The Marketplace Fairness Act

News & Press: ASBA Blog

Friday, January 18, 2013 (0 Comments)

Share |

Congress may not be able to agree on much, but they are relatively unanimously in support of The Marketplace Fairness Act. The act was first introduced in 2011 by Senate Majority Whip Richard Durbin (D-Ill.) and senators Mike Enzi (R-Wyo.) and Lamar Alexander (R- Tenn.). The Marketplace Fairness Act grants states the authority to compel online and catalog retailers ("remote sellers"), no matter where they are located, to collect sales tax at the time of a transaction - exactly like local retailers are already required to do. The "caveat” being that states are required to simplify their sales tax laws. Unfortunately, regardless of bipartisan support and the support of state officials, as well as larger retailers like Wal-mart and Target, and online retailer Amazon.com, it did not pass in 2012. Here at ASBA, we support the passing of the Marketplace Fairness Act in 2013. This is why:

While opponents like Steve Delbianco, Executive Director of NetChoice and online advocate, view the Act as a "cash grab” and burdensome for small businesses that use the Internet, supporters, like Governor Haley Barbour (R-Miss.), see things differently. In August, Barbour wrote an article for the National Review Online, reminding weary Americans that this is not a new tax or a tax on online businesses, but an easier way for the state to collect the sales tax owed to them. "In the 45 states with a sales tax, if the retailer doesn’t collect the sales tax at the time of purchase, the purchaser is legally required to pay a "use tax” to the state. Many consumers don’t realize this or choose to ignore it, and, as a result, no taxes are paid on most online purchases.”

It’s estimated that $23.3 billion worth of taxes will have been lost in 2012 alone – that is a significant amount of taxes not being collected by states. If we were to look at Arizona on its own, Amazon.com owed the state $53 million in back taxes. An October settlement not only allowed the state to collect on at least some of that back tax, but also forced the online retailer to start collecting sales tax from its Arizona consumers in February. It is estimated that this could "funnel more than $11 million a year in sales-tax revenue to the state.” And that is just with sales tax from Amazon.com. That’s the estimated cost twice over of the 2013-2017 Five Year Transportation Facilities Construction Program – transportation facilities (such as roads) that online retailers with warehouses in the state (like Amazon.com) use but do not currently contribute to; Transportation facilities that small businesses in Arizona do contribute to through sales tax.

Sales tax has come to be common ground for small businesses and brick and mortar giants, like Wal-mart and Target. Since 2003, these stores have been required to pay sales tax on online orders because of their physical presence as a store in states. Online retailers, like Amazon.com, have been able to avoid taxes, on the other hand, because, while they have had warehouses, they do not have a brick and mortar store. So, while online retailers use many of the state services, they do contribute to the running of them. Arizona’s Five Year Transportation Facilities Construction Program is designed to take care of all state-run transportation needs, such as roads, freeways, highways, and airports – all the transportation needs that an online retailer use to deliver their products to the consumer. They also have access to other state provided services, such as aide from the local police force and firefighting services, all things paid for by taxes collected from the state. But many states are afraid to push online retailers to collect sales tax because it means a possible loss of jobs. "When South Carolina declined to exempt Amazon from collecting the state's 6% sales tax on purchases by people in the state, the company stopped building a warehouse and prepared to leave, throwing thousands of jobs into jeopardy,” according to the Seattle Times. As a result, South Carolina has postponed tax collection for Amazon.com until 2016.

Cindy Dach, of Changing Hands Bookstore in Tempe, likens it to a shell game: Amazon.com uses local roads and the local police force, then hires and pays minimum wage. "States have the right to ask for more. We want quality jobs created,” she says. Dach spoke of a friend whose husband is from Columbia. "He was paid minimum wage at an Amazon warehouse. He stood on his feet for 8-hour shifts, and was let go the day after Christmas.” The jobs that Amazon.com is bringing in, the ones states are so afraid to lose, are not sustainable. And, if on top of that, they continue to not pay sales tax, then they are doing the state and its workforce more harm than good. "The [Marketplace Fairness Act] isn’t going to level the playing field. Amazon will continue to undercut local businesses on prices, but it will bring much needed sales tax into our states. A purchase is made - sales tax is collected.” Just like in a brick and mortar store.

