Mike Periu explains the New Internet Sales Tax: The Main Street Fairness Act and how it could affect your business if you sell products online.
As the battle over spending cuts versus tax increases plays out in Washington, a second battle is underway. This battle isn’t a challenge between competing philosophies about taxation. It’s a battle between distribution channels. In one corner, we have the up and coming challenger known as the Internet. He’s nimble, efficient and growing in strides. In the other corner we have the defending champion known as physical retail. He has centuries of experience, political connections and will do whatever it takes to preserve his title. It’s starting to get ugly.
I recently wrote about the battle between Amazon.com and the State of California. The latest move in this battle is the introduction in Congress of the Main Street Fairness Act. Now that’s a name for a piece of legislation. How could anyone be against “fairness” for Main Street?
The bill, sponsored by Senator Dick Durbin would require that Internet-based retailers and mail-order companies collect state and local sales taxes. It also authorizes state and local governments to collect these taxes. This would eliminate much of the legal uncertainty that exists today about sales tax collection from Web retailers.
What’s the thinking behind the Main Street Fairness Act?
This is seen as a measure to help physical retailers who are having a difficult time competing with their online counterparts. Part of the fairness argument is that local retailers must collect sales taxes and this puts them at a disadvantage. At the moment, online retailers must only collect sales taxes from customers residing in a state where the online retailer has a physical presence, like a store or office.
State and local governments, which are facing tremendous budgetary pressure, would see an additional $24 billion per year in taxes collected. That is certainly enough to plug a few state budgets.
From the Web retailers’ perspective, complying with this requirement could prove costly. While a local retailer only needs to worry about understanding their own state and local taxes, an online retailer could potentially face 45 state-wide sales tax jurisdictions and over 7,500 local tax jurisdictions. While software exists that can help calculate the amounts, all of these funds still need to be delivered to the proper jurisdiction. The costs and headaches associated with that could lead to large scale headaches and high compliance costs.
Protections for retailers in the proposed law
The proposed law is not a free for all. It does require some cooperation on the part of the states in order to be granted the right to collect sales taxes from Internet retailers. First, a state would have to adopt the Streamlined Sales and Use Tax Agreement (SSUTA).
