States Would Benefit from Online Sales Tax Legislation
States could gain more than $12 billion in tax revenue if the U.S. House of Representatives follows the Senate lead and passes the Marketplace Fairness Act. The legislation, passed by the Senate Monday, makes it easier for states to collect sales taxes for online purchases.
"This legislation is long overdue," said David Adkins, CEO/executive director of The Council of State Governments. "Revenue lost to Internet transactions has compromised the states' ability to meet their citizens' education, health care, transportation and public safety needs. This legislation restores balance and provides states with revenue they are entitled to."
Online shopping has grown to a $226 billion-a-year business. A University of Tennessee study estimated states lost more than $12 billion in online sales tax in 2012.
"Considering that in inflation-adjusted dollars state revenue collections are still nearly 8 percent below 2008 levels, this legislation cannot be enacted soon enough," said Adkins.
States with sales and use taxes currently are unable to enforce them on online customers, leading to major revenue losses for states and an unfair playing field for small businesses with a physical presence. The Marketplace Fairness Act would correct this disparity, while also protecting small startups trying to break into online sales from potentially burdensome requirements. Businesses with less than $1 million in annual sales would not need to comply.
"Taxes must be imposed fairly and this bill restores fairness. Current practices deprive the states of revenue and place brick-and-mortar businesses at a competitive disadvantage. I commend the Senate for advancing this bill. We urge the House to act quickly to send this bill to the president," Adkins said.
The Council of State Governments in May 2012 approved a resolution supporting legislation to allow states to tax online sales and has joined a coalition of organizations supporting the legislation.
"CSG fights to advance the interests of the states in D.C. This legislation has been at the heart of our advocacy agenda for years. We are encouraged that it is finally getting the attention it deserves from Congress," Adkins said.
Read an analysis of the potential impact of the Marketplace Fairness Act, including a state-by-state breakdown, in this article in CSG's 2012 Book of the States.