Senate Bill to Allow States to Tax Online Sales
Daily News Article — Posted on November 10, 2011
(by Patrick Temple-West, Reuters.com) WASHINGTON – State governments would be able to collect online sales taxes under a bill due to be introduced in the Senate on Wednesday, said sources familiar with the bill.
Supporters of the online sales tax collection requirement include Wal-Mart Stores Inc, Target Corp and other “big box” retailers who argue they are at a disadvantage against online-only competitors.
A bipartisan [members of both political parties] group of up to seven senators will introduce the bill, which is broader than similar legislation introduced in the Senate in July. The new bill will differ from a bill in the House of Representatives by affecting more small businesses under a lower exemption threshold, the sources said.
State and local governments support the upcoming bill even more than earlier measures.
Retailers have been exempted from collecting taxes on sales in states where they do not have a physical presence since a 1992 Supreme Court case — before the advent of e-commerce.
Backers of the new bill say state and local governments will lose $24 billion in uncollected sales taxes in 2012 without the power to tax Web transactions. States have worked for more than a decade to streamline rules and get congressional approval to collect the taxes. …..
Supporters hope the Joint Select Committee on Deficit Reduction, known as the “super committee,” will add the sales tax proposal to its recommendations due later this month.
‘LEVELS THE PLAYING FIELD’
The storefront retail industry “strongly stands by the legislation being introduced because it levels the playing field,” said Danny Diaz, a spokesman for the Alliance for Main Street Fairness, which represents many large retail chain stores, such as Wal-Mart.
Opponents of the Senate legislation say it does not go far enough to protect small businesses. The bill is expected to include an exemption for businesses with less than $500,000 in annual sales.
That exemption for small businesses “is way too low,” said Carl Szabo, policy counsel for NetChoice, which represents, AOL Inc, eBay Inc, Yahoo Inc and other Internet companies.
The House version has a $1 million exemption for small businesses that is still too low, Szabo said.
The small business exemption should be as high as $20 million, said Jonathan Johnson, president of Overstock.com Inc..
The “big box” retailers want the small business exemption “as low as possible” to keep “competitors from growing up and competing against them,” Johnson said in an interview on Tuesday.
The federal legislation should spare businesses from lawsuits that might arise if they incorrectly collect the wrong amount of sales tax, Johnson said.
Additionally, businesses should get a small share of the tax revenue to cover their compliance costs, he said.
LAWMAKERS TAKE POSITIONS
Congress “shouldn’t burden businesses with costs that should be borne by the state,” he said. “If we are being asked to do the states’ work for them, we should be compensated.”
Republican sponsors are expected to be Senators Lamar Alexander, Mike Enzi, Roy Blunt and John Boozman.
Democrats backing it include Senators Richard Durbin, who sponsored similar legislation this summer, Tim Johnson and Jack Reed. The Obama administration is also expected to endorse this bill, a source said.
Other members of Congress are fighting against the bill. Last week, Senate Democrat Ron Wyden [Oregon] and Senate Republican Kelly Ayotte [New Hampshire] introduced a resolution calling on Congress not to enact legislation that would authorize state governments to collect online sales taxes. A similar resolution was introduced in the House in February.
(Additional reporting by Nanette Byrnes). Reprinted here for educational purposes only. May not be reproduced on other websites without permission from Thomson Reuters. Visit the website at Reuters.com.
Background
The Supreme Court ruled in 1992 that businesses without a physical presence* in a state are not obliged to collect taxes on the goods they sell there.
*A physical presence is an actual building or office, as opposed to just a website that people visit.
Some states, including Illinois and New York, broadened the definition of "physical presence" to include online retailers* who pay commissions for referrals by local partners.
*Online retailers [Amazon.com] who pay commissions for referrals by local partners - it works like this: a local partner recommends a particular product: a book, electronic gadget, ect., and provides a link to Amazon.com on their own website. If the user of the local partner clicks on the link to Amazon and buys the product, Amazon gives the local partner a small commission on each item it was able to get its visitor to purchase.