Congress and States Band Together for New eSales Tax - Quicken Loans Zing BlogMany view the Internet as a veritable wild west of unregulated activity, where you can sit atop your (computer-generated) horse, tip your (virtual) hat, and ride off into the (simulated) sunset as you please. For shoppers, the Internet has proven to be the final bastion of endless sales, where you can compare prices ‘til the cows come home – or at least until you find the lowest, rock-bottom deal out there. On top of all that, when retailers first opened their doors to the online marketplace, they weren’t legally obligated to charge consumers their state’s sales tax.

Essentially, if the vendor doesn’t have a physical presence in the state from which their goods are purchased, they argued and the Supreme Court agreed, the responsibility to pay taxes falls upon the resident, who’s then supposed to declare those purchases come tax time. Also, with so many varied and complicated tax codes, retailers who sell their products nationwide maintained that it would be too difficult for them to carry out. But, hold onto your hats cowboys and girls, there’s a new sheriff…er, law on the horizon.

There’s a wave of support, from both states and Congress, to enact an e-sales tax that would create a streamlined and simplified tax system requiring consumers to pay state taxes on online purchases. The Marketplace Fairness Act, in the Senate, and the Marketplace Equity Act, in the House, are two proposals in Congress that look to address this issue in the near future. States have been losing a considerable chunk of change from these transactions, because even though residents are required to declare these purchases on their tax forms, they rarely do.

So, here’s the lowdown: The bills contend that a state can choose to regulate and require the enforcement of its sales tax, but if they do, they must simplify their tax system to comply with the Streamlined Sales and Use Tax Agreement. Both bills also have exemptions for small businesses who are much less equipped to handle the implementation of this requirement.

Right now, there’s bipartisan support for the e-sales tax in Congress, as well as support from the Retail Industry Leaders Association (RILA), and the International Council of Shopping Centers, who said, “On average, states depend on sales and use taxes for 20% of their annual revenue. At a time when state budgets are under increasing pressure, Congress should give states the ability to enforce their own laws.” Not to mention, if consumers can make tax-free purchases online that are, depending on where you live, 5 to 10% cheaper than shopping locally, that’s a huge loss to those brick-and-mortar stores.

Conversely, NetChoice, a coalition of trade associations, ecommerce businesses, and online consumers, is staunchly against the bills. They believe they unfairly target small businesses while favoring big-box stores. While the Marketing Fairness Act exempts businesses making less than $500,000 a year, NetChoice says that limit is still too low when you factor in the price the retailers will have to pay for IT, training, and other related costs.

In a reversal of policy, Amazon now supports the bills, perhaps because they’ll soon be collecting sales tax in eight states, whether or not the bills pass. In the Washington Post, National Retail Federation Vice President David French said, “Amazon’s business model is changing. It wants to be moving towards more rapid delivery.” To attain that goal, they’ll need to set up shop in many states around the country, meaning more state’s will require them to charge taxes.

This week, rumors have been flying around Detroit after Amazon’s corporate site posted a new job listing for a software development engineer “to be a part of a unique opportunity to join the seller experience team in building an Amazon Development Center in Detroit.” Amazon has made no comment about the validity of this as of yet. If it holds water and they make the move, it seems likely that Michigan may soon enforce an online sales tax as well.

What are your thoughts on the matter? Should there be a federal mandate allowing states to enforce collection of their sales taxes so they can recoup much-needed revenue? Or would that inhibit small retailers’ ability to compete with large and big-box stores? Let me know in the comments below!


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