By Larry Jones
July 16, 2012

Since last November, grassroots support from businesses on Main Street, mayors, governors and other elected leaders across the country has been building for legislation that would grant state and local governments the authority they need to require the collection of taxes on online shopping. Under existing law (the Supreme Court's 1992 decision in Quill Corp. v. North Dakota) state and local governments are prohibited from requiring out-of'state merchants, such as those who sell goods and services exclusively online and through mail-order'sales, to collect their sales taxes.

Since they are not required to collect taxes (which can range from five to ten percent on average), online merchants have had an unfair competitive advantage over their Main Street competitors. Some Main Street merchants have complained that more and more customers are coming in their retail outlets to try on or examine merchandise only to order it online. That could all change soon if a bipartisan group of Senators are successful in moving the Marketplace Fairness Act, S. 1832, which could level the playing field.

The Conference of Mayors and other state and local groups have endorsed the Marketplace Fairness Act, which enjoys strong bipartisan support and is being spearheaded in the Senate by Senators Richard Durbin (IL), Michael Enzi (WY) and Lamar Alexander (TN). If enacted, state and local governments will have the option of collecting an estimated $23 billion nationwide in taxes due on online sales. These taxes are currently due because most states have passed laws requiring their residents to voluntarily submit sales taxes on purchases made online when submitting their state income taxes. But with no way of keeping track of online purchases, residents almost never submit these taxes. The Marketplace Fairness Act will provide an enforcement mechanism to collect these taxes.

The sponsors of S. 1832 are looking for any opportunity to pass the legislation. Although the bill enjoys bipartisan support, it is unlikely to move forward this year as a separate bill. However, it could be added as an amendment to critical legislation that Congressional leaders agree must be considered before Congress adjourns. On July 10, the sponsors filed the bill as an amendment to the Small Business Jobs and Tax Relief Act (S. 2237), which would provide tax credits to companies that hire new workers. Although the Senate voted 80 – 14 on the same day to begin consideration of the Small Business Jobs bill, no decision has been made to allow a vote on the Marketplace Fairness amendment. Sponsors are expected to keep trying until they are successful in winning agreement to allow a vote on the Marketplace Fairness Act.