EcommerceBytes-NewsFlash, Number 2671 - November 10, 2011     1 of 4

eBay Blasts, Amazon Supports New Internet Sales Tax Bill

By Kenneth Corbin

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eBay has come out swinging against a new bill introduced in the Senate on Wednesday that would empower states to collect sales taxes from out-of-state Internet and catalog retailers.

The Marketplace Fairness Act, sponsored by Sens. Mike Enzi (R-Wyo.), Dick Durbin (D-Ill.) and Lamar Alexander (R-Tenn.), would aim to simplify the patchwork of state and local tax codes across the country's more than 7,500 tax jurisdictions. Opponents of Internet tax collection requirements have argued that the complexity of the current tax system would present an unreasonable burden for smaller sellers.

eBay quickly blasted the new bill, as it has previous efforts to shift the collection of online sales taxes from states to companies.

"This is another Internet sales tax bill that fails to protect small business retailers using the Internet and will unbalance the playing field between giant retailers and small business competitors," Tod Cohen, eBay's vice president for government relations and deputy general counsel, said in a statement. "It does not make sense to expand Internet sales tax burdens on small businesses at a time when we want entrepreneurs to create jobs and economic activity."

But backers of the measure argue to the contrary, claiming that it would simply allow states to impose the same sales tax collection obligation on online sellers that governs in-state brick-and-mortar retailers.

The bill would close what supporters say is a loophole created by a 1992 Supreme Court ruling that established a benchmark for states to determine if they can compel a retailer to collect and remit sales and use taxes. The high court held that a retailer must have a "physical presence" in the state sufficient to constitute a tax nexus. As a result, catalog companies and Internet retailers are generally exempt from collecting taxes on purchases made by residents in states where they don't have offices, distribution centers, call centers or permanent employees.

The tax is still owed on those purchases, however. But since most consumers are either unaware of the obligation to report untaxed purchases on their state returns or simply ignore it, the revenue goes largely uncollected. Several states have either enacted or are contemplating legislation to shift the burden of collection to the retailers, but in the shadow of the 1992 decision, which held that only an act of Congress could overturn the physical presence standard, those measures are on shaky legal ground.

"This legislation would give states the ability to close the online sales-tax loophole, created when out-of-state sellers don't collect, and purchasers don't pay, the state sales tax - even though they still owe it," Alexander said in a statement.

Amazon, which has been one of the most vocal opponents of state efforts to impose the collection requirement to online retailers with in-state affiliates, is backing the new bill, saying that it "strongly supports" the measure and praising it for seeking to "create a constitutional framework for collecting sales tax online."

Under the bill, states could begin requiring online sellers to collect sales taxes 90 days after they joined the Streamlined Sales and Use Tax Agreement, an interstate framework for harmonizing and simplifying the various tax codes. Twenty-four states have passed legislation to conform their tax systems to the SSUTA's requirements.

States that do not join the agreement would only be permitted to begin requiring out-of-state companies to collect sales taxes under the Marketplace Fairness Act if they took baseline alternative measures to simplify their tax codes.

Additionally, sellers with annual remote sales below $500,000 would be exempt from the collection requirement. ("A State shall be authorized to require a remote seller to collect sales or use tax if the remote seller has gross annual receipts in total remote sales in the United States for the preceding calendar year of more than $500,000.")

The legislation builds on an earlier bill that Durbin introduced in July, which also would have given states that signed onto the Streamlined agreement the authority to impose tax collection requirements on out-of-state businesses.

This bill comes with a broader base of bipartisan support in the Senate. In addition to the three sponsors, seven senators of both parties have attached their names to the legislation as co-sponsors. A summary of the bill's provisions is available here.

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About the Author
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects for more than four years, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here .


About the author:

Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.


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