What’s ahead for online sales tax?

What’s ahead for online sales tax?

It’s no secret that Americans don’t like paying taxes. April 15th is nobody’s favorite holiday, and no one jumps for joy at the sales tax charged on their purchases. But you may be surprised that, according to the International Council of Shopping Centers, there’s one tax 7 out of 10 Americans think we should all be paying: online sales tax.

According to this recent poll, 70% of people believe Congress should force businesses to collect sales tax on out-of-state online sales. Currently online sales are taxable like over-the-counter sales: when sellers don't collect sales tax, buyers are supposed to pay use tax for these purchases. However, most are unaware of their obligation or simply avoid paying the tax, depriving state and local governments of needed revenue.

The Marketplace Fairness Act — first proposed in 2011, then again in 2013 and this year — was created to ensure that online sellers were doing their fair share to collect sales tax. Brick-and-mortar retailers are generally in favor of the bill, but many online businesses (as well as some politicians) believe the MFA could make doing business harder than ever.

Alternative proposals have been floated, but none has garnered as much support. However, while the MFA was proposed months ago, activity on the bill has stalled. So as we head toward 2016, consumers do not pay their use tax and Congress hasn't adopted a widespread requirement for online sellers to collect sales tax in the United States. The political volatility of an election year may make the issue too much of a “hot potato” to generate widespread bipartisan support in the next 12 months, but state and local governments will turn the heat up on Congress as more sales tax revenues are lost to online retailers.

What we’re left with is a country where most people seem to want online retailers to collect sales tax, but no one can agree on the specifics of implementation. Even though most analysts and lobbyists agree taxes should be charged on online purchases, how long the deadlock will continue is anybody’s guess.

No matter what happens to online sales tax collection, Avalara will be there to make compliance easier. For more information on how the Marketplace Fairness Act could impact your business, check out Avalara’s Marketplace Fairness Act of 2015 primer.

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