Online Retailers Take Opposite Sides On Sales Tax Bill
More online retailers would have to collect sales tax under a bill making its way through the U.S. Senate this week. The measure won strong bipartisan backing on a procedural vote Monday, and President Obama has said he would sign it.
The political battle over the bill pits online retailers against brick-and-mortar stores — and, in some cases, against other online sellers.
Nancy Mashragi of Clearwater, Fla., backed in to online retailing. The social worker and her architect husband both lost their jobs in 2008, so to make ends meet they began selling electronic equipment on eBay.
"It just kind of grew into a business from just the two of us on our dining room table," she says. "Now we employ eight people, plus myself and my husband."
This year, the couple expects to ring up sales of up to $4 million. That's an attractive target for tax collectors in other states. Under the Marketplace Fairness Act now before the Senate, online companies like the Mashragis' would have to collect sales taxes from customers in any city or state that requires them.
"We're happy to pay taxes. We currently collect taxes for the state of Florida," Mashragi says. "But I just feel that it's not possible or practical for us to be collecting taxes for this many jurisdictions. We're too small for that."
Long before the Internet, there was a history of tax authorities in one state going after businesses in another. But Joseph Henchman of the Tax Foundation says a series of Supreme Court cases — some involving catalog retailers — limited the cross-border taxing authority.
"The main thing that came out of those court decisions is the idea of physical presence," Henchman says. "That if your company has people or property within the state, then the state can impose tax obligations on you. And if you don't have that within the state, then they can't."
But the high court left the door open for Congress to change the rules. And Colorado Sen. Mark Udall, a Democrat, says that given the way the Internet has reshaped retailing, it's time for lawmakers to do so.
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