By Larry Jones
September 19, 2011

Before adjourning for the August recess, Senator Dick Durbin (IL) introduced the Main Street Fairness Act (S.1452), a bill supported by the Conference of Mayors and other state and local groups that would help state and local governments collect taxes on remote sales. If enacted, the legislation could provide state and local governments an estimated $24 billion in revenues. It would do so by granting state and local governments the authority to require out-of'state merchants to collect their sales taxes when making sales to customers residing in their borders. Senators Tim Johnson (SD), Jack Reid (RI) and Sheldon Whitehouse (RI) joined Durbin as cosponsors of the bill. A companion bill (H.R. 2701) was introduced in the House by Representative John Conyers (MI), who was joined by Representatives Peter Welch (VT) and Heath Shuler (NC) as cosponsors.

Unlike local merchants on Main Street who are required to collect state and local sales taxes, Internet-only companies, mail-order sales and other companies with no physical presence in a state, are not required to collect state and local sales taxes. This is due primarily to two Supreme Court rulings: the Bellas Hess decision in 1967 and the Quill decision in 1992, which prohibit state and local governments from imposing a duty on out-of'state merchants to collect their taxes.

In both cases, states (Illinois and North Dakota) were attempting to force out-of'state companies to collect their sales and use taxes when making sales to their residents. These decisions predate the Internet and at the time they were handed down, the Supreme Court determined it would be too complicated and complex to require out-of'state merchants to keep up with the tax systems of over 7,000 taxing jurisdictions. In this age of high-tech when information is available at the click of a mouse, some question whether the Supreme Court would reach the same decisions if those cases were decided today.

Unlike what some have claimed, the Main Street Fairness Act will not impose a new tax on consumers. In the Quill decision, the Supreme Court acknowledged these taxes are owed to state and local governments. However, the Court pointed out that since remote sales involves interstate commerce, Congress must enact legislation to grant state and local governments the authority to impose a duty on out-of'state merchants to collect their taxes.

The Main Street Fairness Act would address the concerns raised by the Supreme Court by granting state and local governments that simplify their sales tax system in accordance with simplification standards in the Streamlined Sales and Use Tax Agreement (SSUTA) authority to collect. This agreement, which establishes uniform simplification and collection standards, was jointly developed by the states with input from local governments and the private sector. So far SSUTA has been adopted by 24 states and many others are considering adopting it. Under the legislation, states that adopt the SSUTA simplifications standards will be granted authority to require out-of'state merchants to collect their taxes.

Upon introducing the bill, Durbin said, “Consumers shouldn’t have to face the burden of reporting all of their online purchases. Main Street retailers collect sales taxes on behalf of consumers, why shouldn’t online retailers do the same?” He further explained, “The Main Street Fairness Act doesn’t ask anyone to pay a single penny more in taxes. Instead, it would help governors and mayors collect taxes that are already owed.”

Durbin has been working very closely with Senators Mike Enzi (WY) and Lamar Alexander (TN) to win bipartisan support for the bill. No further action has been scheduled at this time but there could be a hearing later this fall. The Conference of Mayors is urging all mayors to ask their Senators and Representatives to cosponsor and support the passage of the Main Street Fairness Act.