Internet tax legislation

By: Bella Dalba

On November 12, Speaker of the House John Boehner (R-OH) indicated that he would not support the Main Street Fairness Act (MSFA), a bill that would allow state and local governments to collect sales tax on internet sales. Under the terms of the Act, Congress would authorize the Streamlined Sales and Use Tax Agreement – a multistate agreement which was adopted on November 12, 2002, by twenty-four states – and impose it on the remaining twenty-six.

            The general idea of the MSFA is to simplify the administration of sales and use taxes, as there is no clear formula for determining how it should vary from state to state. This lends itself to the argument for the MSFA, as it has long been “leveling the playing field.” Physically present brick-and-mortar stores are required by most states to charge sales tax, while internet-based retailers often escape sales tax in states where they have no presence. The MSFA disregards that status altogether, allowing state and local governments to collect sales taxes on internet sales made inside state borders, even if the point of origin is outside their jurisdiction. Kelly Phillips Erb, a Forbes contributor, provides an example: “If I bought something from GenericStore-dot-com and GenericStore-dot-com didn’t have a warehouse or other presence in my state, under the MSFA, my state could still collect sales tax. Currently, that’s not the case: without a presence, like a warehouse, there’s no sales tax payable (however, use tax may still be collectible, depending on the state).

            The measure has been divisive since its inception. Last year, the Senate passed the MSFA with the majority of affirmative votes originating from Democrats, who controlled the Senate. Not surprisingly, the bill did not pass the Republican-controlled House. Key among the opposition at that time? Speaker Boehner.

Rep. Boehner’s spokesperson commented on the bill; “The Speaker has made clear in the past that he has significant concerns about the bill, and it won’t move forward this year.” Senate Majority Leader Harry Reid (D-NV) seems to have a different take: he’s hoping to push the bill ahead before the end of the year. Due to the results of the 2015 mid-term election, Sen. Reid loses his position as Senate Majority Leader, which could result in a compromise vote, though this is to be expected: the remaining lame-duck session of Congress, Democrats in the Senate will be aggressive in the institution and adaption of multiple bills. This also means the Internet Tax Freedom Act (ITFA) is up for renewal: a very popular law that imposes a moratorium (a temporary prohibition of an activity) on taxing internet access.

Be sure to note the distinction between ITFA and MSFA: a tax on internet access is not the same thing as a tax on internet sales. Currently, taxing internet access is barred by a law that was first instituted in 1997; however, it’s important to note that this is not a permanent law, but a moratorium. In order to keep the moratorium active, Congress must vote to extend it, which has been done four times: in 2001, 2004, 2007, and in November of this year. The ITFA was scheduled to end earlier this month – just before the midterm elections – and was not-so-coincidentally extended until after the election had taken place.

Speaker Boehner supports extending the moratorium beyond 2014, as do most Americans. The House passed a bill this summer that would have permanently extended the moratorium, but the Senate, expressing concerns about the permanence, did not. Thus, there is suggested potential solution that the ITFA could be tacked onto the MSFA in order to get it through both Houses of Congress.

The opportunity for a compromise does provide hope to the supporters of MSFA, which include the National Retail Federation, the Retail Industry Leaders Association, and, surprisingly, Amazon (previously, the conglomerate was vocal about opposing any form of internet tax). If a compromise is going to happen, it will have to happen quickly: the moratorium on taxing internet access ends on December 11, 2014.