A key advantage that online retailers have over their brick-and-mortar counterparts may soon vanish. Congress is considering requiring merchants to collect sales tax on their online sales.
On July 1, the Main Street Fairness Act, a bill which would mandate that Internet retailers collect sales tax regardless of whether they are located in the customer’s state, was introduced to Congress.
If passed, the bill would apply to the 23—and come next January, 24—states that are members of the Streamlined Sales and Use Tax Agreement, a simplified standardization of sales and use tax modification and collection. Certain small retailers and states that are not required to collect sales taxes will be exempt from the bill, as determined by the Streamlined Sales Tax Governing Board.
According to the bill’s sponsor, Representative Bill Delahunt of Massachusetts, there was an estimated $18.6 billion in sales tax revenue from online purchases that went uncollected this year. He estimates that will reach up to $23 billion in 2012.
Surprisingly, a 2005 University of Tennessee’s Center for Business and Economic Research study revealed that the vast majority of this uncollected money comes from business-to-business sales, not sales taxes on retail sales. If the bill passes, Internet Retailer estimates that the revenue from taxing B2B web sales could be as high as $33.68 billion.
Despite the lofty cash benefits for states, sales tax experts contacted by Internet Retailer do not believe that the bill will soon pass. With only 23 SST states, which do not include large member states such as New York or California, it is doubtful that the bill’s supporters will win over the majority of federal lawmakers.
