NLBMDA: Senate Explores Online Sales Tax Fairness


In May 2013, the Senate passed the Marketplace Fairness Act (S.743) by a vote of 69 to 27. The legislation empowers states to enforce sales tax collection and remittance from out-of-state Internet retailers. Currently, states and local governments are prohibited from enforcing existing sales and use tax laws on the growing number of out-of-state Internet sales.

Legislative progress has stalled since passage in the Senate last year. The bill has been gathering dust in the House of Representatives following criticism from House Judiciary Committee Chairman, Rep. Bob Goodlatte (R-Va.), that the Senate bill is not “sufficiently simplified.” Critics of the Senate legislation contend it would subject online retailers to a complex maze of nearly 10,000 state and local tax authorities.

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Supporters of the Marketplace Fairness Act note that it does not create any new taxes as consumers already owe sales and use taxes on the goods they purchase online, and includes an exemption for Internet retailers with less than $1 million in annual nationwide online sales.

In September 2013, Chairman Goodlatte released seven basic principles with which to frame the discussion of the bill in the House. The seven basic principles include tax relief, tech neutrality, no regulation without representation, simplicity, tax competition, states’ rights and privacy rights. The House Judiciary Committee held a hearing on the issue earlier this year examining alternative online sales tax proposals to the Marketplace Fairness Act.

House Judiciary Committee member, Rep. Jason Chaffetz (R-Utah), has been working with Rep. Steve Womack (R-Ark.), the lead House sponsor of the Marketplace Fairness Act, and Chairman Goodlatte, to refine the legislation and address opponents’ concerns.

Not content with the slow pace of action in the House, Senate backers of the Marketplace Fairness Act are now looking at attaching it to another bill, the Internet Tax Freedom Act, which would extend the prohibition of state and local taxes on Internet access. The Internet Tax Freedom Act expires on November 1. In July, the House passed the Permanent Internet Tax Freedom Act (H.R. 3086), which would permanently extend the Internet Tax Freedom Act.

In response to the House approving a permanent extension of the Internet Tax Freedom Act, Sens. Dick Durbin (D-Ill.), Mike Enzi (R-Wyo.) and Lamar Alexander (R-Tenn.) have introduced the Marketplace and Internet Fairness Act (S. 2609), which would not only allow states to collect taxes from remote sales, but also extend the prohibition on state and local taxes on Internet access for 10 years.

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