The U.S. Senate voted overwhelmingly on Monday to approve a measure allowing states to collect sales tax from online purchases. In a vote that split party lines, the Marketplace Fairness Act (MFA) passed by a margin of 69-27 (See vote breakdown on right).
Despite its ease of passage through the Senate, the bill faces an uphill battle in the Republican-controlled House.
“We place a 30 percent probability that the bill is signed into law by the end of the year” primarily due to opposition in the House, said Guggenheim Securities analyst Chris Krueger, “Our odds will increase following passage of this bill in the Senate provided it receives a big vote of support,” he said (Reuters).
The bill received support from prominent Republicans such as U.S. Senators John McCain (Ariz.), Lindsay Graham (N.C.) and Saxby Chambliss (Ga.), but may be less favorable with House Republicans who have been reluctant to attach their names to anything that hints of a tax increase.
“Call me a conservative, but I believe the right approach to tax fairness is to reduce rates – not force higher rates onto others,” said Tom Graves, a House Republican from Georgia (Reuters).
Anti-tax activist Grover Norquist tweeted that the MFA represents a “struggle against new and higher taxes.” His sentiment is shared by lawmakers from states with no sales tax (Alaska, Delaware Montana, New Hampshire, Oregon), and online merchants such as eBay Inc, and Overstock.com Inc.
The bill’s co-sponsors are Illinois Sen. Dick Durbin (D), Wyoming Sen. Mike Enzi (R) and Tennessee Sen. Lamar Alexander (R). Corporate backers include Best Buy Co Inc, Wal-Mart and Amazon.com Inc. The bi-partisan National Governors Association also strongly supports the MFA:
“Marketplace fairness is about collecting taxes that are already owed on retail sales—it is not a new tax nor a tax on the Internet. Annually, states fail to collect more than $23 billion from taxable transactions conducted over the Internet or through catalogues. This legislation levels the playing field between Main Street and e-street. It means fair competition for consumers, helps states collect what is owed and does not cost the federal government a dime” (National Governors Association statement released 02/14/2013)
One of the biggest hurdles to passing the MFA is its perception as hurting small businesses. EBay Inc Chief Executive John Donahoe said the legislation unfairly burdens small online merchants; in an unprecedented lobbying effort, he sent an e-mail to over 40 million eBay sellers urging them to oppose the MFA.
Most eBay sellers won’t be effected by the legislation though, since the MFA exempts businesses with annual out-of-state sales of $1 million or less. Rex Solomon, owner of a Houston jewelry store that uses eBay, told cpapracticeadviser.com that “eBay is working to preserve special treatment for a handful of multi-million dollar sellers that puts my business at risk.”
Donahoe, for his part, is pushing to raise the ceiling to $10 million.
The MFA will be reviewed by the House Judiciary Committee, where it will undergo hearings. “Judiciary Committee Chairman Robert Goodlatte, a Republican, has reservations about the legislation, including its complexity and potential impact on small businesses, a spokeswoman said,”(Reuters).
Interestingly, the MFA mandates something that both parties support – tax simplification. If implemented, states could only begin collecting sales tax from online merchants only if they simplify their tax code. As instructed in the MFA, the tax simplicity requirement can be met either by adopting the Streamlined Sales and Use Tax Agreement, or by meeting a list 5 simplification measures described in the bill.
24 states have already simplified their sales tax laws to make it easier for multistate retailers, according to Tax Cloud, a sales tax service for online retailers.
The MFA is independent from Congress’ effort for broader tax overhaul. Continue Reading…