Indication of Online Sales Taxes Expansion: Senate Votes For Internet Sales Tax Amendment
On March 22, 2013 the Senate voted 75-to-24 in favor of an amendment to a Democratic budget resolution that would allow states to “collect taxes on remote sales.” Although this vote was non-binding, some argue that the vote indicates Senate support for the Marketplace Fairness Act of 2013, which will be voted on later this year. Meanwhile, others argue that the future vote on the complete underlying bill is incomparable to the vote on this one amendment.
Ever since consumers began purchasing products online, the issue of state sales tax enforcement has caused quite a stir. Year after year, proposed bills similar to the Marketplace Fairness Act of 2013 have been ignored. These bills would impose Internet sales taxes on consumer purchases by imposing state sales tax collection obligations on remote Internet sellers regardless of their “nexus” with a state. Until such a law is passed, online sellers are only required to collect and remit sales taxes to states with which it has established “substantial nexus.” This standard comes from a 1992 Supreme Court Case, Quill Corp. v. North Dakota. Although the Supreme Court case dealt with business conducted through a mail-order catalog the ruling is currently applied to online transactions. While businesses attempt to determine what activity establishes the required “substantial nexus” with a state, states are missing out on billions of dollars in uncollected sales taxes (in great part due to the inefficiency of use taxes).
This Internet sales tax debate is nothing new. Many states have long been unhappy with their limited ability to collect sales taxes from remote sellers and have been lobbying Congress to provide a federal solution. States look to federal legislation to circumvent the constitutional Commerce Clause limitations they are bound by. Advocacy groups such as the National Retail Federation and Retail Industry Leaders Association, which include retail giants like Walmart, Best Buy, Home Depot, and Target, join the states in arguing for Internet sales taxes. These groups maintain that retail sellers are disadvantaged by the lack of sales taxes imposed on online sellers, as consumers tend to order products from the seller offering the lowest after-tax cost.
On the other side of the battle, Internet lobbies such as Netchoice, representing Facebook, Yahoo, and AOL, argue that the bill would hugely burden sellers engaged in interstate commerce. Although the dormant Commerce Clause does not limit Congress as it limits the states, Congress must be wary of imposing tax burdens on sellers at a time where the nation’s economy is struggling. Such a move could hurt online businesses and cause a stir from taxpayers who are used to tax-free online transactions.
