Sen. Dick Durbin, D-Ill., introduced the Main Street Fairness Act in the U.S. Senate; Rep. John Conyers, D-Mich., filed a similar bill in the House.
The legislation would change current law that requires only online retailers with a physical presence in a state to collect and remit sales taxes in those states and municipalities that impose them.
Similar bills have been introduced in the past, prompted by a 1992 U.S. Supreme Court case (Quill Corp. vs. North Dakota) that said out-of-state catalog companies faced an undue burden in having to collect and remit the myriad of sales taxes.
The court encouraged Congress to find a solution, but none have passed even though catalogs delivered through traditional mail have been largely replaced by Internet sales transactions.
The Main Street Fairness Act creates a national framework for collection of sales taxes by online and traditional retailers, but in its current form it would only apply to the 24 states that have joined the Streamlined Sales Tax Governing Board; a coalition of state government officials working to standardize the various sales taxes. Other sales tax states can join the board at will.
There is an exemption in the legislation for “small seller” online businesses. The Streamlined Sales Tax Governing Board would determine who qualifies as a small seller. This provision is aimed at making it easier for small, startup online businesses to get off the ground without being burdened by sales tax collection and remittance costs.
Sponsors say it is important to note that the legislation doesn’t create a new tax on consumers. They are already obligated to pay the sales tax in the states where they reside for purchases made online. But the vast majority (less than 5 percent) of consumers ignore this honor system “use tax” responsibility to advise the state and local governments of their purchases and remit the tax on their own.
For more information on the Streamlined Sales Tax Agreement, go to www.streamlinedsalestax.org.
The 24 states that have signed the Streamlined Sales and Use Tax Agreement: