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Online sales tax: A matter of fairness

For years, state governments have fought to close a loophole that allows taxes from online sales to go uncollected. The U.S. Senate sought to address that problem on May 6 when it approved legislation that would, for the first time, allow states to collect billions of dollars in online sales-tax revenue from out-of-state purchases.

Passed by the Senate with bipartisan support, the Marketplace Fairness Act of 2013 is being hailed as a major victory for state governments and retail groups.

"Main Street needs a level playing field to compete with the exploding online industry. So do large retailers, like Best Buy, that have cut jobs as shoppers have increasingly tested electronics at local stores and then gone home to buy them online without paying sales taxes," an editorial in the New York Times points out. "Equally important, states needs the revenue to help recover from the recession. Noncollection of sales taxes on online purchases costs states an estimated $11 billion a year."

Sales taxes are already due on online purchases that would be taxable if the items were bought from a store. If the retailer does not collect the taxes, the buyer is supposed to send them to the state voluntarily, which rarely happens.

"This bill is about fairness. It's about leveling the playing field for brick-and-mortar shops," says Sen. Michael Enzi (R-Wyo.), one of the bill's sponsors.

The AFT has frequently expressed concern about the significant loss of revenue to states and localities resulting from this failure to collect taxes on online purchases. A resolution passed by the AFT convention in 2010 expressed support for "congressional action to grant states the authority to collect this important source of revenue."

In March, the effort to collect taxes on purchases at Amazon.com and similar sites received a major boost at the state level when New York state's "Amazon tax," which is designed to collect taxes on purchases at sites like Amazon.com, survived a legal challenge.

The Senate bill, which is backed by Amazon, empowers states to collect taxes on purchases made online by consumers in their states from out-of-state retailers. Under current law, states can only collect from companies that are physically located within their borders.

The bill would exempt small businesses that earn less than $1 million annually from out-of-state sales, and requires states to provide retailers with software to calculate sales taxes based on a buyer's ZIP code. "This bill will affect the big boys, retailers like Amazon and eBay. ... It does not affect these small retailers," Sen. Richard Durbin (D-Ill.) said ahead of the vote.

The Marketplace Fairness Act of 2013 now goes to the U.S. House of Representatives, where it also reportedly has bipartisan support. [Roger Glass, New York Times, The Hill]

May 8, 2013