog post on PITFA.
Marketplace Fairness Act
Proponents of the Marketplace Fairness Act (MFA) say it will level the playing field between brick-and-mortar and e-commerce businesses by allowing qualifying states to collect sales tax from large e-commerce companies (and other remote sellers) even when those companies don’t have physical locations or nexus in their states.
Currently online businesses are only required to collect sales tax in states where they have nexus, or physical locations such as stores or warehouses — an advantage that strikes many brick-and-mortar retailers as unfair. (There are nine states that also include affiliates in their definition of nexus.) For a more thorough look at this bill, see our reporting on it last year: Online Sales Tax: Why E-Commerce Companies Are On Both Sides Of The Debate.
MITFA is the Senate’s opportunity to breathe life back into internet sales tax legislation. States that sign-on to and comply with the Streamlined Sales and Use Tax Agreement (SSUTA) would be authorized to collect sales tax on remote orders from businesses with gross annual U.S. sales over $1 million. Currently, 25 states and the District of Columbia have signed the agreement.
The bill amends the current Internet Tax Freedom Act by extending for ten years both the ban on taxing internet access and the grandfathering of those states that have been allowed to collect internet access taxes.
Those who have called the Marketplace Fairness Act flawed and cumbersome include the True Simplification of Taxation (TruST) Coalition, which includes both e-commerce and direct mail industry groups. The group sent a letter to Senate leaders today expressing opposition to the Senators’ approach of attaching the broadly supported and soon-to-expire Internet Tax Freedom Act to the hotly debated Marketplace Fairness Act.
“The Senate owes it to the House of Representatives, the business community and, most importantly, the American people to allow the legislative process to take its due course. The MFA is not being stalled or delayed. It is being actively debated and improved in the best spirit of the bicameral legislative process. To that end, we implore you to pass a clean ITFA renewal without any MFA language, allowing the legislative process to play out and yield the best possible result for American taxpayers.”
Industry groups such as The National Retail Federation (NRF), Retail Industry Leaders Association (RILA) and The International Council of Shopping Centers (ICSC) have come out in praise of the new bill.
The Retail Industry Leaders Association urged passage of the act in a press release, stating, “Retailers support keeping internet access tax free while closing the online loophole that essentially subsidizes online-only retailers against their brick and mortar competitors. It’s time for the government to take its thumb off the scale and give all retailers a fair shot to compete in the free market.”