Main Street Fairness Act vote stalls in senate

Fairness Act vote

Fairness Act vote

main-street-fairness-act-vote-stalls-in-senate

Senator Dick Durbin (D-Ill.) introduced the Marketplace Fairness Act before congress this year and is aggressively promoting a vote on the legislation.

A last-minute attempt to push internet sales tax legislation through this year by attaching it to another bill failed when the senate closed debate without considering it.

The Main Street Fairness Act, S. 1492, (alternately called the Marketplace Fairness Act), with bipartisan support from many sources, had been added as an amendment to the National Defense Authorization Act. Hopes of getting the legislation to move through the senate in 2012 died abruptly when the senate voted Dec. 3 to close debate on the NDAA without considering the amendment.

Senators Dick Durbin (D-Ill.), Mike Enzi (R-Wyo.) and Lamar Alexander (R-Tenn.) have been aggressively promoting the act claiming it will promote simplification and fairness in the administration and collection of sales and use taxes. The legislation will purportedly level the playing field for brick-and-mortar retailers that have been crying foul saying they are at a disadvantage because they have had to collect sales taxes in the jurisdictions where their stores are located. Internet vendors, on the other hand, see it as an attempt to overturn a 1992 Supreme Court decision and force them to collect sales tax on all transactions irregardless of nexus thereby creating an insurmountable sales tax collection and remittance nightmare.

A spokesman for Durbin says the senator is keeping his options open and intends to continue pushing the legislation toward a vote, whether as a stand-alone or part of a larger bill.

Internet Sales Keeping Pace with Brick and Mortar

Internet sales keeping pace with local brick-and-mortar sales so far this year

Preliminary data show internet sales keeping pace with local brick-and-mortar sales so far this year. With this much revenue on the line, states are scrambling to inform the cyber-consumer about Use taxes due on internet purchases.  To date, Use tax compliance has been, to put it mildly, not good.

Whether or not states have special internet sales legislation on the books, most states require the payment of use tax on any untaxed purchase, including those made over the internet or from out-of-state vendors.

What is consumer Use tax?

Use tax is due on any taxable tangible product purchased by non-tax-exempt entities when no sales tax was collected at the time of purchase, regardless of where the item was purchased. This includes items purchased over the internet or from out-of-state sources including Amazon, eBay and others.

States scramble to get a cut of online shopping taxes

States have identified unpaid use tax as a significant loss of revenue during a time when budgets are stretched to the breaking limit. An estimate by the Streamlined Sales And Use Tax group claim $20 billion a year is being lost.

Identifying the problem and figuring out what to do about it are two different things. Most states have been at a loss as to a practical remedy. Some have included a self-reporting section on the state income tax return. Other states rely on press releases, news coverage and guilt. None of these methods have so far show much effect on compliance with some sources saying as little as 20% of these taxes are collected.

The Main Street Fairness Act

Federal legislation is being closely examined by both the senate and house to try to come up with a “fair” solution to this uncollected tax problem.

The Main Street Fairness Act, which has failed in previous years, was introduced this year by Sen. Richard Durbin (D-IL) and is currently being reviewed by the Senate Committee on Finance. The bill proposes to promote the simplification, administration and collection of sales and use taxes.

Unfortunately, like most of the issues involved with taxes, this one seems to have little chance of resolution before the year’s end. You can track the bill’s progress at http://www.govtrack.us/congress/bills/112/s1452.

Amazon changes attitude toward collecting sales tax

amazon collecting sales tax

amazon collecting sales tax

Amazon sales tax

For years, Amazon.com has instructed its employees to limit business activities in certain states in hopes it could avoid establishing nexus.

In an interesting shift in attitude, Amazon.com seems to be softening its hard-line stance against state demands for it to collect sales tax. Along with lobbying for a single nationwide sales tax, Amazon is starting to settle lawsuits with states and, in many cases, has agreed to begin collecting sales tax at future dates.

Up until now, Amazon has maintained that online retailers with no physical presence in a state did not have nexus and did not have to collect sales taxes. Amazon limited business dealings and placed travel restrictions on employees to states that it viewed as “bad”, meaning these states wanted Amazon to collect sales taxes on purchases made by residents of those states.

Amazon even went so far as to pull the plug on its marketing affiliates in “bad” states. It followed through with one such threat in Colorado in 2010 after the state enacted a law that would have required Amazon to report all online sales made by Colorado residents. Colorado’s law was thrown out after it was determined to be unconstitutional because it would have “discriminated against online retailers.”

Amazon has put up a costly legal battle against Texas, threatening to remove its warehouses, and against California, threatening the removal of both the warehouses and affiliate programs. Both lawsuits have now been settled, with Amazon promising to start collecting sales taxes in Texas on July 1, and California in September of this year. Amazon has even promised to sweeten the pot with the promise of new jobs in both states.

Amazon has admitted nexus and collected taxes in Kansas, Kentucky, North Dakota, New York and Washington for the past 5 years, mainly due to the presence of warehouses in those states. Along with Texas and California, Amazon will begin collecting tax in Pennsylvania this year. Promises have been made to start collecting tax for New Jersey and Virginia in 2013, and Indiana, Nevada, and Tennessee the year after that, and looking out to 2016, South Carolina.

Arkansas, Connecticut, Illinois, Vermont, North Carolina, and Rhode Island have all passed legislation calling for what is often called an “Amazon tax” even though it would impact most, if not all, online retailers. Recently, brick and mortar retailers have begun to band together and put up an organized front in the form of a well funded campaign supporting “Main Street Fairness”. It seems inevitable that Amazon would bear the brunt of the financial burden it would take to fight future lawsuits.

