Marketplace Fairness Act to even score online, offline

Numerous small and midsize merchants applauded when The Marketplace Fairness Act was reintroduced to the Senate on March 10, 2015. The proposed legislation would reform sales tax laws that predate the Internet with uniform sales tax collection for both e-commerce and brick-and-mortar retailers.

The bill achieved a majority Senate vote in 2013, and foundered in the House due to concerns about enforcement, implementation and perception of the bill as a tax increase.

The Alliance for Main Street Fairness, a merchant advocacy group, hailed the move as a necessary update to sales tax law that reflects 21st century commerce.

The ayes, the nays

Senators Dick Durbin, D-Ill., Mike Enzi, R-Wyo., Lamar Alexander, R-Tenn., and Heidi Heitkamp, D-N.D., reintroduced the bill. They were subsequently joined by co-sponsors Senators Roy Blunt, R-Mo., Jack Reed, D-R.I., Bob Corker R-Tenn., Sheldon Whitehouse, D-R.I., and Angus King, Jr., I-Maine.

"It is about the people who are our neighbors who work in our local stores," Senator Enzi said, noting that exempting online retailers from charging sales tax is unfair to local stores required to charge sales and use taxes. He went on to say that the bill will put Main Street businesses on a level playing field with online retailers. "[I]t’s time to give states the right to enforce their own laws without having to get permission from Washington."

Opponents of the bill, led by House Judiciary Committee Chairman Bob Goodlatte, warn that the proposed imposition of sales taxes would expose remote sellers to regulation by multiple states in which they have no presence or influence.

"We … believe it tramples upon the 10th Amendment as it pre-empts state sovereignty to levy taxes on its own residents, establishes a new sub-national entity to govern the collection of remote sales taxes, and codifies for the first time, ‘taxation without representation,’" Goodlatte wrote in a letter to House Speaker John Boehner.

Broad support from the retail community

The International Council of Shopping Centers, established in 1957 and based in New York, has global ties to national and regional shopping center councils. ICSC President and Chief Executive Officer Michael P. Kercheval issued a statement on March 10, thanking the Senate for reintroducing the bill, which he said would "ensure that online-only sellers compete with brick-and-mortar retailers on price, service and convenience – now without a tax advantage."

The ICSC launched the efairness initiative to promote marketplace fairness and sales tax uniformity, stating at efairness.org that "efairness is not a new tax."

The National Retail Federation, the world’s largest retail trade association, also issued a statement on March 10 in support of the proposed sales and use tax legislation.

David French, NRF Senior Vice President of Government Relations, called the bill a retail industry priority. "For far too long, brick-and-mortar retailers have faced a competitive disadvantage solely because of Congress’ inability to resolve the online sales tax disparity," he said. He added that state and local sales tax collection was never meant to be used as a competitive advantage among retailers.

Supreme Court revisits pre-Internet decision

The U.S. Supreme Court ruled in 1967, in National Bellas Hess Inc. v. Department of Revenue of the State of Illinois, that mail order businesses were not required to charge sales tax when shipping to other states, unless they had brick-and-mortar retail locations in those states.

While the Bellas Hess case was later used as a precedent in other hearings related to sales tax law, Supreme Court Justice Anthony Kennedy recently conceded that changing payment and retail trends have made it necessary to re-examine sales tax practices.

"Today, buyers have almost instant access to most retailers via cell phones, tablets, and laptops," Kennedy wrote in his opinion. "As a result, a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the term."

One bill, two options

A posted summary on the Marketplace Fairness website stipulates that The Marketplace Fairness Act grants individual states the authority to compel "remote sellers" to collect sales tax at the time of a transaction. The states would earn this privilege by simplifying their sales tax laws.

States can choose from two options to comply with Marketplace Fairness. In Option 1, states can join 24 states that have voluntarily adopted the Streamlined Sales and Use Tax Agreement (SSUTA) to become eligible to collect sales tax. Option 2 grants compliance to states that meet the bill’s five individual guidelines, which instruct states to:

1. Notify retailers in advance of any rate changes within the state
2. Designate a single state organization to handle sales tax registrations, filings and audits
3. Establish a uniform sales tax base for use throughout the state
4. Use destination sourcing to determine sales tax rates for out-of-state purchases (a purchase made by a consumer in California from a retailer in Ohio is taxed at the California rate, and the sales tax collected is remitted to California to fund projects and services there)
5. Provide free software for managing sales tax compliance, and hold retailers harmless for any errors that result from relying on state-provided systems and data.

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