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After more than a decade of trying to gain traction on Capitol Hill, brick-and-mortar retailers could be close to leveling the playing field with online merchants if the Marketplace and Internet Tax Fairness Act ("MITFA") Senate bill proceeds.
Under the United States Supreme Court's decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), in order for a state to collect sales and use taxes from a retailer for a given transaction, that retailer must maintain a "physical presence" in its customer's state. In the 45 states, and Washington, D.C., that implement sales and use taxes, this ruling currently allows online retailers without a physical presence in those states to sell goods to consumers, free of state-imposed sales duties. As a result, online retailers can undercut, by 5 to 10 percent, brick-and-mortar stores, which must charge consumers sales tax.
If passed, MITFA, introduced by a bipartisan team of senators led by Dick Durbin (D., Illinois) and Mike Enzi (R., Wyoming), would allow states to charge online retailers with annual worldwide sales exceeding $1 million sales and use taxes. The sponsors allege that the bill would allow states across the country to collect $23 billion annually.
Some of the most influential retail industry trade groups in the United States, including the National Retail Federation, International Council of Shopping Centers, Jewelers of America, and Retail Industry Leaders Association, have proclaimed their support of MITFA.
MITFA, as the bill exists today, comprises the amended version of a popular, already-passed House bill banning any tax on internet access. MITFA is the second iteration in just over a year of similar internet sales tax legislation, as the prior Senate-passed bill had not passed the House. Online retailers, such as eBay, lobbied against the failed legislation, which did not included the $1 million sales floor mentioned above, arguing that small businesses would be disproportionately harmed by an unfair tax burden.
The bill must overcome an abnormally listless political time, given that Congress is set to take a month-long recess in August and midterm elections are in November. There is also no telling what the House could do, as it may be inclined to reject MITFA, considering its prior actions.
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