The United States Senate on Monday voted in favor of a bill that would require businesses to collect sales tax on items sold online. In a 69-27 bipartisan vote, the Senate passed the Marketplace Fairness Act which would cause out-of-state online retailers to collect tax on items sold, which then be provided to the state of the shopper.
Under current law, online retailers are required to collect sales tax on items only if the business has a location or office in the state in question. In all other instances buyers are supposed to voluntarily self-report these taxes, if their state has sales tax, on their annual tax return. According to Forbes, most shoppers to not report online purchases on their taxes, even though 45 states and the District of Columbia have some form of sales tax.
According to the National Conference of State Legislators, online sales reached $226 billion last year, a 16 percent increase from 2011. The organization estimates that in 2012, states lost $23 billion in uncollected and unreported out-of-state taxes.
Proponents of the bill, including sponsor Sen. Mike Enzi (R-Wyo.), argue that the act does not create a new tax and only corrects an oversight caused by a 1992 Supreme Court ruling. “This bill is about fairness,” Enzi said. “It’s about leveling the playing field between the brick and mortar and online companies and it’s about collecting a tax that’s already due. It’s not about raising taxes.”
The bill had been expected to pass by a safe margin in the Senate. A list of how every senator voted is available on The Consumerist’s website.
Online distributors could be affected by the act, as they would become responsible for enforcing the sales tax of each state. Not all distributors will be made to uphold the bill should it become law, as only companies with out-of-state sales in excess of $1 million will be required to collect the taxes.
The Marketplace Fairness Act also targets businesses that sell products out-of-state through catalogs and mail-order services often used by promotional products companies. Approximately half of the $23 billion in lost sales tax is attributed to catalog, mail order, and radio and television advertisements.
Several online retailers, lead by online auction site eBay, have voiced strong opposition to the legislation. Opponents to the bill say that small businesses are not equipped to handle the collection and remittance of sales taxes to multiple states as well as national retailers, and that these businesses will suffer in the process. eBay is asking congress to increase the minimum sales level to $10 million, and to exempt companies with fewer than 50 employees.
Although the bill passed through the Senate without much difficult, pundits expect it will have more trouble when it reaches the U.S. House of Representatives. Several House members have express opposition to the bill, while others have proposed an alternative version of the bill that has yet to receive a hearing. President Obama has already stated that he supports the idea of an online sales tax bill, indicating that he is likely to sign it should it pass the House.
