To put it plainly, the free ride for consumers who have been dodging sales taxes by buying over the Internet may be about to reach an overdue end.
The Marketplace Fairness Act would have online retailers collect an estimated $22 billion to $24 billion in sales taxes that currently go unpaid.
Many states require online shoppers to fork over the sales tax voluntarily, and, of course, few people volunteer to pay taxes. Under the Fairness Act, retailers would collect and forward sales taxes to the states. The Senate is expected to pass the bill next week by a wide margin, leaving its fate up to the House.
The notion of forcing Internet retailers to collect sales tax for online purchases has sparked bitter debate.
Those in favor of the bill talk about how it will help retailers whose bricks-and-mortar outlets have become merely showrooms for shoppers to check out the goods and then buy online to avoid paying sales tax.
Those opposed to the legislation claim it would hurt small businesses by turning them into tax collectors and forcing them to purchase the necessary software. However, the legislation exempts Internet retailers with less than $1 million in sales, which would protect small operators. EBay is fighting the legislation because it says it would burden many of its clients, who are barely over the $1 million limit.
Other opponents say the government shouldn’t be imposing new taxes. But the sales taxes have been in effect for years; the legislation just closes the loophole that required sales taxes to be collected only if the retailer had a physical presence in the state.
As expected, Walmart, the National Governors Association, the National Conference of State Legislatures and a coalition of Democrats and Republicans are all in favor of the legislation. Even Amazon – once a prime beneficiary of the loophole – is a staunch supporter, likely because it already collects taxes for many states and closing the loophole might make it harder for a new Internet retailer to start up.
Collecting Internet sales tax has been a controversial and complicated issue for decades. Back in the days of the dialup Internet connection, online sales weren’t seen as much of a threat. With the sales tax exemption, a new industry began to thrive, benefiting all consumers. Now, though, that advantage is no longer needed.
In 2008 New York enacted a measure that required many large Internet retailers to collect sales tax on purchases shipped to the state. Retailers complied without much trouble, and advancing technology will make it easier for Internet retailers in all states to comply with the law.
Closing the sales tax loophole will level the playing field for the stores that pay taxes and provide jobs in our communities. Collecting sales taxes for online purchases is just the latest change for the continually evolving Internet.