Today the Senate showed significant bipartisan support for an amendment empowering states to require online retailers to collect sales tax. While the Senate action was symbolic, the 75-24 vote in favor of the non-binding measure shows that its supporters “. . . could prevail should the Senate consider binding legislation later this year” (U.S. News & World Report). 

What’s at stake

Currently, most online retailers do not have to collect sales tax in states where they have no physical presence. States struggling to recover from economic recession see the uncollected tax as a major potential source of revenue, with some estimating that $20 billion in sales tax goes uncollected each year by out-of-state online sellers. Furthermore, brick-and-mortar retailers argue that their online counterparts enjoy an unfair price advantage when they don’t have to collect sales tax. “We think

[requiring online sellers to collect sales tax] is a fair thing to do, otherwise those small businesses don’t have a fighting chance,” says Richard Durbin (D-Ill.), a sponsor of the online sales tax bill.

Durbin also points out that tax on online purchases is already owed by the consumer when the seller does not collect, though this rarely gets enforced.

Under the proposed legislation, out-of-state sellers that make more than $1 million annually would have to collect sales tax in states that chose to exercise the power granted by the bill.

Read more about support for online sales tax.

The opposition

Opponents of the bill claim that it would place an undue burden on smaller online businesses who will have to grapple with tax collection in multiple states. In addition, representatives from states with no sales tax argue that the bill would pressure their states into adopting sales tax. Senator Max Baucus (D-Mont.): “It basically forces all states to have sales tax whether they want to or not.”

Read more about opposition to online sales tax.

How to prepare

It remains to be seen whether an online sales tax bill will become law in 2013. Yet, state sales tax requirements continue to expand for out-of-state businesses (see California’s recent online sales tax law). It is critical that businesses stay on top of these changes in order to avoid penalties and interest associated with non-compliance. In order to meet the challenges of a changing sales tax landscape, many businesses are choosing to automate their sales tax processes, from calculation to filing: Learn more.

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