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  • Congress Poised To Make Online Shopping More Expensive

    Senators introduced a bill Tuesday that would make online purchases subject to sales taxes, eliciting praise from brick-and-mortar retailers but condemnation from anti-tax advocates.

    Currently, online retailers only have to collect sales taxes in states where they have a physical presence, such as offices or warehouses, allowing customers in most states to realize an automatic discount of between about 4 and 10 percent on their online purchases.

    The Marketplace Fairness Act, sponsored by Republican Sens. Mike Enzi and Lamar Alexander and Democratic Sens. Dick Durbin and Heidi Heitkamp, would close that loophole, forcing online shoppers to pay local sales taxes on all purchases. (RELATED: Costly Internet Tax Could be on the Horizon)

    In a press release, the International Council of Shopping Centers applauded the bill’s introduction, saying the MFA “will get the government out of the way, restore the free market, and close the loophole that has given an unfair advantage to online-only sellers like eBay and Overstock for over a decade.”

    ICSC contends that “a ‘sale is a sale’ regardless of whether the purchase takes place on Main Street, at shopping centers, or over the Internet,” but says the current system fails to recognize that, giving online purchases privileged tax treatment that is not available to physical retailers. (RELATED: Supply-Side Founding Father Boosts E-Commerce Sales Taxes)

    Betsy Laird, senior vice president of Global Public Policy for ICSC, claimed that brick-and-mortar retailers “are fed up” with competing against online competitors who have “a de facto government subsidy,” as well as with the “higher property taxes and unnecessarily high sales taxes” that states impose to make up for the revenue they are unable to collect from Internet commerce.

    Conversely, R Street Institute, a free-market think tank, argues that, “far from a ‘loophole’ intended to advantage the Internet,” the so-called physical presence standard is a necessary protection for both online sellers and taxpayers. (RELATED: The Marketplace Fairness Act will be as Hard to Implement as Obamacare)

    Whereas physical retailers only need to comply with the rules and regulations of the states in which they do business, the group explains, the MFA would “[force] remote retailers to determine the appropriate rules and regulations in as many as 46 different states with sales taxes, and then collect and remit sales tax for that distant authority.”

    In addition, R Street says the MFA “would countenance an enormous expansion in state tax-collection authority,” thereby exposing consumers to “harassment by out-of-state collectors.” The existing arrangement, the group asserts, is “grounded in a bedrock foundational principle of tax policy: [that] states must not be allowed to extend their taxation and regulatory authorities beyond their borders.”

    Heitkamp, however, countered that argument in a press release by pointing out that, “While most consumers are unaware, they are already legally required to pay sales tax on internet purchases.” Compliance is rare, though, because states are not currently empowered to compel the payment of those taxes.

    The MFA, she added, would merely “[allow] states to decide whether to require remote sellers to collect sales and use taxes … instead of requiring customers to remit those taxes to the states on their own.”

    A nearly identical version of the MFA passed the Senate handily (69-27) in 2013, but stalled in the House Judiciary Committee and expired at the end of Congress’ last session. (RELATED: Conservative Groups Split on Marketplace Fairness Act)

    Laird nonetheless expressed optimism that the lower chamber would act this time around, saying, “We believe that this is the year they will finally stand up for local businesses that create jobs and support our communities.”

    Follow Peter Fricke on Twitter

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