New proposed Senate legislation that would allow state governments to require out-of-state retailers with $1 million or more in sales revenue to collect tax from consumers is proceeding quickly through the legislature despite opposition from the advertising industry.
The Marketplace Fairness Act, S.743, was introduced in early April. The proposed law modifies a 1992 U.S. Supreme Court decision that held that state governments cannot require retailers to collect state tax unless they have a physical presence in the state, which has been interpreted to mean a brick-and-mortar store.
Supporters argue that the so-called “Amazon Tax” levels the playing field between online companies and brick-and-mortar stores that collect tax on their sales. Although consumers are required to self-report taxes for online purchases, few consumers honor the law.
“The Marketplace Fairness Act is a bill whose time has come in Congress and one that is long overdue for states, local governments and small businesses,” Sen. Dick Durbin (D-Ill.), a sponsor of the legislation, said about the bill.
Before being referred to a committee or marked up, Senators voted 63 to 30 to end debate on the bill and advance it for a full Senate vote on May 6. The bill passed the Senate by a 69 to 27 vote, sending it the House.
With limited time remaining, opponents are speaking out about problems with the bill. Senators from states that do not impose a sales tax – like Montana, New Hampshire and Oregon – have expressed concern about the administrative burdens on their constituents, while e-tailers and members of the advertising industry have decried the procedural problems for covered online sellers.
The Act would “hinder economic growth and job creation,” the Direct Marketing Association wrote in a letter to the Senate. It cited the need to discuss complex issues that include the possibility that companies could be subject to dozens of different tax laws and the variance of state sales tax holidays.
“The bill makes complex changes to the economy while leaving many important questions unanswered – putting both businesses and consumers in harm’s way,” the DMA wrote. “The Senate should hold states accountable before granting them expansive new tax powers and we respectfully request that you vote against any Internet sales tax proposal that does not include reasonable simplification requirements.”
To read the Marketplace Fairness Act, S.743, click here.
To read the DMA’s letter, click here.
Why it matters: Multiple states have attempted to pass similar laws, with varying results. Colorado’s law was ruled invalid in 2011, while New York’s law was recently upheld. Observers have predicted that the proposed law will face more of a challenge from the House, where Rep. Bob Goodlatte (R-Va.) expressed his intent to “scrutinize” the legislation.