U.S. Sen. Michael Enzi (R.-Ore.) introduced legislation Wednesday that would require out-of-state retailers, including Internet businesses, to charge and collect sales taxes on transactions.
The bill, co-sponsored by Byron Dorgan (D.-N.D.), would grant congressional approval to a national compact negotiated among state governments to streamline and simplify more than 7,500 diverse sales tax laws among state and local governments. The legislation would have the practical effect of allowing states to enforce sales taxes on online sales.
Similar legislation was introduced in the House of Representatives last month by Rep. Bill Delahunt (D.-Mass.).
“E-commerce has caused a significant change in consumer buying trends. More and more people are making purchases through remote businesses such as online, catalog and phone-order,” Enzi said. “This change has reduced sales tax revenues to states, cities and towns that rely on this form of revenue to provide essential community services such as education, law enforcement, and fire fighting.”
The Streamlined Sales and Use Tax Act (S. 1736) would permit states that become voluntary members of the national compact to require remote sellers to collect and remit sales and use taxes. The states would only have the authority to collect, however, if they simplify their sales and use tax system for all sales, including remote sales.
States that do not choose to become members of the compact would not be required to make any modifications to their tax systems, but would have the opportunity to join the compact and implement the simplification requirements at any time.
Enzi stressed that the bill would not increase taxes or permit duplicate taxation by different states.
“This legislation does not increase taxes, create a new tax, or tax access on the Internet. It is, however, a way to put Main Street businesses on a level playing field with Internet retailers and to provide financially-strapped cities, counties and states with much needed revenue,” said Enzi.
Currently, sales and use taxes are owed on all online transactions, but states are prohibited from requiring remote sellers to collect and remit those levies. A 1992 U.S. Supreme Court decision said states can only require sellers that have a physical presence or “nexus” in the same state as the consumer to collect so-called use taxes.
The court ruled that the current patchwork of taxing jurisdictions across the country is too complex and burdensome for online retailers to charge and collect sales taxes. In order to collect the taxes, the court ruled, states would need to first simplify the existing system.
Spearheaded by the National Governors Association (NGA), states and local governments, with input from the private sector, have been working for three years to overhaul the nation’s sales tax structure. Last November, delegates from 32 states approved a model interstate agreement that establishes uniform definitions for taxable goods and requires participating states and local governments to have only one statewide tax rate for each type of product by 2006.
To date, 34 states have agreed to enter into the compact, and 20 states have already passed implementing legislation. Under the bill, these states would be permitted to enforce sales tax laws on merchants who ship goods into their state and have over $5 million in gross annual sales. The legislation also requires states to compensate retailers for their costs in collecting sales taxes.
Supporting the legislation is a coalition of national retailers as well as the National Governors Association, the National League of Cities, National Council of State Legislators, National Association of County Officials, National Association of Real Estate Investment Trusts, International Council of Shopping Centers, the National Retail Federation, and the International Mass Retail Association.
