Don’t look for a national Internet sales tax this holiday season
Despite several years of strong lobbying and legislative efforts, the supporters of a national Internet sales tax won’t be getting that as a gift this holiday season.
As of last month, Internet sales tax proponents hoped the House would approve a bill in December 2014 passed by the Senate that would collect taxes from consumers on goods and services on all businesses with online sales in excess of $1 million – regardless of where the sales take place.
But with House Speaker John Boehner dead set against the Marketplace Fairness Act of 2013, the complicated issue will be pushed into the new Congress, where it has an uncertain future.
One place the battle won’t be fought is the Supreme Court, which declined to get involved in the fight last December when it wouldn’t grant a challenge to settle a long-simmering debate.
The Internet sales tax question goes back to 1992, when the Supreme Court told Congress to work out the problem in a ruling that predated the modern commercial Internet.
In Quill Corp. v. Heitkamp, the Supreme Court found that states had a right under the Due Process Clause of the Constitution to collect sales taxes, but the burden placed on out-of-state businesses to collect the taxes ran afoul of the Commerce Clause.
“The State’s enforcement of the use tax against Quill places an unconstitutional burden on interstate commerce,” said Justice John Paul Stevens.
The Court then said that the “underlying issue here is one that Congress may be better qualified to resolve, and one that it has the ultimate power to resolve.”
Since then, Congress has been unable to agree on the national Internet sales tax issue. Its most-recent effort, the Marketplace Fairness Act of 2013, was passed by the Senate in May 2013 with President Barack Obama’s support.
The law would allow states to collect sales taxes from residents who buy online from out-of-state retailers. The retailers would collect the tax at the point of purchase, and remit the taxes to the eligible states and local municipalities.
Supporters of the tax measures believe they create an even playing field for brick-and-mortar business and online businesses, by making sure each pays the same local and state tax rates. They also point to an estimated $23 billion in state taxes that go uncollected from online sales.
Opponents believe the task of collecting taxes from all local towns and states would prove difficult to bear, especially for small businesses. And still others oppose any new tax measures on the principle that they represent a tax increase.
The GOP-controlled House never warmed up to the legislation, which viewed it as a tax increase.
But the national Internet sales tax debate probably won’t go away in the next Congress. Traditional store front retailers and big online retailers like Amazon are already collecting online sales taxes since they have a physical presence in most states, and they cite a disadvantage in competing with virtual businesses.
And the National Governors Association and the National Conference of State Legislatures support the the Marketplace Fairness Act, which they see as a tax-collection effort, and not as a new tax on consumers.
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