On May 7, 2014 U.S. Senator and Assistant Majority Leader Dick Durbin (D – Ill.) called on the House of Representatives to pass the Marketplace Fairness Act. The bill passed the Senate with overwhelming bipartisan support last year, but has stalled in the House since that time.
In his comments, Sen. Durbin noted that current law only allows states to enforce sales tax on Internet sales through use taxes. Use taxes are imposed on consumers and has notoriously low compliance and enforcement. For example, Durbin notes that Illinois has a 5% compliance rate. The lack of enforceability results from the relatively low amount of tax owed per person and the difficulty of enforcing the law through audits of all state citizens. As a result, most state residents do not report or pay use taxes, and are unlikely to face an audit from the state. For this reason, state use taxes are not an effective mechanism for enforcing the sales tax.
Constitutional law prohibits states from requiring out-of-state vendors to collect the tax at the time of the sale. The Marketplace Fairness Act aims to resolve this problem by creating a congressionally sanctioned requirement for out-of-state vendors to collect tax. Durbin emphasized the need to push the legislation through, calling it the only “reasonable means of achieving fair and adequate enforcement of state sales tax laws”.
Durbin urges rapid passage of the law to reduce state tax revenue deficits as quickly as possible. You can view the full Senate colloquy on a C-Span video.
Christopher D. Saddock, LL. M., J.D., practices business and individual tax planning. He focuses on financial transaction taxation, partnership taxation, income tax accounting, and serves as a family office advisor for the firm’s high net wealth clients.