In May 2013, the U.S. Senate passed the Marketplace Fairness Act (MFA). This legislation would have required online retailers to charge sales tax to customers who live in places with a state or local sales tax. Top Republican lawmakers opposed the bill and it languished for 18 months in the House of Representatives before expiring. Some senators recently introduced similar legislation, but questions remain about whether it can muster enough support in the new Republican-controlled Congress.
The new legislation, called the Marketplace Fairness Act of 2015, was introduced on March 10. The bill would require retailers with $1 million or more in annual revenue from remote sales in the United States to charge sales tax to any online customer that lives in a state or municipality with a sales tax. It would change the current law, which only requires retailers to charge customers a sales tax in states where the retailer has a physical presence.
Arguments for and Against
Retailers have lined up on various sides of the issue. Several large retailers, including Walmart, support an online sales tax, while e-commerce companies such as eBay have come out against it. Supporters of this legislation say it levels the playing field between brick-and-mortar and online retailers by requiring everyone to follow the same tax rules. They say it would also help states and local governments generate more tax revenue by closing the loopholes that now exist for online shoppers.
"The Marketplace Fairness Act is about supporting the jobs we have in our towns. It is about the people who are our neighbors who work in our local stores," Senator Mike Enzi (R-WY) said in a news release about the new legislation.
Critics of an online sales tax, which include many small online retailers, say it would be difficult and costly for retailers to comply with the roughly 9,600 different sales-tax jurisdictions across the country.
"In one city a chocolate bar may be considered a taxable good but in another jurisdiction it could be classified as food and not subject to sales tax," according to an article by e-commerce company Shopify.com.
There are also fears that consumers will spend less money if they face paying an online sales tax. Brick-and-mortar retailers, however, already have to collect sales tax from customers based on their local tax jurisdiction's rules and many feel it's only fair that online retailers collect them too. The MFA would require that states work to streamline their sales tax collection process to reduce the compliance burden for online retailers.
Will the Result be Different This Time?
There's skepticism over whether the bill will make it very far this time around. Both the Senate and the House are now in Republican control, which could make it more difficult than before. Some supporters want to see the bill attached to other legislation that would extend a ban on taxing Internet broadband, ITFA, which is seen as having far more political support among senators and House members alike.
"We believe the almost certain extension of ITFA presents a likely legislative vehicle to deal with e-fairness in 2015," Betsy Laird, senior vice president of Global Public Policy for the International Council of Shopping Centers, told the Cleveland Plain Dealer.