The Direct Marketing Association criticized legislators yesterday for two bills introduced Dec. 20 that would mandate provisions of the Streamlined Sales and Use Tax Agreement. In contrast, the National Retail Federation praised the bills.
S. 2152, introduced by Sen. Michael Enzi, R-WY, and S. 2153, introduced by Sen. Byron Dorgan, D-ND, would permit states that become voluntary members of the SSUTA to require remote sellers to collect and remit sales and use tax. The bills were referred to the Senate Finance Committee.
Created by the Streamlined Sales Tax Project, the SSUTA, which took effect Oct. 1, lets remote sellers selling to people or businesses in member states to voluntarily collect taxes on sales that occur via the Internet, telephone or catalog. For the agreement to take effect, 10 states representing 20 percent of the population of states with sales taxes needed to pass legislation. So far, 19 states have done this.
Enzi and Dorgan are longtime supporters of mandatory sales tax collection. In 2003, they introduced one bill. Enzi's bill this year is identical to the 2003 bill and includes a provision releasing companies with sales under $5 million a year from collecting the tax. Dorgan's bill also has a small business provision but asks the Small Business Administration to initiate a rulemaking as to the dollar amount for the exemption.
Enzi said his Sales Tax Fairness and Simplification Act would help states efficiently and fairly collect sales and use tax revenue that is being lost because remote sellers do not have to remit such taxes on catalog and Internet purchases.
“The states have acted,” he said. “It is now time for Congress to provide states that enact the Streamlined Sales and Use Tax Agreement with the authority to require remote retailers to collect sales tax just as Main Street retailers do today.”
The DMA objects to the bills allowing states that become voluntary members of the SSUTA to require remote sellers to collect and remit sales and use tax for all state and local taxing jurisdictions.
“If this legislation became law, every state would join [the SSUTA] because this is a chance for new revenues,” said Mark Micali, DMA vice president of government affairs. “If this legislation became federal law, the protection of the Quill decision would thus end. Every state, I am certain, would join on and thus make sales tax collection mandatory.”
Micali was referring to the 1992 U.S. Supreme Court ruling Quill v. North Dakota, which held that it would be too burdensome on businesses if they were required to collect and remit sales taxes on behalf of the 7,600 state and local taxing jurisdictions nationwide. As a result, online and catalog businesses aren't required to collect sales tax in states where they have no physical presence.
The DMA also said the SSUTA claims to offer a simplified, streamlined solution but instead adds a new layer of complexity, expense and burden for businesses.
“True sales tax simplification would require states to adopt standardized definitions and offer a single tax rate per state for all types and channels of commerce,” DMA president/CEO John A. Greco Jr. said.
The failure of either bill to address a reduction in the number of tax jurisdictions is a key flaw, the DMA said, and remains a critical obstacle to a workable streamlined sales tax program.
The DMA also claimed that a workable prototype has yet to be demonstrated for software that would simplify the collection process.
But Diane Hardt, chair of the state and local advisory council of the Streamlined Sales Tax Governing Board Inc., said that four companies have software certified by the states. The group is discussing compensation with the certified service providers, since they will provide the software free to merchants, and the states will compensate them.
Furthermore, the bills leave leeway in determining what types of goods are taxable, the DMA said. Tennis shoes are considered nontaxable clothing in some states while in others are taxed as athletic equipment.
However, the National Retail Federation said yesterday that the bills would help end the disparity in tax rules between traditional retail stores and remote merchants. Such remote sellers “have an unfair price advantage when they don't have to collect the sales tax that bricks-and-mortar stores collect every day from every customer,” said Maureen Riehl, NRF vice president and government and industry relations counsel. “This legislation would not create a new tax. It would merely provide a mechanism to enforce tax obligations that are already on the books.”
Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters