Aug 242015
 
California sales tax

In November 2013, voters in the city of Modesto, California, defeated a proposed 1% increase in the local sales tax by just 507 votes. Undeterred by this narrow defeat, Modesto’s mayor and city council will again ask voters to approve a local sales tax increase on this November’s ballot, albeit only 0.5% this time. Recently, this new proposal – known as Measure G – survived a legal challenge by a local taxpayer group.

California imposes a statewide sales tax of 7.5%. Counties and cities may add their own tax on top of this rate. For example, sales in Modesto are presently taxed at 7.625%, although the city only receives 0.75%. The remainder goes to the state and Stanislaus County. Measure G would make the total sales tax 8.125%, raising Modesto’s share to 1.25%.Local sales tax increase

Modesto Mayor Garrad Marsh told the City Council in June additional taxes were necessary to provide “police and fire services and the rest on economic development and other essentials.” City officials estimate the 0.5% increase will yield an additional $14 million annual revenue. Steve Christensen, Modesto’s budget director, also told the council a 7.625% sales tax would not be out of line for California, as 84% of the state’s cities currently impose higher rates.

Needless to say, not all Modesto residents are eager to pay more in sales tax. The Stanislaus Taxpayers Association, which led the campaign to defeat the 1% increase in 2013, filed a lawsuit in early August, specifically challenging the ballot language of Measure G. When Modesto voters go to the polls in November, they will see a measure titled the “Safer Neighborhoods Initiative,” which promises “To make neighborhoods safer by restoring police patrols, crime prevention, gang suppression and youth development efforts; removing tagging; reducing nuisance properties; strengthening fire/emergency services; increasing neighborhood collaboration; and maintaining other general city services.”

The problem, according to the Stanislaus Taxpayers Association, is that nothing legally requires Modesto to dedicate the additional sales tax revenue to these purposes. Indeed, Measure G proposes a general sales tax increase, as indicated by the reference to “other general city services” in the language above. California law does authorize a city to collect a “special sales tax,” which must be used for a stated purpose. However, special sales taxes must be approved by a two-thirds vote, while a general increase only requires a simple majority.

The taxpayer association’s lawsuit argued the language of Measure G, which was prepared by the Modesto City Attorney’s office, would mislead voters into thinking they were voting on a dedicated, special sales tax rather than a general increase. The taxpayers association added it was inappropriate to refer to Measure G as an “Initiative,” which in California elections traditionally describe a voter-sponsored ballot question, not one placed by a city government. Accordingly, the group asked a judge to direct the city to either adopt different language or drop the ballot question altogether.

The judge did neither. On August 21, Stanislaus County Superior Court Judge Timothy W. Salter rejected the taxpayer association’s lawsuit. According to the Modesto Bee, Salter said changing or dropping Measure G at this point “would substantially interfere with the county election office’s ability to conduct the countywide November election,” and in any event, he was not convinced the language adopted by the city attorney was “false or misleading.”

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info

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Aug 242015
 
Sales tax refund

The only thing worse than owing sales tax is having to repay the same sales tax a second time. Several Minnesota electric cooperatives faced this scenario recently when the state’s Commissioner of Revenue said it “erroneously” provided a sales tax refund on taxes paid on their members’ monthly payments. The Minnesota Supreme Court ultimately sided with the commissioner’s re-interpretation of the law, although the justices said the change of heart may have come too late in some cases.

Connexus Energy v. Commissioner of Revenue

An electric cooperative is a membership association which purchases electricity from wholesale suppliers. Similar to a conventional utility, the cooperative bills each member monthly for their electric use. Where cooperatives differ is they distribute “capital credits” to members at the end of the year. These credits reflect any profits posted by the cooperative. The credits therefore represent the members’ equity in the cooperative.

Minnesota assesses sales tax on the purchase of electricity. The electric cooperatives in this case initially paid sales tax on the full amount billed to each member. But they later filed amended returns for the 2004, 2005 and 2006 tax years, claiming refunds for member payments later reclassified as capital credits.

At first, the commissioner agreed the cooperatives were entitled to refunds. But she later changed her mind and demanded the cooperatives return their refunds. The cooperatives appealed this action, first to Minnesota’s Tax Court and later the state’s supreme court. Both courts agreed the commissioner did not exceed her authority when she reassessed and rescinded the refunds.

Justice David Stras, writing for a unanimous Minnesota Supreme Court, said cooperative members’ monthly payments and their later receipt of any capital credits “were separate and distinct transactions.” In other words, when members paid their cooperative bill each month, that represented a single “retail sale of electricity” subject to sales tax. As Stras noted, the once-a-year allocation of capital credits “take place on different cycles and involve different subjects” than the monthly electricity usage bills.

That said, Stras added the commissioner waited too long before seeking repayment of some of the erroneous refunds. Under Minnesota law, “An assessment of a deficiency arising out of an erroneous refund may be made at any time within two years from the making of the refund.” Four of the cooperatives in this case said the commissioner waited until after this two-year period expired before making her assessment. In response, the commissioner noted state law also allows her to “assess additional taxes” within a 3 1/2-year period after a tax return is filed. Since she changed her mind within this time limit, she argued the four cooperatives still had to pay back the erroneous refunds.

On this point, the supreme court sided with the cooperatives. Stras explained while “either provision conceivably applies” here, the court must apply the “specific” rule over the “general” one. In this case, the 3 1/2-year limit is the general rule, as it applies to all tax assessments, while the two-year limit specifically applies to erroneous refunds.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info

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Jul 312015
 

August sales and use tax rates have changed in two states in Zip2Tax products since July 2015.

In Alabama, tax rates changed for Hayneville.

In Arizona, tax rates changed for Benson.

There were 13 states with ZIP code changes effective after July 2015 including Alaska, Florida, Illinois, Indiana, Missouri, North Carolina, North Dakota, New York, Ohio, South Carolina, South Dakota, Texas and Wisconsin. A PDF document enumerating ZIP code additions and deletions can be made available upon request.

Angel Downs, Zip2Tax's ead tax researcher

Angel Downs, Zip2Tax’s lead tax researcher

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Jul 312015
 
Illinois sales tax

Illinois Gov. Bruce Rauner won election last year on a platform of reducing the tax and regulatory burden on business. Yet he has also proposed what would be the nation’s only sales tax on business advertising. In an effort to “modernize” the Illinois sales tax system – and address a $4 billion budget deficit – Rauner has proposed eliminating exemptions for a variety of previously untaxed services, including billboards and radio and television advertising. In his budget blueprint, Rauner argued, “Illinois lags behind all of its neighboring states when it comes to the tax treatment of goods compared to services.”

Illinois sales tax

Groups like No Ad Tax Illinois have mobilized in opposition of Gov. Rauner’s proposed Illinois sales tax on business advertising and other formerly exempt services.

Yet no state currently collects a sales tax on business advertising. Florida attempted to do so in 1987, but abandoned the effort after only six months when national advertisers boycotted the state, according to an editorial in the Quincy Herald-Whig arguing against Rauner’s proposed tax. The editorial further noted, “The advertising industry alone accounted for $267 billion in revenue in 2014, or 17.3 percent of Illinois’ economic activity.”

Not surprisingly, the advertising industry – which includes the state’s newspapers and television stations – have quickly mobilized against the governor’s proposal. A group called No Ad Tax Illinois has published a website and video decrying the impact an advertising tax would have on small businesses. “From the family owned and operated car dealership in Joliet to the real-estate agent in Chicago, small businesses rely on advertising to drive sales,” the group argued, adding less advertising “will mean less sales and people will lose their jobs and their businesses.”

An advertising tax also raises constitutional issues. The Northwest Herald noted advertising revenue “makes it possible to finance our journalistic work to keep the community informed.” A tax might therefore run afoul of the First Amendment’s protection of freedom of the press.

Rauner has already modified his proposal in the face of criticism. Originally, he proposed a 10% advertising tax, which he claimed would provide the state with approximately $10 million per year in additional revenue. According to the Herald, the governor has since lowered the proposed tax to 6.25%, which would match the Illinois sales tax rate statewide.

Ultimately, the proposed advertising tax is just one part of a much larger political dispute. Illinois has operated without a budget since the start of its fiscal year on July 1. Rauner, a Republican, has been unable to negotiate a new budget with the Democratic-controlled state legislature.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info

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Jul 222015
 

FloridaThe war between cable and satellite television providers recently had a battle on the sales tax front. On June 11, a Florida appeals court held the state’s sales tax regime – which imposes a higher rate on satellite providers – violated the United States Constitution’s Commerce Clause. While the court’s decision is unlikely to be the final word on the subject, it nonetheless represents an important victory for satellite providers and their customers.

DirecTV, Inc. v. State of Florida

Prior to 2001, Florida imposed a uniform sales tax rate of 6% on all cable and satellite television commerce clausepurchases. The Florida legislature subsequently adopted a new scheme which resulted in a significantly higher increase for satellite than cable. As of 2015, the tax on cable service in Florida is 6.65%, while it is a whopping 10.8% on satellite television.

Understandably, the satellite companies and their customers object to this state of affairs. Two lawsuits were filed challenging the constitutionality of the discriminatory tax rules. A trial judge sided with the State of Florida and its Department of Revenue, holding the higher satellite rates were constitutional. The plaintiffs then appealed to the Florida’s First District Court of Appeal in Tallahassee.

A divided three-judge panel reversed the trial court and ordered judgment for the satellite companies and their customers. Chief Judge L. Clayton Roberts, writing for the majority, said Florida’s tax regime violates what is known as the “dormant Commerce Clause.” The Commerce Clause gives Congress the exclusive authority to regulate interstate and foreign commerce. The dormant Commerce Clause refers to the judiciary’s longstanding practice of interpreting this to mean individual states may not discriminate against out-of-state businesses in an effort to aid local “economic interests.” The discrimination need not be intentional; a court may hold a policy unconstitutional if it produces a discriminatory effect.

“Here,” Roberts said, “the sales tax [] is discriminatory in effect because it affects similarly-situated entities, cable and satellite companies, by imposing a disproportionate burden on satellite service and conferring an advantage upon cable services, which use in-state infrastructure.”

The state argued its policies were not discriminatory because cable providers were still subject to local sales taxes, which in some counties meant the rates paid by each were roughly equal. (Federal law exempts satellite providers from local taxes.) Roberts said “this method of attaining a semblance of equality is untenable,” because there was nothing to prevent counties from eliminating their local tax in the future.

Judge Simone Marstiller dissented from the majority’s opinion. She argued the dormant Commerce Clause did not apply here, because the satellite providers were not really out-of-state businesses. She noted the satellite companies have employees and contractors in Florida, and while the cable providers – none of whom are actually based in Florida – may rely more on such “in-state infrastructure,” that does not mean the state’s tax rules unfairly discriminate in favor of “in-state economic interests.”

Marstiller’s dissent is no doubt encouraging to state tax officials, who have already appealed Roberts’ decision to the Florida Supreme Court.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info

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Jul 162015
 

Back To School Sales tax holidayThe most complete list of all 17 states holding a Back To School sales tax holiday for 2015, updated July 14, 2015.  This list is complete with items sales tax will be suspended on, the upper price limit, the sales date ranges, when the sales were first initiated, and a link to where you can get more information.

The 2015 Back To School sales tax holiday will be held in Alabama, Arkansas, Connecticut, Florida, Georgia, Iowa, Louisiana, Maryland, Mississippi, Missouri, New Mexico, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Virginia.

Keep in mind that while some states suspend the state portion of the sales tax during these Back To School specials, but county, city, or other local sales taxes might still apply if those municipalities are not participating the sales tax holiday.

Also consider that not all items are viewed equally in the eyes of the tax adjuster. Shoes may be considered an item of clothing in one instance, but “track shoes” may be considered sporting goods and not included along with the tax-free items during this Back To School sales tax holiday.

