By Larry Jones
August 6, 2012

Three members of Congress, a governor and representatives from various organizations appeared before the House Judiciary Committee on July 24 to urge support for legislation that would grant state and local governments the option of collecting taxes on Internet and mail order sales. Representative Steve Womack (AR), the key sponsor of the Marketplace Equity Act (H.R. 3179), told members of the panel that the legislation is needed to level the playing field in the world of retail. The bill has broad base bipartisan support. Currently there are 49 cosponsors from across the nation.

Womack, a former mayor of Rogers (AR), told members of the committee a loophole in current law has given Internet merchants an unfair competitive advantage over their main street competitors. He reminded members that under the Supreme Court's 1992 decision in Quill v. North Dakota, state and local governments are prohibited from requiring out-of'state merchants (such as Internet and mail-order sales companies) to collect their taxes while merchants on Main Street are required to do so under existing state laws. This unfair competition, he said, is driving more shoppers away from Main Street to the Internet where they can purchase items tax free.

Representative Jackie Speier (CA), a cosponsor of the bill, told members of the committee that unfairness in the marketplace between merchants who sell on main street and those who sell over the Internet is projected to worsen. Citing a recent report from the U.S. Commerce Department, she said online retail sales have increased 300 percent to $224 billion over the past eight years, and sales are projected to triple again over the next eight years to more than $600 billion. “If a Republican from Arkansas and a Democrat from California can come together on a bill that deals with tax issues, then the time really has come to finally resolve this issue,” she said.

In response to critics who claimed the bill would raise taxes, Tennessee Governor Bill Haslam told the panel, “I am a Republican Governor that does not believe in increasing taxes….. This discussion isn't about raising taxes or adding new taxes. This is about states having the flexibility to collect taxes that are already owed by their own in'state residents.”

Commenting on the bill In a July 23 letter to the Committee leadership, the Conference of Mayors, National League of Cities, National Association of Counties and Government Finance Officers said the Marketplace Equity Act would provide state and local governments a mechanism to require the collection of taxes on Internet and mail-order sales, and help level the playing field between merchants on Main Street and the Internet. However, they expressed concerns about two aspects of the bill: (1) a provision that would allow states to exclude local sales and use taxes from being collected; and (2) the exclusion of the Streamlined Sales and Use Tax Agreement, which provides important administrative, definitional and procedural guidance for states and retailers to follow. The groups expressed a willingness to work with the committee and sponsors of the bill to address these concerns.