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NJ Daily / TELECOMMUNICATIONS

Supporters Optimistic About Internet Sales Taxes

Mike Enzi (R-WY)(Liz Lynch)

photo of Juliana Gruenwald
November 15, 2011

It has taken years, but advocates for a law to let states force online retailers to collect sales taxes from out-of-state customers are optimistic that their efforts may finally succeed.

Three bills have been introduced in Congress this year alone—two of which have taken a different approach on requiring online retailers to collect sales taxes in states where they have no physical store.

A bipartisan group of senators led by Michael Enzi, R-Wyo., Lamar Alexander, R-Tenn., and Majority Whip Dick Durbin, D-Ill., introduced the latest bill last week. Many supporters say that the Senate measure, along with a bipartisan House bill introduced in October by Reps. Steve Womack, R-Ark., and Jackie Speier, D-Calif., might finally break the decade-long stalemate on the issue.

 

States and some retail groups have been agitating for congressional action on the issue since 1992, when the Supreme Court ruled in Quill Corp. v. North Dakota that retailers are not required to collect sales taxes from customers in states where the companies do not have a store or some other physical presence.

Although the ruling initially pertained to catalog sales, it’s been exploited by Amazon, Overstock.com, and other online retailers, which have been able to offer their products tax-free to most customers. Small businesses that don’t sell products on the Internet, as well as “brick-and-click” retailers like Best Buy, Lowe’s, and Wal-Mart Stores, complain that the tax loophole puts them at a disadvantage.

The Supreme Court left the door open for a congressional fix. And lawmakers have introduced various bills over the years that would authorize states involved in a tax simplification effort known as the Streamlined Sales Tax project to require online retailers to collect sales taxes from out-of-state customers. These measures, however, haven’t gone very far in Congress.

It has been “difficult to really get any type of traction in Washington, D.C., until recently,” Betsy Laird, senior vice president for the International Council of Shopping Centers, told National Journal. “Clearly, the tide has changed.”

The Enzi and Womack bills set a minimum set of standards that states must meet before they can mandate tax collections on out-of-state sales, including designating a single state agency where retailers can send the taxes they collect.

“I am not presumptuous enough to predict what the Congress will do and what the president will sign, but I think I have been around long enough and I have watched Congress enough to say this is going to happen,” Alexander said last week on the Senate floor.

But perhaps the biggest boost for the Senate bill came when Amazon, which critics say has benefited greatly from the sales-tax loophole, reversed course and endorsed the bill after spending years battling states on the issue. Amazon has participated in the Streamlined Sales Tax project, and it is backing the Senate bill because it wants a national solution, according to Durbin and an industry source.

The House Judiciary Committee is expected to hold a hearing on the Internet sales tax at the end of this month or in early December, a panel spokeswoman said.

Despite supporters’ optimism, both the House and Senate bills face stiff opposition from some tech groups and companies like eBay, which wants a much bigger exemption for small businesses. It also remains to be seen whether the tax-averse, Republican-controlled House will pass legislation that essentially raises the cost of many online purchases for consumers.

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