April 26th, 2013
By Jerett Rion
COLUMBIA, Mo. – This week, the United States Senate overrode a filibuster and elected to debate the Marketplace Fairness Act, which, if passed, would provide states with a mechanism to tax online transactions that they cannot tax under current federal law. Currently, a U.S. Supreme Court ruling only allows states to levy sales and use taxes on businesses with physical presences in the state. For example, Amazon.com does not charge sales tax in Missouri because it is physically located in California. However, Wal-Mart charges sales tax, since it has stores in Missouri. Andrew Wesemann, a doctoral student in the University of Missouri Truman School of Public Affairs, says that if the bill that is currently being considered in the Senate is passed, states will have a means for collecting tax revenue from entities that have, to date, been able to avoid the tax.
Wesemann, along with researchers from the MU Institute of Public Policy, submitted a report in 2012 to Missouri state legislators that recommended many of the ideas included in the Marketplace Fairness Act. The act is co-sponsored in the U.S. Senate by Sen. Roy Blunt (R-Mo.) and Sen. Richard Durbin (D-Il.). The MU report found that Missouri lost approximately $259 million annually in sales tax revenue due to the lack of an Internet sales tax. Wesemann says the Marketplace Fairness Act could help solve issues that currently surround the levying of Internet sales taxes, if those states agreed to meet certain requirements.
“Before states could begin taxing out-of-state retailers and sellers, states would have to agree on a simplified system to ensure that the taxes are allocated efficiently across state borders,” Wesemann said.
The Marketplace Fairness Act would require states that decide to levy Internet sales taxes to either join the existing Streamlined Sales and Use Tax Agreement or create their own system that meets certain guidelines. States would be required to:
- Notify retailers in advance of any rate changes within the state;
- Designate a single state organization to handle sales tax registrations, filings, and audits;
- Establish a uniform sales tax base throughout the state;
- Use destination sourcing to determine sales tax rates for out-of-state purchases (a purchase made by a consumer in California from a retailer in Ohio is taxed at the California rate, and the sales tax collected is remitted to California to fund projects and services there);
- Provide free software for managing sales tax compliance, and hold retailers harmless for any errors that result from relying on state-provided systems and data.
Wesemann says that in addition to increasing tax revenue, state economies could benefit from e-commerce sales taxes.
“By taxing out-of-state online retailers, states may level the playing field for retailers located inside state lines, incentivizing consumers to buy locally,” Wesemann said. “This difference can result in a competitive advantage for firms based outside of state lines. Untaxed purchases made through websites and mail order firms, such as Amazon, account for this large amount of uncollected sales tax.”
Currently, 24 states collect a modest amount of online sales tax through the Streamlined Sales and Use Tax Agreement.
To view Wesemann’s 2012 report visit: http://ipp.missouri.edu/files/ipp/attachments/4-2012_-_internet_sales_and_use_tax_final.pdf.