While it may seem unlikely for a mega-company such as Amazon to back down, it is probable that they simply balked at the potential legal costs. There is also the possibility that if Amazon could be seen as cooperating with the states their plea for a single nation-wide tax legislation could gain some traction in congress.

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Does “Main street Fairness” amount to taxation without representation?

Main street Fairness

Main street Fairness

By Charles F. Spielmann, Zip2Tax

Main Street fairness and streamlined sales tax… What could sound more appealing?

Who’s going to argue against fairness? I mean, you can hardly go wrong when you’re supporting good ole’ Main Street with its suggestion of American flags flying outside Mr. Whipple’s local grocery store. And streamlined is better, right? It sounds like taxes will finally be standardized and made easier to comply with. Right?

But, it’s never quite that simple, especially when you’re talking about collecting sales tax.

At issue is the Main Street Fairness Act, its current form still bouncing around congressional committees. The bill is intended to compel online retailers to collect sales taxes on purchases made through their web sites regardless of whether that retailer has a physical presence in that state. If signed, it would be implemented in the 24 states that have adopted the Streamlined Sales and Use Tax Agreement (usually shortened to SSTA).

This language is all carefully designed to put the proposal in the best possible light. It will purportedly “level the playing field” for “brick and mortar” establishments, who feel they’ve been at a competitive disadvantage against online competitors.  The bill states that its aim is to collect taxes only from super-sized web retailers and that small businesses will have an exemption. (Read: smaller businesses aren’t worth the trouble it will cost states to pursue until after the big fish have been fried up.)

Not promoted quite so openly is the $18.6 billion in sales tax the SSTA states estimate has not been collected on their behalf from 2010 alone. States with frightening budget shortfalls are unlikely to let any amount of income slip through their fingers.

Another glossed-over fact is that, if the Main Street Fairness Act becomes law, there still wouldn’t be a uniform tax code since it would only affect the states that have agreed to the SSTA. The Streamlined Sales Tax agreement isn’t as beneficent as it sounds at first blush either. The agreement claims it is an effort to simplify the sales and use tax process in a cooperative effort of federal, state and local governments to reduce the cost and administrative burdens on retailers who collect sales tax.

The SSTA doesn’t boast that for all of the added levels of bureaucracy it creates, none of the tax rules have been made, in fact, streamlined. Each of the 24 participating states still determines its own tax rates, tax jurisdictions, and the taxability of certain items and services.

The only real progress they’ve made is agreeing to standardize some definitions of taxability. What’s buried in the fine print is that while SSTA is voluntary so far – offering limited amnesty and audit protection to retailers who sign on to collect sales taxes across state lines – this may not always be the case and non-compliers may be pursued. As pointed out in an analysis by Fosters.com’s Curtis Barry, this bill, if passed, would amount to taxation without representation. He noted that the Streamlined Sales Tax Commission is made up of office holders and bureaucrats from SSTA states. These board members are not elected but appointed by unstated means. Barry also pointed out that “It is troublesome that this commission could lower the threshold [on the small business exemption] whenever the states that have signed on to the SSTA need money.” He noted that the commission may also have the power to make other unspecified policy changes that could affect states while the states and their businesses would have no say in the matter.

You can bet that online retailers didn’t have much nice to say about the bill either.

Not unexpectedly, mega-web site eBay has a full-blown movement against the bill. EBay sent messages to every one of its users and asked them to sign a petition opposing the bill which they claim is anti-small business.

EBay’s vice president for government relations, Tod Cohen, called the bill an Internet tax scheme and warned that “… supporters of increased Internet sales taxes recommend legislation that would impose significant new costs on hundreds of thousands of online small businesses and e-commerce entrepreneurs, which is sure to harm the economy and kill small business jobs.”

You might be tempted to  get a warm, fuzzy feeling about how concerned eBay is about the welfare of all of these small businesses. But, if you think about it, you can be pretty sure that eBay isn’t motivated by purely altruistic reasons. As they said it themselves, they see the Main Street Fairness Act as “an unfair and costly burden for small businesses …” (not to mention big businesses), “… to collect sales taxes for 15,000 tax jurisdictions in 45 states.” The source of EBay’s jurisdictional numbers is somewhat questionable, but their incentive remains clear enough.

So eBay, Amazon, and other huge online retail coalitions are arming for what’s likely to be another bitter and drawn-out war against both the government and brick and mortar retailers who would like to share the oppressive tax burden with as many others as possible.

But maybe it’s worth noting too that Main Street’s Mr. Whipple – of the discontinued “please don’t squeeze the Charmin” advertising campaign – wasn’t quite the local small businessman he portrayed either. He was the creation of the Fortune 500 company Proctor and Gamble who,  in 2007, spent $2.62 billion on advertising, more than any other company in the U.S. Main Street Fairness Act will affect brick and mortar retailers

In the end, the fate of this legislation isn’t likely to be decided by Mom and Pop Main Street, Mr. Small Online Business, or John Q. Public. The debate will be framed by mega companies with their PR agents, marketing departments, and hired guns pitting their resources against state governments, special interests and high-paid lobbyists.

And, regardless of the outcome, the money that will be fueling the battles will all be coming from the same place: you!

The bill has changed names with each new congress, but you should be able to follow the latest version by searching at opencongress.org.