Book retailers have long been treated to the unequal world of online versus brick and mortar stores. It’s acknowledged in the book world that it won’t be the e-reader that kills the bookstore, but Amazon.com. And book retailers are not alone. From the convenience of your home, you can now order everything from dog food to electronics, groceries, clothes, music and wine – and it can be there the same day. "Our retailers have such a hard job, all they are asking for is fairness," U.S. Rep. Peter Welch (D-Vt.) told state lawmakers. "People go in to use it as a showroom and go home and order on the internet and do not pay sales tax."

If this seems like a rant against Amazon.com, there is a reason for it. The bill itself is nick-named the "Amazon tax”, and if it weren’t for the online giant, it probably wouldn’t exist. So, why would Amazon.com support a bill that seems to be directed at them? For starters, it simplifies things for everyone. Right now, Amazon.com has to create agreements with each individual state and not necessarily given an easy way to collect sales tax. The Marketplace Fairness Act not only gives states the right to "require out-of-state retailers to collect sales tax at the time of purchase and remit those taxes on behalf of consumers,” it also requires a simplification of sales tax laws.

Online retailers are able to avoid collecting sales tax because of two outdated Supreme Court decisions; National Bellas Hess v. Illinois Department of Revenue and Quill v. North Dakota. Both of these decisions were made to protect businesses from confusing and burdensome sales tax obligations. Both were also before the internet. Paul Misener, Amazon’s VP, testified before the Supreme Court that "widespread collection no longer would be an unconstitutional burden on interstate commerce, and Congress feasibly can authorize the states to require all but the smallest volume sellers to collect.” However, complicated sales tax laws could potentially be a burden. Because of this, states pursuing collection rights would be required to simplify their sales tax laws in one of two ways: 1) adopt measures put in place with the Streamlined Sales and Use Tax Agreement (SSUTA) or 2) states can meet five simplification mandates listed in the bill. (Read about the Marketplace Fairness Act requirements here.)

The bill being proposed doesn’t require a state to start collecting sales tax. Congress is giving states the right to collect sales tax. What is being done on a national level is not enforcement, but expanding the rights of the individual state to collect on the taxes they are due. It is not a new tax, it does not trample on the rights of small businesses. The bill attempts to create an equal playing field between brick and mortar stores and online retailers, by creating equal tax requirements for both.

If you would like to learn more about the Marketplace Fairness Act, please have a look at the Marketplace Fairness Act website or follow the links below. I especially recommend the article by Publisher Weekly, published on December 21, 2012. Also, have a look at the prepared remarks to the Supreme Court by Amazon VP, Paul Misener, on Amazon.com’s support of the Marketplace Fairness Act.

What do you think about the Marketplace Fairness Act? How do you anticipate it effecting (or not effecting) your business?

http://www.nationalreview.com/articles/314727/support-marketplace-fairness-act-haley-barbour

http://www.thenewstribune.com/2012/12/24/2413235/growing-support-to-collect-sales.html

http://www.washingtontimes.com/news/2012/dec/2/congress-eyes-online-sales-tax/?page=all

http://www.dailyfinance.com/2012/12/18/amazon-sales-tax-deal-massachusetts-analysis/

http://www.forbes.com/sites/robertwood/2012/11/24/you-can-still-escape-sales-tax-online/

http://www.huffingtonpost.com/2012/12/05/internet-sales-tax-state-legislators_n_2246153.html

http://www.washingtontimes.com/news/2012/dec/2/congress-eyes-online-sales-tax/?page=all

http://boss.blogs.nytimes.com/2011/12/12/the-backlash-to-amazons-price-check-promotion-builds/

http://www.forbes.com/sites/robertwood/2012/04/30/the-era-of-no-amazon-sales-taxes-is-nearly-over/

http://thehill.com/blogs/hillicon-valley/technology/274369-online-sales-tax-bill-likely-dead-for-the-year

http://www.govtech.com/budget-finance/Congress-Likely-to-Postpone-Online-Sales-Tax-Collection.html