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A fix on the horizon for the online sales tax mess

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Mark Lennihan/AP/File

(Read caption) The logo for Amazon.com is displayed at a news conferencein this file photo. A group of senators is working on a promising solution to the online sales tax problem, which would require online vendors to collect sales tax in exchange for states simplifying their tax code. Amazon is in support of the idea.

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A bipartisan group of 10 U.S. senators would allow states to require online retailers to collect sales taxes on all purchases, as long as the states first agree to simplify their sales tax rules. And, remarkably, their  idea has broad support in the business community and may actually pass.

The effort, led by senators Mike Enzi (R-WY), Dick Durbin (D-IL), and Lamar Alexander (R-TN), could finally resolve what has been an increasingly ugly battle among on-line mega-retailers such as Amazon.com, big box stores such as Best Buy, local Main Street retailers, and state tax collectors. Amazon, which has aggressively resisted the efforts of several states—most recently California— to make it collect sales taxes, says it supports Enzi’s bill.

Almost 20 years ago, in a case called Quill v. North Dakota, the U.S. Supreme Court practically begged Congress to sort out the thorny question of whether and how a state should collect taxes on sales by retailers that are not physically located in its jurisdiction.

Back in 1992, the squabble was of limited interest since most remote sales were by catalogue companies and the dollars at stake were small. Today, at a time when states are desperate for revenue, the National Conference of State Legislatures estimates that more than $23 billion in online sales tax revenue is on the table.

The fight is not about whether buyers owe tax on their online purchasers. They already do. It is, rather about whether sellers must collect the levy at the point of sale or whether consumers have to pony up when they file their tax returns—through a use tax that most state impose but few people actually pay.

The remarkable thing about the Enzi bill is just how unremarkable it is.

All it says it that a state may—at its option—require remote sellers to collect sales taxes as long as the state first takes one of two steps: It must either adopt on its own some basic rules to simplify tax collection or sign on to an interstate pact known as the Simplified Sales and Use Tax Agreement—an understanding already adopted by 24 jurisdictions.

A state may simplify by creating a single sales tax return or administering state and local sales levies through a single state-level agency. It must also certify appropriate tax collection software. Online or catalogue sellers with annual remote sales of less than $500,000 would not have to collect sales taxes. 

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“This bill empowers states to make the decision themselves,” Enzi said when he introduced the bill. “If they choose to collect already existing sales taxes on all purchases, regardless of whether the sale was online or in a store, they can. If they want to keep things the way they are, it’s a state’s choice.”

Not everyone has embraced the idea. Auction site e-bay, for instance, is opposed. And so are anti-tax groups such as The National Taxpayers Union and Americans for Tax Reform. But state and local governments as well as a   wide range of retailers–including many big-box firms that operate both online and in bricks-and-mortar stores–are on board.

With Congress mired in gridlock over just about everything, it would be foolish to predict smooth sailing for Enzi’s bill. But chances for resolution of this mess are better than at any time since the Supreme Court asked for
 Congress’ help two decades ago.


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