Debate over online, offline tax parity heats up

On April 27, 2017, Sen. Michael Enzi, R-Wyo., reintroduced the Marketplace Fairness Act, legislation originally approved by the Senate in 2013, but not voted upon by the House. Rep. Kristi Noem, R.-S.D., reintroduced the House version, also delayed, entitled the Remote Transactions Parity Act. The two measures seek to end sales and use tax exemptions for large, ecommerce merchants selling to customers in states where the merchants have no physical presence. Said sales and use taxes currently apply to all brick-and-mortar merchant locations.

According to sales tax service provider TaxCloud's Marketplace Fairness Act website, markeplacefairness.org, nearly 350 organizations support the legislation. "Right now, thousands of local brick-and-mortar businesses are forced to do business at a competitive disadvantage because they have to collect sales and use taxes and remote sellers do not," said Sen. Enzi. "This legislation promotes Internet fairness by putting Main Street businesses on a level playing field with online retailers."

Attorneys general on board

In November 2016, attorneys general in 11 states called upon the U.S. Supreme Court to overturn Quill Corp. v. North Dakota, a 1992 ruling which established that states could not impose a tax collection obligation on any business that lacked a physical presence in the state. A physical presence, in most cases, includes by definition a store, warehouse or office. At the time of the decision, online selling was a nascent market, but that has since changed.

State and local governments are losing $25 billion annually due to untaxed online sales, according to some estimates. And without the legal authority to impose sales or use taxes on remote online sellers, several states that have recently passed or considered legislation are on tenuous ground to enforce such measures.

"With more states passing sales tax laws or going to court, pressure is building on Congress to finally address this issue," said David French, Senior Vice President for Government Affairs at the National Retail Federation.

Small sellers exempt

The new legislation, if passed, would not impact smaller online merchants. A "small seller exception" under the Marketplace Fairness Act prohibits states from requiring remote sellers with less than $1 million in annual nationwide remote sales to collect sales and use taxes. The House version would gradually lower the tax bar from $10 million in gross receipts for sellers in year one to $5 million year two and $1 million in year three.

According to the Small Business Administration, 99 percent of online sellers are classified as "small" and therefore very few would be required to collect and remit taxes under the small-seller exemptions contained in both pieces of legislation.

Congressional members who endorse the legislation are optimistic that progress will be made the second time around. "The Senate passed this legislation in 2013 with 69 votes, and I'm hopeful we'll pass this legislation with an even larger bipartisan margin this Congress," said Sen. Lamar Alexander, R-Tenn.; who along with Sens. Enzi; Dick Durbin, D-Ill.; and Heidi Heitkamp, D-N.D., joined in reintroducing the Marketplace Fairness Act now before Congress. The House version apparently has received bipartisan support as well.

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