Time for Fairness Tax

Could this be the year Congress finally levels the playing field between Main Street merchants and online retailers?

Rep. Bill Delahunt (D-Mass.) this summer introduced the Main Street Fairness Act to make it easier for states to require Internet sellers to collect sales tax just the same as local stores.

States already have authority over in-state Internet merchants. But the Supreme Court ruled in 1992 that out-of-state sellers could be required to collect taxes only if they had a physical presence in the customer’s state. Since then, bricks-and-mortar stores led by NRF have worked with state tax administrators to create the Streamlined Sales and Use Tax Agreement, and Delahunt’s bill would allow states that have signed on to require out-of-state sellers to collect taxes regardless of physical presence.

Delahunt and others have sponsored similar legislation since 2000, so what’s new? Mostly that Internet sales have soared to more than $200 billion – roughly 7 percent of total retail sales — and that, due to the economy and revenues lost to online sales, states are facing a collective budget shortfall of nearly $70 billion. Uncollected sales taxes amount to about $20 billion annually and are increasingly seen as a way to make up a sizeable chunk of that deficit – money badly needed for services like schools, firefighting and police.

Ordinarily, politicians don’t like to go anywhere near taxes in an election year. But as South Dakota Governor Mike Rounds and former Iowa House Speaker Christopher Rants, both Republicans, pointed out at a news conference with Delahunt, the Main Street Fairness Act would allow states to collect a tax already owed rather than raise taxes. That’s because while consumers are supposed to report (and pay for) untaxed purchases on their annual state returns, few comply. Without the measure, Rounds and Rant said, states could be forced to increase other taxes to make up for the lost revenue.

Two dozen states have adopted the simplification agreement and 10 more are considering such legislation, so the tipping point for support has passed. Others are sure to rush in and claim found money once the bill is enacted.

Frustration over slow movement in Washington has led to alternatives like the “Amazon Tax” adopted in three states, or Colorado’s attempt to force out-of-state retailers to report untaxed sales, both of which received discussion at the Council of State Retail Associations meeting in Denver last month. But all retail associations in states with a sales tax still support the comprehensive Delahunt measure as the ultimate solution.

NRF is working closely with state associations and others to deliver the message that all retailers should play by the same tax rules. In today’s economy, states need the tax revenue, retailers need equity among all sectors — and Congress is in a position to provide the solution for both. NRF hopes this will be the year sales tax fairness becomes reality.