Congressman Intros Internet Sales Tax Bill

The National Retail Federation (NRF) is applauding introduction of federal legislation that would make it easier for states to require that online retailers and other out-of-state merchants collect sales tax just like brick-and-mortar stores.

Traditional retailers were dealt a blow in 1992 when the U.S. Supreme Court ruled in Quill v. North Dakota that retailers are required to collect sales tax from out-of-state customers only if they have a physical presence, meaning a store, warehouse or office, in that customer's state. The court ruled that the 45 state and 7,600 local sales tax systems made it too difficult for a retailer to know how much sales tax to collect.

According to a news release from the NRF, on Wednesday, Rep. Bill Delahunt (D-Mass.) introduced H.R. 5660, the "Main Street Fairness Act." The legislation would allow the 24 states that have adopted the "Streamlined Sales and Use Tax Agreement," an agreement designed to simplify sales tax laws created in reaction to the Supreme Court's 2002 decision, to require out-of-state sellers to collect tax, whether they have a physical presence of any kind in the state or not.

According to the release, the act establishes uniform definitions of taxable items, sets up mechanisms to facilitate collection and distribution of sales tax across state lines and provides software and free databases to retailers that tells them how much tax to charge.

Delahunt's bill would allow the Streamlined Sales Tax Governing Board to decide on an exemption level for small retailers plus levels at which both traditional and online retailers would be reimbursed for the cost of collecting sales tax. The bill applies to all "remote sellers," including e-tailers, catalog merchants and the "1-800" offers broadcast on the television or radio, the release states.

"This bill would close a loophole that has allowed online merchants to enjoy an unfair price advantage over local store for far too many years," NRF vice president and government and industry relations counsel Maureen Riehl said in the release. "We believe in a level playing field where everybody plays by the same tax rules regardless of whether you sell merchandise in a Main Street store, through a catalog or over the Internet." 

In the release, the NRF states that Delahunt's bill goes significantly further than the "Amazon Tax" enacted in New York, Rhode Island and North Carolina. This legislation requires Internet retailers with affiliates, third-party Web sites that link to products sold by online retailers in exchange for a commission, in those three states to collect sales tax on purchases made by state residents, even if the Internet retailer that is hosting the affiliates has no physical presence in the state. The NRF said the Amazon Tax is not as comprehensive as Delahunt's bill and could distract from efforts to pass the federal measure.

The NRF also noted that another state measure, a Colorado law requiring out-of-state retailers to report sales to Colorado customers to the state's Department of Revenue, is constitutionally questionable.