By Larry Jones
November 21, 2011

With state and local governments facing severe budget shortfalls, a bipartisan group of Senators on November 9 introduced the Marketplace Fairness Act (S. 1832), legislation that will help state and local governments collect taxes due on remote sales, and help level the playing field for all merchants. The Conference of Mayors and other state and local groups have joined with a large coalition of retail, union, non-profit, education and many other groups to urge support for this legislation.

Internet-only companies and mail-order sales companies are selling hundreds of billions of dollars in merchandise to customers every year with no obligation under current law to collect state and local sales taxes. This is due primarily to two Supreme Court decisions: 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 companies to collect their sales taxes. Not only have these decisions tied the hands of cash strapped state and local governments, it has created an unlevel playing field for merchants on Main Street who must collect sales taxes, and those who sell goods and services over the Internet and through catalog mail orders who are under no obligation to do the same.

Assistant Majority Leader Senator Dick Durbin (IL) teamed up with Senator Mike Enzi (WY) and Senator Lamar Alexander (TN) to introduce the bill along with seven other cosponsors: Senators Tim Johnson (SC), Roy Blunt (MO), Jack Reed (RI), John Boozman (AR), Sheldon Whitehouse (RI), Bob Corker (TN) and Mark Pryor (AR). Under the proposal, state and local governments would have two options to collect taxes on remote sales. They could (1) become a member of the Streamlined Sales and Use Tax Agreement-States, which is an organization of 24 states that have joined together and developed simplification standards to make the collection of sales and use taxes easy for out-of'state merchants, or (2) they could adopt alternative minimum simplification standards which are outlined in the legislation.

Those states that adopt either option mentioned above would be granted authority to impose a duty on out-of'state merchants to collect their taxes. There is an exemption from the collection requirements for small businesses with less than $500,000 in gross annual remote sales. Commenting on small businesses, Durbin said, “Most small businesses don’t want a government handout. They don’t want special treatment. They just want to be able to compete fairly against other businesses. That’s why I have worked with Senators Enzi and Alexander to introduce the Marketplace Fairness Act – a bipartisan bill to level the playing field for local main street businesses.”

According to a recent study by the University of Tennessee, state and local governments are losing an estimated $23.3 billion in revenues annually due to uncollected sale and use taxes on Internet and catalog mail-order sales. Commenting on the fairness issue, Enzi said, “For over a decade, Congress has been debating how to best allow states to collect sales taxes from online retailers in a way that puts Main Street business on a level playing field with online retailers. This bill empowers states to make the decision themselves. If they choose to collect already existing sales taxes on all purchases, regardless of whether the sale was online or in store, they can. If they want to keep things the way they are, it’s a state choice.”