Ending Sales Tax Discrimination

August 2, 2012

Today The Official Merchant Services Blog is taking a look at a bill being debated on the U.S. Senate floor this week.  Senate Bill 1832, also known as The Market Place Fairness Act could be the cause of the next big debate in the Payment Processing Industry.

The Law of the Land

In 1992 the Supreme Court ruled in the case Quill v. North Dakota that companies without a “substantial nexus” in the state where their customer lived didn’t have to charge sales tax.  Seemingly favoring Internet companies, this ruling was actually handed down two years before the first Web browser, and three years before Amazon ever sold it’s first book.  This law still stands today, and is the precedent for online retailers not having to pay state taxes on products shipping nation wide. This new bill looks to rectify that apparent “oversight.”

The Act Itself

The Marketplace Fairness Act would pave the way for states to require online sellers from out of state to begin paying the sales tax they’ve escaped for years. Senator Dick Durbin (D-Ill.) said “The Marketplace Fairness Act would level the playing field for small businesses by allowing states — if they so choose — to treat brick and mortar retailers the same as remote retailers.” Durbin, who is sponsoring this bill, is best known for authoring the Durbin Amendment, a piece of legislation that caused much controversy in the Payment Card Industry when enacted.

The National Conference of State Legislatures estimates the lost tax revenue at $23 billion annually. Senator John Rockefeller (D-W.V.) spoke on the issue, attempting to clear up some of the confusion, “To be clear this debate is not about imposing new taxes. Instead it’s just allowing a state to collect taxes they are currently owed under existing law, but are being systemically avoided.” As another benefit to small business owners, the law would only apply to business processing more than $500,000 annually.

Amazon Action

Amazon has been the most vocal in its support of the Marketplace Fairness Act since it’s introduction last year. Speaking before a congressional hearing, Amazon VP of Global Public Policy Paul Misener told lawmakers that the bill would facilitate the collection of one kind of tax that is already due, but goes largely unpaid.  Supporting the argument that it is not a new tax increase.

Opposition

Senator Jim DeMint (R-S.C.) published an op-ed in the Wall Street Journal entitled “No Internet Taxation Without Representation.”  In the piece DeMint argues that citizens should not be taxed by governments in which they have no political voice — in this case states where they or their company are not physically based.  I would argue that this is a cost of interstate commerce, which has been reborn as interstate e-commerce.

DeMint does have a point when he mentions the nearly 10,000 state, local and municipal tax jurisdictions businesses would have to comply with nationwide.  He forgets to mention, however, that businesses have access to advanced tax software, such as TaxCloud, which can easily compute the sales tax for any state.

The Verdict

Here at The Official Merchant Services Blog, we see the potential savings this offers to the owners of small businesses nationwide.  The Marketplace Fairness Act provides an incentive for states to simplify their sales tax laws, as well as increase revenue from the ever-booming e-commerce industry. Hopefully this will decrease the sales tax burden shared by many small businesses. It simply makes it much easier for millions of business owners — and in turn the states — to collect the taxes already due. Only time will tell how much impact this legislation will have on e-commerce and credit card processing. We will stay on top of any new developments on this law, and how they affect you.

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