Alex Fitzpatrick2013-04-23 15:52:59 UTCA bill allowing states to collect sales tax from online retailers that lack a physical presence in their borders appears primed to pass the Senate this week. The Marketplace Fairness Act passed a procedural vote 74-20 Monday as the White House gave its explicit support for the bill, signaling smooth sailing ahead for a full vote expected sometime this week.
The Marketplace Fairness Act would require Internet retailers with more than $1 million in annual sales to collect sales tax and send it to customers' states. States would have to establish procedures to collect those taxes.
Under current rules, online sales are not automatically taxed when the retailer doesn't have a warehouse or other physical facility in the customer's state. Customers are supposed to report such purchases in their annual tax claims, but few actually do — thus, cross-border online retail sales go largely untaxed. One study indicates states lose up to $11 billion every year to unreported online sales, though those numbers have been disputed.
Several states have crafted "Amazon taxes," referring to online retailing giant Amazon, to recoup those losses and ostensibly to protect brick-and-mortar stores from Amazon and similar web retailers' offering their goods sales tax-free. However, the states' efforts have created an often confusing patchwork of state-level laws with dubious constitutionality which the Senate bill is attempting to simplify.
Amazon itself actually supports the Marketplace Fairness Act. It's already begun building facilities in states it has traditionally avoided (likely for tax reasons) in an effort to expedite delivery times, so it has to pay sales tax to an increasing number of states anyway. Additionally, Amazon is big enough to deal with the potential regulatory burden, whereas its upstart competitors might find it more difficult to do so — giving Amazon a competitive edge.
On the other side of the proverbial fence is eBay, which opposes the bill on the grounds that it could threaten its most productive users and small Internet retailers across the Internet.
"This legislation treats you and big multi-billion dollar online retailers — such as Amazon — exactly the same,"
"This legislation treats you and big multi-billion dollar online retailers — such as Amazon — exactly the same," reads an email eBay CEO John Donahoe sent to users over the weekend. "Those fighting for this change refuse to acknowledge that the burden on businesses like yours is far greater than for a big national retailer."
Donahoe proposed changing the bill to raise the threshold for affected businesses from $1 million in annual revenue to $10 million and at least 50 employees — figures that would likely protect many small online retailers, regardless of whether they use eBay to conduct transactions.
The Marketplace Fairness Act, fast-tracked in the Democratic-controlled Senate, may find slower goings in the House, where many of the chamber-controlling Republicans are loathe to pass a new tax without at least careful consideration of the measure. However, they may connect with arguments the bill protects small, local businesses against Internet behemoths. Indeed, the process of gathering House support for the bill has already begun.
Should major online retailers collect sales tax for all purchases? Share your thoughts in the comments.
Image via Justin Sullivan/Getty Images
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