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The issue of taxes on online sales has come into sharp focus as Congressional support appears to be growing behind a bipartisan bill.


Congress Inches Closer to Passing Online Sales Tax Bill

  • 9/26/2012

Update: 6/22/18
On June 21, 2018, in the Wayfair case the Supreme Court overturned Quill Corp. v. North Dakota. This could potentially open the door for all states to collect sales tax even if a business does not have a physical presence in that state. Read our updated article to learn more.

As millions of students head back to high school and college this fall, the issue of whether online sales of clothing, books, and other supplies should be taxed has come into sharper focus on Capitol Hill. Before lawmakers left Washington for their district work period in early August, online retailers were closely watching a couple of House and Senate hearings that laid the groundwork for passage of an internet tax bill. Congressional support appears to be growing behind a bipartisan bill, the Marketplace Equity Act of 2011 (H.R. 3179), but action is not expected until next year.

At stake is the tax revenue from more than $10 billion in back-to-school sales each August. The issue has divided online giants such as Amazon and eBay, which have testified before Congress with different views.

Meanwhile, brick-and-mortar retailers have long charged that untaxed web sales have an unfair advantage. In addition, some state and local lawmakers are eyeing internet sales taxes as a way to boost revenues drained by the recession.

At a late July hearing of the House Judiciary Committee, Chairman Lamar Smith, R-Tex., noted that the 1992 Supreme Court ruling in Quill v. North Dakota prohibits states from forcing retailers to collect state sales taxes unless they have a physical presence in the state.

“In the Supreme Court’s view, to force a retailer to collect and remit taxes to more than 9,000 state, county, and local taxing jurisdictions throughout the country places a serious burden on the retailer’s ability to sell in interstate commerce,” Smith said.

Introduced by Reps. Steve Womack, R-Ark., and Jackie Speier, D-Calif., the Marketplace Equity Act permits state and local governments that simplify their tax system to collect sales taxes from out-of-state retailers. Smaller sellers would be exempt from collecting taxes under the legislation. A Senate version of the bill, the Marketplace Fairness Act (S. 1832), offered by Senate Minority Whip Dick Durbin, D-Ill., has drawn the support of fellow Senators.

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