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Online Sales Tax Congressional Hearing


Today the House Judiciary Committee held a hearing on the Marketplace Equity Act (HR 3179), a bill that would broaden state power to require Internet retailers to collect sales tax.  

In his statement on the hearing, Judiciary Committee Chairman Lamar Smith gave an overview of the following key factors involved in taxing online sales.

  1. In 1992 the Supreme Court ruled, in Quill Corp v. North Dakota, that a state may not force a retailer to collect and remit state sales and use tax, unless the retailer has a physical presence in the state. According to Smith, this " . . . makes sense for small businesses who cannot afford to track and comply with 9,000 different tax codes as a cost of doing business throughout the country."
  2. However, brick-and-mortar retailers argue that this ruling creates inequity between them and their online counterparts. Furthermore, states and localities maintain that consumer use tax, owed by those who shop online, is ". . . easily avoided, rarely paid and difficult to enforce."
  3. Smith concludes: "The Constitution does not require a physical presence standard as a tax collection criterion. Congress may pass legislation that uses a different standard [than Quill] under its power to regulate interstate commerce."

There are two other proposed bills that would grant states the right, under certain conditions, to require online retailers without a physical presence in the state to collect and remit state sales tax:

  • The Main Street Fairness Act (S 1452 / HR 2701) - Read twice by Senate Committee and referred to Committee on Finance on 7/29/2011.*
  • The Marketplace Fairness Act (S. 1832) - Referred to Senate Committee on Finance on 11/9/2011.* 2) Added as an amendment to the Small Jobs and Tax Relief Bill (S 2237), which was returned to Calendar No. 341 as of July 12, 2012. 3). Scheduled for a hearing at the Senate Committee on Commerce, Science, and Transportation on August 1, 2012.

*according to the latest Congressional website information.

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Avalara Author
Will Frei
Avalara Author Will Frei
Will Frei covers sales tax news including best practices, legislation and sales tax technology. He is the Social Media Manager at Avalara.