Senate Passes Bill for Taxing Internet Sales

By:  Jack Kenny
05/07/2013
       
Senate Passes Bill for Taxing Internet Sales

The U.S. Senate approved a bill Monday by a vote of 69-27 authorizing states to require out-of-state sellers to collect and remit state and local taxes on sales made to in-state customers.

The U.S. Senate approved a bill Monday by a vote of 69-27 authorizing states to require out-of-state sellers to collect and remit state and local taxes on sales made to in-state customers. Called the Marketplace Fairness Act of 2013, the bill pits "brick-and-mortar" retail establishments against online sellers, whose Internet sales are not taxed by the various states where they ship their products. Organizations representing traditional retailers claim the bill will eliminate an unfair tax advantage for online sellers, while opponents claim taxing Internet transactions will stifle growing businesses and entangle online sellers in the tax laws of 45 states and the District of Columbia.

Passage of the bill is far from certain in the Republican-controlled House, where most GOP members have signed the Americans For Tax Reform pledge to vote against new or increased taxes. ATR President Grover Norquist has opposed the legislation, as have organizations such as the Heritage Foundation and Freedom Works and the libertarian Cato Institute. The bill's supporters, including the National Retail Federation and the Retail Leaders Industry Association, claim the measure would enable states to collect their sales taxes from remote sellers in the same way they do from in-state retailers. The bill is also supported by the National Governors Association, since sates would have collected an additional $23 billion in revenue last year if Internet sellers had been subject to state sales taxes, according to the National Conference of State Legislatures.

In most retail sales, the seller is required to collect the sales tax from the customer and pass it on to the state, local, or county taxing authority. But states currently have no legal jurisdiction over an out-of-state seller. Many states require residents to report and pay a sales tax, often called a "use tax," on their purchases from out-of-state vendors, though few customers do. The U.S. Supreme Court has ruled in a number of cases that for a state to require a remote seller to collect and remit taxes, the seller must have a physical presence in the state. In Quill v. North Dakota (1992), however, the court held that Congress could alter or abolish that requirement under its authority to regulate interstate commerce.

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