Main Street Fairness Act Draws Divided Reaction

Aug 03, 2011   

Senate Majority Whip Richard Durbin (D-Ill.) introduced legislation on July 29 that would require online retailers to collect the same sales tax as local stores, prompting deeply polarized reactions to the bill.  The Main Street Fairness Act, dubbed the “Amazon law” by critics, is welcomed by big box and bricks-and-mortar operations, but fervently opposed by tech groups and small online retailers.

The bill would certify the Streamlined Sales and Use Tax Agreement across the country, although 24 states have already written the agreement into law.  States that choose to use it would have clear authority to require retailers to collect the sales taxes they are already owed.  It would also require the Streamlined Sales and Use Tax Agreement to meet a lengthy list of simplification requirements to ease administrative burdens for sellers.  Additionally, the bill would compensate retailers for the startup administrative costs associated with collecting sales taxes.  Most notably, the bill exempts small businesses, as defined by the governing board of the agreement, from the duty to collect sales taxes.

Currently, only retailers which have a physical presence in a state are required to collect sales tax for that state.  Otherwise, consumers are responsible for keeping track of their online purchases and paying tax directly to the state, although few actually do.  Rep. Peter Welch (D-Vt.), who co-sponsored the bill in the House, noted that bricks-and-mortar shops are being used as display cases for products later bought online.  He explained, “When a consumer can walk into a store, try out a product and then go home and buy it online without paying sales tax, Main Street businesses and downtowns lose.”  Consequently, in 2012, states are expected to lose $24 billion in uncollected tax revenue from online and catalogue purchases.  If the bill passes, the recaptured revenue would provide a desperately needed boost for states struggling with budget problems and layoffs.

The Main Street Fairness Act received ardent support from the Retail Industry Leaders Association, whose members are primarily big box retailers like Best Buy, Apple, and Old Navy that maintain a physical and online presence throughout the states. According to Senator Durbin, the bill is also supported by the National Retail Federation, International Council of Shopping Centers, National Association of Real Estate Investment Trusts, and National Association of College Stores, and the Governing Board of the Streamlined Sales and Use Tax Agreement, among others.  Also, despite online mammoth Amazon’s recent battles over state tax policies, the company maintains that it fully supports this simplified federal approach.

eBay leads the opposition against the Main Street Fairness Act, joined by the Electronic Retailing Association, Computer and Communications Industry Association, National Taxpayers Union, other tech trade groups and countless small businesses.  Calling the bill a “job killer,” one executive of e-commerce group NetChoice argues that “small businesses would be subject to costly collection obligations includ[ing] staff training, dealing with returns and exchanges, and dealing with sales tax audits.”  However, Sen. Durbin contends that small businesses would be exempt from the collection obligation, subject to the Governing Board of the Agreement.

Critics also argue that citizens will feel that their out-of-pocket expenses are higher.  The end result, according to some, will be that taxpayers will blame Congress for a perceived tax increase, and businesses will blame Congress for their complicated collection burden.  Proponents counter these statements by pointing out that consumers are well-acquainted with their duty to pay sales tax; further, the Main Street Fairness Act doesn’t raise taxes by a single penny.  Moreover, Sen. Durbin answers, “Main Street retailers collect sales taxes on behalf of consumers, why shouldn’t online retailers?”

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