“Marketplace Fairness Act” could force Amazon to collect sales tax

Ten Senators, led by Dick Durbin (D-IL), Mike Enzi (R-WY), and Lamar Alexander (R-TN), this morning introduced a new Internet sales tax bill called the "Marketplace Fairness Act." The bill gives states broad authority to require that online sellers like Amazon collect and remit state sales taxes so that online and offline retailers all operate under the same rules.

Companies have long been required to collect sales tax in states where they have a physical presence. Back in 1992, the Supreme Court confirmed that retailers don't have to collect sales tax when shipping to other states, as it would be too complicated (but it did invite Congress to a pass a law setting new rules in the future).

Buyers have generally owed such taxes anyway; they're called "use taxes"—and almost no one pays them. That gives online retailers a price advantage over local sellers.

The new bill doesn't create any new taxes, but it does give states the right to demand that online retailers collect sales tax instead of relying on citizens to pay a use tax. The bill follows a similar Senate bill introduced earlier this year, but it exempts small business with less than $500,000 in sales from collecting the tax, in part due to vociferous objections from eBay regarding its many small sellers. (The House is considering a similar measure.)

The move predictably pleased brick-and-mortar retailers. "A true free market is devoid of government preferences and special treatment," said Katherine Lugar, Executive Vice President for Public Affairs at the Retail Industry Leaders Association, in a statement. "The Marketplace Fairness Act will get government out of the way, restore the free market, and close the loophole that has given an unfair advantage to online retailers like Amazon.com for over a decade."

But Internet companies aren't as excited about it; indeed, Amazon has launched multiple public battles against states that have tried to make the company collect sales tax. The Computer and Communications Industry Association (CCIA), a DC trade group which counts eBay, Google, Microsoft, and Yahoo among its members, blasted the bill today.

“This bill would unfairly place a compliance burden on online retailers for daring to utilize a new legitimate business model that does not fit well with a sales tax system based on physical location," said CEO Ed Black. "Businesses should not be penalized for utilizing technology and innovation."

But Senators Enzi and Alexander, writing today in National Review, said that "technology and innovation" was behind their support of the new bill. In the 1990s, "technology for businesses to compute and collect taxes was not nearly as advanced as it is today," they argue, implying that software has made the entire collections process far less complicated today than opponents insist it is.

Update: eBay still doesn't like the bill. “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," said eBay VP Tod Cohen in a statement sent to Ars. "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.”

Update 2: Thanks to the final bill text now available (and linked above), it's clear that sales tax can only be required if states first simplify their tax code for out-of-state companies. Minimum requirements for this are spelled out in the bill, but they require things like having a single mailing address for all tax payments to the state and the possibility of a paying single "blended" rate rather than calculating every single local sales tax rate separately.

Listing image by Photograph by Aurich Lawson