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 UPDATE: Senate passes Marketplace Fairness Act

By Charles Taylor
SENIOR STAFF WRITER


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The Senate voted 69-27 to pass the Marketplace Fairness Act of 2013 on May 6, which NACo strongly supported. The measure now moves on to the House.

Just before leaving Washington for recess, senators had voted 63–30 on April 25 to end debate on the bill that has wide bipartisan support. Majority Leader Harry Reid (D-Nev.) announced that evening a deal had been struck that includes a final vote on the bill’s passage and a vote on an amendment that delays the implementation of the legislation for six months.

BulletClick here to see how your senator voted

The Obama Administration supports the bill, as do online behemoth Amazon.com and Wal-Mart. The measure includes a small seller exception, exempting businesses with less than $1 million in remote sales in the previous calendar year.

“This bill levels the playing field between merchants and local brick-and-mortar businesses,” said Matthew Chase, NACo executive director, “and addresses lost revenue that counties rely on to keep American communities healthy, vibrant, safe and fiscally sound.

“This is not a new tax,” he added, “but a better way to collect sales and use taxes on online sales already owed.”

During the Senate recess, it was expected that the lawmakers would further take the pulse of their constituents back home on the issue. States lose more than $23 billion annually from online and catalog sales that can’t be collected from retailers that don’t have a physical presence in the state, according to the National Governors Association.

In a letter to The Journal Times newspaper, Mayor John Dickert of Racine, Wis. wrote that four Wisconsin counties surveyed between 2011 and 2013 lost more than $1 billion in tax revenue.

Sen. Mike Enzi (R-Wyo.), one of the bill’s chief patrons, said in a statement April 26: “…I don’t want to see a situation where other (state or local) taxes will have to be raised to cover basic local services because these out-of-state and online retailers are not collecting the sales tax that is owed on their products.”

Some Background

 

State and local governments have watched Internet sales skyrocket, going from 1.6 percent of all retail sales in 2003 to nearly 6 percent in 2012, according to U.S. Department of Commerce. Total e-commerce sales for 2012 were estimated at $225.5 billion, a 15.8 percent increase over 2011.

With a few notable exceptions, all those sales are tax-free since states and localities cannot, by law, require online retailers — unlike bricks and mortar retailers — to collect the taxes that are due.

The history of efforts to collect taxes on so-called “remote” sales began even before e-commerce took off. Two U.S. Supreme Court decisions about mail catalog sales left catalog retailers off the hook for collecting sales taxes unless they had a physical presence in the states where their customers lived. One of the decisions, however, did open a door for Congress to lift the restriction on collecting state and local taxes from out-of-state retailers.

As e-commerce began to grow in the mid-to-late ‘90s, Internet service providers and retailers sought legislation that would impose moratoriums on state and local taxes on Internet service and commerce. NACo opposed the effort since the legislation would have provided a “massive federal preemption of state and local taxes,” according to a 1998 NACo Fact Sheet on Internet Taxation Bills.

Eventually, a three-year-only moratorium was enacted in 1998 on new taxes on Internet access. The bill, the Internet Freedom Act, has been re-authorized several times since and is set to expire in 2014.

The issue of allowing states and localities to require Internet retailers to collect sales taxes remained unresolved. The legal opinions in the two Supreme Court cases held sway, and efforts to make it easier for online retailers to determine and collect taxes through a program called the Streamlined Sales Tax Project advanced slowly.

The Marketplace Fairness Act, first introduced in the last session of Congress, is the first significant bipartisan effort to capture — according to some estimates — billions of dollars in tax revenues.