After years of discussion, federal legislation authorizing states to collect sales taxes from online retailers has been moving forward in the U.S. Senate.
“I know there are some who have characterized this as a tax increase, and that’s not the case,” Tennessee Lt. Gov. Ron Ramsey (R-Blountville), said of the federal legislation. “This is simply allowing us to collect sales taxes that are due anyway and are supposed to be paid now. We need to at least collect the taxes that are due.”
Both of Tennessee’s U.S. senators — Republicans Lamar Alexander and Bob Corker — have signed on as co-sponsors of the “Marketplace Fairness Act.”
“This legislation boils down to two words: states’ rights,” Alexander said in a prepared release. “We ought to support states’ rights by letting Tennessee and other states decide whether they want to collect taxes that are already owed, and how to treat businesses fairly in the marketplace. Tennessee wants to avoid a state income tax and treat businesses fairly in the marketplace, and it shouldn’t have to play ‘Mother, may I?’ with the federal government to do so.”
Under the bill, online retailers with out-of-state sales of less than $1 million a year would be exempt. Currently, remote businesses do not have to collect sales taxes in the states they sell into, while bricks-and-mortar businesses do.
“The importance of this [marketplace fairness] act is to begin to level the playing field between bricks-and-mortar retailers who have rented space, hired employees and stocked stores,” said Tennessee Revenue Commissioner Richard Roberts. “They’re paying property tax and local business taxes. They are at a disadvantage to a lot of merchants operating over the Internet. ... The story that ought to be important is the protection for the hometown retailers. ... Many of them are effectively being required to run a showroom for a lot of these Internet sellers.”
The legislation also has the support of Tennessee Gov. Bill Haslam, a Republican, as well as the National Governors Association.
In contrast, U.S. Rep. Phil Roe (R-Tenn.) has no formal position yet on the House version of the bill.
Earlier estimates from the National Conference of State Legislatures (NCSL) indicated states have been losing upwards of $20 billion in uncollected taxes from out-of-state sales, with almost half of that coming from Internet transactions.
“Our estimate is we’re looking at $350 million to $400 million in annual revenues not collected,” Roberts said of the impact on Tennessee.
States need Congress to act on the bill because the U.S. Supreme Court has ruled states do not have the authority under the Constitution to compel out-of-state merchants to collect the taxes.
The court decided companies need to have a physical presence in the state, or a “nexus,” for the state to collect sales taxes.
The Tennessee Department of Revenue describes the physical presence this way: “When a Tennessee dealer accepts an order through the Internet and delivers a product to a Tennessee customer, the charge is subject to sales or use tax. If the Tennessee dealer delivers a product to a consumer located in another state, the sale is not subject to Tennessee sales or use tax. ... Many Tennessee businesses and consumers are unaware that use tax is owed on items they have imported into this state without paying sales tax to the seller. The use tax has been in effect since 1947 and is the counterpart to the sales tax. When someone buys merchandise online or through a catalog and the seller of the merchandise does not collect sales tax, the consumer who bought the item has a legal obligation to file and pay use tax on the merchandise. The use tax is levied at the same rate as the sales tax.”
Online retailer Amazon has located distribution centers in Tennessee. “Amazon will begin assessing and collecting the [sales] tax Jan. 1 [in 2014] and that’s pursuant to an agreement they made with the state of Tennessee almost two years ago,” Roberts said.
One requirement in the federal legislation is that states make software available to Internet merchants to ease the process of assessing the tax, Roberts said.
If the federal legislation passes Congress and is signed by President Barack Obama, Tennessee will need enabling state legislation next year setting a time frame for the sales tax to be collected, said Deputy Revenue Commissioner David Gerregano.
But online retailers haven’t given up the fight against the bill.
Steve DelBianco, executive director of NetChoice, a trade association representing online businesses, claimed the legislation would raise costs for small firms that compete via online and catalog sales.
In an opinion piece written for The Wall Street Journal, DelBianco noted big-box retailers already have the advantage of allowing customers to buy products online, and then pick them up in stores to avoid shipping costs. He stressed that requiring online retailers without stores to collect sales taxes removes one of their primary competitive advantages.
For more go to www.thomas.loc.gov. The bill’s number is S.743.