Proposed bill could make mobile commerce subject to state sales tax
U.S. Representative Bill Delahunt (D-MA) has introduced a bill that could have a huge impact on mobile commerce.
The Main Street Fairness Act, if passed, would enable states nationwide to collect sales tax from online and mobile merchants. The bill would probably have only a nominal effect on the bottom line of ecommerce giants such as Amazon and eBay, but it is hard to predict the impact it would have on the mobile commerce ecosystem.
“This is sales tax money owed to the states, but Congress has to approve this bill to enable collection,” said Maureen Riehl, vice president of government and industry relations at the National Retail Federation, Washington. “It’s patently unfair in the business sense that taxable items you buy in the store can go tax free from a collection standpoint when bought online.
“We support it because Main Street retailers are at an unfair disadvantage, and a hike in sales tax would widen divide between bricks-and-mortar and online merchants,” she said. “This bill is really about closing a tax collection loophole.”
States could choose to adopt legislation to conform with this federal bill to collect state sales tax from online and mobile sales.
“Everything would be affected—if you’re selling anything that is taxable from any channel, you have the responsibility to collect sales tax, and mobile commerce is included in that,” Ms. Riehl said.
Per the bill, a company could affiliate with service providers that are paid for by the state to have all tax collection and remittance outsourced for free, according to the NRF.
“Online and mobile merchants who don’t have the sales tax responsibility now—we hope that’s what they would opt for,” Ms. Riehl said. “It can be added to the POS device and taken out just like credit card fees are.
“It relieves any companies that opt in for that service of any collection responsibility or audit exposure,” he said.
Yesterday following the introduction of H.R. 5660, the Main Street Fairness Act, U.S. Representative Bill Delahunt released the following statement:
Today, I introduced H.R. 5660, the Main Street Fairness Act.
This bill is designed to help states retrieve billions in sales tax revenues that are owed but currently going uncollected while providing long overdue relief to Main Street businesses by restoring fairness and competition to the marketplace.
Sales tax revenues comprise up to a third of most state budgets.
This year, an estimated $18.6 billion will go uncollected; by 2012, the states will be losing at least $23 billion annually, based on conservative estimates.
From 2009-2012, this amounts to a loss of approximately $55 billion.
In some cases, these revenue losses can comprise up to one half of a state’s budget shortfall.
These revenues go uncollected because of the complex array of sales tax rules across the country.
These outdated systems allow many online retailers to avoid collecting sales taxes from out of state consumers, and place retailers on local Main Streets at a competitive disadvantage simply because they collect and remit sales tax revenue. This is wrong.
Over two dozen states have been working to fix the problem by coming up with an interstate compact that contains a uniform set of guidelines.
To date, twenty-four states have simplified and streamlined their sales tax laws to make it easier for all retailers.
However, for the compact to take effect, the [U.S.] Congress must sign off.
The Main Street Fairness Act provides Congressional authority for this interstate compact to take effect.
This does not compel any state to join, but those that choose to adopt this system would then have the authority to require online retailers to collect and remit sales taxes the same way that businesses on local Main Streets do now.
Most importantly, it will help state and local governments balance their budgets without raising any new taxes and will not cost the federal government a dime.
We are facing unprecedented economic times and difficult choices.
State officials are now coming to the Congress looking for billions for their schools, teachers and other vital public programs.
However, our first priority ought to be to help states collect the billions in tax revenues that are already owed, but are being lost.
Instead of raising new sales taxes, let’s collect these tax dollars first.
NRF comes out in support
The Main Street Fairness Act is supported by the National Retail Federation, Retail Industry Leaders of America, International Council of Shopping Centers, Real Estate Investment Trusts Association, National Governors Association, U.S. Conference of Mayors, the National Conference of State Legislatures, National Association of Counties and National League of Cities, as well as 50-plus state-level retail associations and chambers of commerce.
The NRF has urged Congress to move quickly on legislation that would make it easier for states to require Internet retailers and other out-of-state merchants to collect sales tax the same as local bricks-and-mortar stores.
“Back when ecommerce was still in its infancy, our board of directors saw a potential explosion there—they saw the wave of the future,” Ms. Riehl said. “It didn’t make sense that the only businesses responsible for paying taxes were ones that have a physical store.
“There were certain retailers that could compete on a national basis and provide taxable items for sale tax free,” she said. “It’s an important issue for fairness in the retail space.
“The average sales tax rate is about 7 percent, and the average profit margin for retailers is 2-3 percent, and because you cannot negotiate sales tax, that’s a 5 percent price differential between online and physical retail items.”
Dan Butcher, associate editor, Mobile Commerce Daily