State Items Included Max Price 1st Year 2015 Dates Information Links
Alabama clothing $100 2006 August 7-9 http://www.revenue.alabama.gov/
computers $750
school supplies $50
books $30
Arkansas clothing $100 2011 August 1-2 http://www.dfa.arkansas.gov/
school supplies
Connecticut clothing and footwear $300 2001 August 16-22 http://www.ct.gov/drs/
Florida school suppies 2007+ August 7-16 http://dor.myflorida.com/
clothing $100
supplies $15
computers $750
Georgia school supplies 2012+ July 31 – August 1 http://dor.georgia.gov/
clothing $100
supplies $20
computers $1,000
Iowa clothing $100 2000 August 7-8 https://tax.iowa.gov/
Louisiana all taxable personal property $2,500 2007 August 7-8 http://www.revenue.louisiana.gov/
Maryland clothing & footwear $100 2010 August 9-15 http://www.marylandtaxes.com/
Mississippi clothing & footwear $100 2009 July 31-Aug. 1 http://www.dor.ms.gov/
Missouri clothing $100 2004 August 7-9 http://dor.mo.gov/
computers $3,500
school supplies $50
New Mexico clothing $100 2005 August 7-9 http://www.tax.newmexico.gov
computers $1,000
computer equip. $500
school supplies $30
Ohio clothing $75 2015 August 7-9 http://www.tax.ohio.gov/
school supplies $20
instructional material $20
Oklahoma clothing $100 2007 August 7-9 http://www.tax.ok.gov/
South Carolina clothing 2000 August 7-9 http://www.sctax.org/
school supplies
computers
other
Tennessee clothing $100 2006 August 7-9 http://tn.gov/revenue/
school supplies $100
computers $1,500
Texas clothing, backpacks and school supplies $100 1999 August 7-9 http://comptroller.texas.gov/
Virginia clothing $100 2006 August 7-9 http://www.tax.virginia.gov/
school supplies $20
energy star products $2,500
hurricane preparedness items $60
generators $1,000

Source: Federation of Tax Administrators

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Jul 152015
 
Connecticut

The Connecticut Supreme Court recently decided an unusual sales tax case. The allegedly delinquent taxpayer was actually a town that challenged the state’s decision to collect sales tax on fees charged for municipal waste removal services. Connecticut imposes a 6.35% sales tax on the “rendering of any services constituting a sale.” The town argued its “services” were not taxable in this context since it did not actually profit from providing waste removal services.

Groton v. Commissioner of Revenue Services

Groton is a town of about 40,000 people. In 1985, Groton joined a regional authority which operates a waste facility. Groton is contractually obligated to provide a certain amount of waste to the regional waste facility for a per-ton fee. Three years later, in 1988, Groton created a town authority which provides waste removal services to “end users,” including industrial, commercial and rental properties in the town.sales tax audit in Groton, CT

The town authority uses a private contractor to serve as an intermediary, picking up waste from end users and delivering it to the regional facility. The regional authority and the private contractor each charge the town authority, which pays the bills and then invoices the end users for the total cost. The town authority adds a small per-ton charge to cover its overhead and administrative costs, so the entire program is “break even” for Groton.

In 2011, Connecticut’s Commissioner of Revenue Services performed a sales tax audit on the town of Groton and declared it owed over $240,000 for unpaid sales taxes dating back to 2007. The commissioner said Groton failed to charge sales tax on the “services” it provided, namely its invoices for waste removal. Groton argued since end users merely reimbursed the town authority for its costs in administering the waste removal program, there was no “sale of services” as required by the sales tax law.

A trial court rejected the town’s argument and upheld the state’s sales tax assessment. On appeal, the Connecticut Supreme Court reversed and entered judgment for the town. Writing for a unanimous court, Justice Richard A. Robinson said while Connecticut law subjects private waste removal contracts to state sales tax, the same is not true for municipal agreements. Robinson said the “true object” of Groton’s town authority was promoting “safe and efficient waste disposal,” as opposed to making a profit by competing with private waste removal companies. In other words, Groton carried out a purely governmental function when it billed end users for waste removal.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info

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Jul 012015
 

Sales tax rates have changed in 20 states and Puerto Rico and there were 13 states with ZIP code changes in Zip2Tax products since June 2015. Sales and or use tax rates are changed in Alabama, Arkansas, Arizona, California, Colorado, Iowa, Illinois, Kansas, Louisiana, Minnesota, Missouri, New Mexico, Ohio, Oklahoma, South Dakota, Utah, Washington, and West Virginia.

