Legislation introduced today in the House by Representative William Delahunt (D-MA) would correct a long-standing inequity in the retail sales industry, while providing an infusion of revenue for states struggling to balance their books without raising taxes, according to the Retail Industry Leaders Association (RILA).
The bill, the Main Street Fairness Act of 2010 (H.R. 5660), will address the nearly two decades of disparity between traditional "brick and mortar" retail stores and online-only retailers that in most cases are not required to collect sales taxes from their customers. Rep. Delahunt's federal legislation will address this disparity by giving Congress' consent to the simplified sales-tax collection system adopted currently by 23 states to ensure the fair and equitable collection of sales taxes across the board.
"This legislation is an important step forward for both our economy and retail industry, which employs nearly 15 million workers across the country," said Joe Rinzel, vice president for state government relations. "Leveling the playing field ensures that all Main Street businesses do not continue to face a significant competitive disadvantage by having to collect taxes on their sales, while Internet-only businesses escape that responsibility. This is an issue of fairness for both businesses and consumers."
Antiquated rules currently allow online retailers without a "physical presence" in a state to skirt the obligation of collecting state sales taxes. However, online transactions are still subject to each state's respective sales tax. This loophole puts the burden on the consumer to report the sales tax owed from an online transaction on their state income tax return—a confusing burden largely unknown or overlooked by most consumers come tax season.
"The streamline sales tax would relieve the burden on the consumer and ensure the fair and equal collection of sales taxes by retail businesses of all types and sizes, whether at a storefront or purely online," said Rinzel.
While some critics of the streamline sales tax concept have suggested that closing this loophole is a tax increase, the reality is that the sales tax is due on purchases over the Internet – it's simply a matter of who is required to collect, the seller or purchaser. Moreover, allowing those revenues to go largely uncollected means state and local governments are making up this shortfall by raising income, property and other taxes. It is estimated that state and local governments are losing more than $7 billion a year in uncollected sales taxes because of the online sales-tax loophole. Not coincidentally, since January 2009, more than 30 states have raised other taxes to make up for their budget shortfalls.
"Updating our tax laws to reflect a 21st Century economy makes sense for the states, businesses and consumers," said Rinzel. "Instead of debating whether to grant states another infusion of stimulus, or forcing states to contemplate raising other taxes, Congress should first give states the tools they need to collect the sales tax dollars they are already owed."
RILA is the trade association of the world's largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad.