New Law Would Force Online Retailers to Charge Local Sales Tax

A major shakeup for online retailers and digital content providers could present quite a taxing situation for consumers. US Senator Dick Durbin (D-IL) wants the likes of iTunes …

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A major shakeup for online retailers and digital content providers could present quite a taxing situation for consumers.

US Senator Dick Durbin (D-IL) wants the likes of iTunes and Amazon to begin collecting local sales tax on all online transactions.

Durbin, the second longest serving Democrat in the US Senate, is expected to announce the measure next week.

The prominent lawmaker has been a longtime vocal advocate of mandating online retailers to charge local sales tax, often pointing directly to Amazon as a company that has skirted this responsibility for far too long.

“Why should out-of-state companies that sell their products online have an unfair advantage over Main Street bricks-and-mortar businesses?” Durbin said in February. “Out-of-state companies that aren’t paying their fair share of taxes are sticking Illinois residents and businesses with the tab.”

Although the impetus for change in the way online retailers do business is clearly present in the US Congress, with roughly 7,500 different taxing jurisdictions in the United States today, it isn’t transparent in the least as to how Congress will implement or mandate such a sweeping overhaul to online business as usual.

According to CNET, The Direct Marketing Association, which – as some will recall – sued the state of Colorado in 2010 to prevent a new state tax law from taking effect, is already hankering for a fight over Durbin’s yet-to-be proposed but already controversial legislation.

“You’re just giving the states a blank check to make changes without any congressional oversight,” says Jerry Cerasale, the DMA’s senior vice president for government affairs. “We oppose that…We think that’s abrogating the authority of Congress.”

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    I disagree. It is very clear "…how Congress will implement or mandate such a sweeping overhaul to online business as usual." The Streamlined Sales and Use Tax Agreement, which began in 2000, is a cooperative effort of 44 states and the business community to simplify common definitions, standardize sales tax data and standardize reporting procedures. The Main Street Fairness Act would enable states that have already revised their sales tax laws to comply with Streamlined to require remote retailers to collect the tax. Twenty four states have already made the necessary revisions to theirs sales tax laws and more are considering doing so.

    As part of the Streamlined Agreement, states have certified several companies to provide technology solutions to online merchants to make collecting sales tax easy. My company offers a service, called TaxCloud, that automatically calculates accurate local sales tax. It also prepares, files and remits the sales tax to the Streamlined states. TaxCloud is completely free to merchants.

    This debate is not about whether you should be taxed, why you should be taxed, or at what rate you should be taxed; that debate takes place at every election when you choose your local representatives and weigh-in on various ballot initiatives to authorize funding for these services in your community.

    It is better that Congress address this issue so that all businesses collect the correct tax. Until then, more and more states are going to be attempting on their own to collect these taxes, which will increase complexity.