In Alabama, tax rates changed for Cedar Bluff and Fairview.

In Arkansas, tax rates changed for El Dorado, Manila, Moorefield and Ouichita County.

In Arizona, tax rates changed for Graham County and the city of Marana.

In California, tax rates changed for the city of Weed.

In Colorado, tax rates changed for Georgetown.

In Georgia, tax rates changed for the counties of Muscogee and Whitfield.

In Iowa, tax rates changed for Lone Tree, Solon, Hills, Swisher and West Branch.

In Illinois, tax rates changed for Carbon Cliff, Carbondale, Coulterville, Crestwood, Deland, Elkville, Glenwood, Highwood, La Grange, Lyons, Montgomery, Morrison, Oglesby, Rantoul, Rock Falls, Toledo, Wadsworth, Westmont, and the counties of Calhoun, Greene, Jefferson, Jersey, Jo Davies, Knox, McDonough, Morgan, Perry, Piatt, Scott, White and Whiteside.

In Kansas, the state rate changed and there were tax rates changes for Clifton, Hutchinson, Lyndon, Marquette, and the counties of Gove, Morton, and Nemaha.

In Louisiana, tax rates changed for Winn Parish, Claiborne Parish, and Calcasieu Parish.

In Minnesota, tax rates changed for Hubbard County.

In Missouri, tax rates changed for Cape Girardeau, Hold County, Lawrence County, Buffalo, California, Concordia, Hannibal and Saint Joseph.

In New Mexico, tax rates changed for the counties of Bernalillo, Chaves, Dona Ana, Luna, Roosevelt, San Miguel, Santa Fe, Sierra, Torrance, Valencia, and the cities of Artesia, Sliver City, and Kirtland.

In Ohio, tax rates changed for the county of Richland.

In Oklahoma, tax rates changed for Barnsdall, Castle, Clinton, Colbert, Commerce, Foster, Rattan, Vici and the counties of Custer and Cotton.

In Puerto Rico, the possession tax rate changed.

In South Dakota, tax rates changed for Columbia and Westport.

In Texas, tax rates changed for Garrett, Sandy Oaks and Kendleton.

In Utah, tax rates changed for Farmington.

In Washington, tax rates changed for Sequim TBD and Dayton TBD.

In West Virginia, tax rates changed for Bolivar, Charles Town, Charleston, Martinsburg, Milton, Nitro, Parkersburg, Ranson, Thomas, Vienna and Wheeling.

There were 13 states with ZIP code changes effective after June 2015 including Alabama, Arizona, California, Florida, Iowa, Kansas, Kentucky, Montana, North Carolina, Ohio, South Carolina, South Dakota, and Utah. A PDF document enumerating ZIP code additions and deletions can be made available upon request.

Angel Downs, Zip2Tax's ead tax researcher

Angel Downs, Zip2Tax’s lead tax researcher

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Jun 252015
 

Is a pixel real? Are downloads taxable? Digital goods redefine tangible personal property standards.

Video on demand

Historically, most states impose sales or use taxes on “tangible personal property.” In the broadest sense, this includes anything a person may own that is not real property (i.e., land). But the rise of Internet-based commerce has complicated matters. Is a movie you download from iTunes “tangible”? What if you just stream the same movie from Netflix? Different states have adopted different approaches to these digital goods.

In New Jersey, for example, the state collects sales tax on any music, ringtones, movies, books, or audio and video works “delivered through electronic means.” But the state does not tax video programming services, such as video-on-demand. So if you order a pay-per-view movie from your cable provider, it is not taxable, but if you buy the same movie from iTunes, it is taxable.

Many other states do not have specific laws taxing digital property but rather include such goods in the broader definition of “tangible personal property.” In some cases state legislatures have made this explicit. In others it has been left to the tax authorities and the courts to determine which digital goods are considered tangible personal property. This can lead to quite a bit of confusion. In Louisiana, for instance, the state’s Supreme Court has said tangible personal property “is synonymous with corporeal movable property,” essentially any material object you can move from one place to another. Accordingly, computer software and other downloaded content subsequently fixed in some physical form, such as on a computer’s hard drive, is subject to sales tax in Louisiana.

But what about something like video-on-demand? At least one Louisiana court thinks it is not taxable. Last December, the Louisiana Fifth Circuit Court of Appeal held a local government could not impose sales tax on a cable company’s on-demand video service, as customers could not “download, store, record, distribute, or copy” such programs in any fixed medium.

An attempt at uniformity

Streamlines Sales and Use Tax Agreement

States participating in the Streamlines Sales and Use Tax Agreement. Image courtesy www.streamlinedsalestax.org

The Streamlined Sales Tax Governing Board, a group comprised of more than 20 states, has offered a uniform definition of “digital products” for individual states to use when setting their respective tax policies. The board suggests audio-visual works, audio works, and books delivered to customers electronically should not be lumped together with tangible personal property, but defined separately as “specified digital products.” This is the approach taken by New Jersey and about a dozen other states. Note the board does not take a position on whether states should tax digital products, only that they be classified separately for reporting purposes.

Despite the board’s efforts, some states like Louisiana continue to define digital products within the confines of tangible personal property, while others have still made no attempt to separately classify such downloads at all.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog PrivyCouncil.info

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Jun 222015
 

The Marketplace Fairness Act is dead, long live the Remote Transactions Parity Act?

Internet sales tax

Conservatives say the Remote Transactions Parity Act is just another Internet sales tax that equals taxation without representation.

On June 15th House Oversight Chairman Jason Chaffetz (R-Utah) introduced a new Internet sales tax bill he’s calling the Remote Transactions Parity Act (RTPA). The bill is similar to the Marketplace Fairness Act which died in the House last year. Supporters say this version has critical improvements as well as the support of some major players.

RTPA would require sellers without a physical presence in a state to collect sales tax on eligible transactions based on the going rate at the location of the consumer. The bill would also require states to simplify their tax codes, and pay to set up, install and maintain software for remote sellers to collect sales taxes.

According to the National Law Review, states that are members of the Streamlined Sales and Use Tax Agreement (SSUTA) would be automatically eligible to impose sales and use taxes on remote sellers. States that are not SSUTA members, about half of the states in the union, could be authorized to require retailers without nexus in the state to remit sales and use taxes on sales if they met the following simplification requirements:

  1. destination sourcing for interstate transactions;
  2. a single entity for administration of sales and use tax;
  3. a single audit of remote sellers per state;
  4. a single return per state;
  5. uniform tax base for all state and local sales taxes within the state; and
  6. relief for errors, including remote sellers being relieved of errors made by a certified software provider or the state itself, and certified software providers being relieved of errors made by a remote seller or the state itself

The bill has bipartisan support as well as the backing of some of the major players in the industry: Amazon, Overstock and the National Retail Foundation.

The RTPA isn’t enjoying unanimous support however. Dissent comes mainly from withing the split Republican party with conservatives labeling this as a tax increase or an Internet sales tax, and that it amounts to taxation without representation.

House Judiciary Chairman Bob Goodlatte (R-Va.) circulated his own draft proposal last January calling for the sales tax rates to be based on the retailer’s location. Goodlatte has also expressed concerns about protecting small businesses from audits, and that exempting certain small sellers would make a bill too complicated.

The RTPA differs from the MFA in that the small seller exemption starts at $10 million or less and gradually phases out over time. MFA’s exemption is continuous for sellers making less than $1 million. The RTPA also provides audit protection for sellers grossing less than $5 million unless there is reasonable suspicion of fraud.

RTPA faces opposition from its own set of power players: NetChoice, the R Street Institute and Americans for Tax Reform.

While the Marketplace Fairness Act managed to pass through the Democrat-led Senate in 2013, Speaker John Boehner (R-Ohio) and Senate Majority Leader Mitch McConnell (R-Ky.) have shown no interest in debating the bill this year even though it has been reintroduced.

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