6 Answers to the Big Questions on the New Sales Tax

Senate

On Monday, the Senate made its move to push a new bill forward that would have some major implications on the e-commerce industry.

The bill in question is the Marketplace Fairness Act, which targets retailers that sell over $1 million in goods over the Internet. So far, those retailers have been able to avoid tagging a sales tax on their goods. This may have been a boon for their business, as it freed them from the hassle of having to sort out the tax, and it also made it easier to beat competitors’ prices and steal away customers.

However, that luxury could soon be coming to an end; the bill has now made it through Senate and just has the House of Representatives remaining. But, it is surrounded on all sides by opponents and proponents who all have very different views of the bill, and its fate hangs in the balance. Here’s a look at the reasoning behind the bill on each side:

Why do government officials support this bill?

The rationale behind government officials being interested in the Marketplace Fairness Act, or MFA, is one of the simplest points to understand. Since the 1992 U.S. Supreme Court decision in Quill Corp. v. North Dakota, states have been unable to force retailers to collect sales tax if the retailer had no physical presence within the tax-seeking state.

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This decision was a massive win for e-retailers, as they could easily sell across state borders without having to deal with collecting sales taxes and price markups. For states, the loss of earnings was significant. The estimated value of the sales tax that could have been collected by states from e-retailers in 2012 was $23 billion.

That’s a massive chunk of change that states have been missing out on for years. Given that Congress is made up of representatives from all of the states, it makes sense for any of them to want the bill passed, as it would have the potential to bring significant additional revenue to their states. The bill has even had bipartisan support, as some members of conservative groups said they don’t believe the MFA passes any new taxes, but rather solves a “collection issue.”

Why do some government officials oppose the bill?

Despite very simple reasons to support the bill, there are still those in Congress that oppose the MFA. The bill may have passed Senate, but there are concerns that it won’t have such an easy time getting through the House, if it gets through at all. However, a revised version could fare better.

When the MFA went through Senate, it didn’t follow the “regular order,” according to Republican Representative Bob Goodlatte of Virginia. He refers to the bill bypassing the Senate committee that has expertise in the subject-matter of the tax bill.

The bill may have more trouble in the House because Goodlatte is on the House Judiciary Committee, and the bill will have to go through his committee first. So, it more or less rests in the hands of Goodlatte, who doesn’t seem to favor it in its current version.

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Some conservative groups believe the bill will weaken tax competition among states, and they think its unconstitutional to force e-retailers to pay the tax to states they have no presence in — echoing the Supreme Court decision from back in 1992. It’s possible that the decision on the bill could come down to just this point of location-based taxes.

The conservative R Street Institute has brought up the possibility of enforcing sales tax collection for these e-retailers, but applying it based on the rates of the state where the retailer is based, rather than where the customer is based. To work out this sort of change in the bill, The House and Senate would have to hold a conference, but it could settle differences and get the bill passed.

Why do some businesses support the bill?

As mentioned earlier, e-retailers’ ability to avoid enforcing sales tax can be considered an advantage, as it allows them to charge a lower price to customers. This ability is one that brick-and-mortar shops do not have, and could be costing them business as consumers flock toward Internet purchases to cut the burden of sales tax.

Many department stores and discounters see the bill as an opportunity to balance a disparity that has been leaning in the favor of e-retailers. It will level the proverbial playing field. Something that could so simply boost the sales of a business would seem like good enough reason to support it.

Why do other business oppose the bill?

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E-retailers have every reason to be against the MFA. They’ve enjoyed the benefits of not having to charge a sales tax and deal with the headache of sorting out taxes between the 9,600 odd jurisdictions that have a sales tax collection policy.

Though the bill would require states to supply businesses with the software necessary to simply calculate the taxes they would have to collect, it will still be extra work for the businesses. Plus, the business would have to adjust to the fact that it wouldn’t be able to so easily beat the prices of brick-and-mortar competitors. Amazon (NASDAQ:AMZN) and similar companies have been able to flourish in recent years as customers flock to Internet shopping. But these retailers could soon be heavily impacted as consumers see less benefit in shopping online because of new taxes.

Why might the bill go through?

So far, the bill has had bipartisan support. Democrats and Republicans alike can see the plain benefits a bill like this would have for their states — a major new source of revenue that heretofore couldn’t be tapped. The vote in the Senate that pushed the bill through was 69 to 27. It seems unlikely that a vote in the House would go differently enough to keep the bill from passing.

Why might the bill get stopped?

As mentioned earlier, bipartisan support might not be enough to pass the bill in the House if the bill doesn’t go to a vote. Representative Goodlatte, chariman of the House Judiciary Committee, should have control of the bill as it enters the House, and he might be able to keep it from going to a vote if he opposes it. He said, “there is still not uniformity on definitions and tax rates, so businesses would still be forced to wade through potentially hundreds of tax rates and a host of different tax codes and definitions,” making it more complicated for the companies affected by the MFA.

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Goodlatte is also worried about state tax bureaus trying to take advantages of retailers. He said his committee would “look at alternatives that could enable states to collect sales tax revenues without opening the door to aggressive state action against out-of-state companies.” This could simply mean Goodlatte will seek some revision to the bill, but it could also mean that he will stop the bill entirely and consider some alternative bill to put forward in the future.

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