A bill allowing states to collect online sales tax is to be passed in 2012. The bill was introduced by several US Senators - including Michael Enzi, Lamar Alexander, and Illinois Democratic Senator Richard Durban - who hope to open the matter in a Senate committee hearing before the end of the year.
If passed, the bill, known as the Marketplace Fairness Act, would allow state governments to collect billions of dollars worth of tax revenue. To collect sales taxes from goods bought online, US states would need to sign a legal agreement to make tax codes conform across multiple states. States that do not sign the multi-state agreement could still oblige online sellers to collect sales tax.
Those against the bill argue sales tax will harm small businesses. Though a small business exemption of $500,000 on yearly sales as been provided for, Senators have said they are willing to re-address the exemption threshold.
States are currently restricted in terms of online sales taxes they can impose on retailers not physically present in the state. Certain online retailers, such as Amazon.com, do not have retail outlets but facilities for shipping and services due to which the company has been able to bring down prices for its customers by cutting out some local sales tax.
Amazon, eBay Divided Over The Bill
Amazon, which generated close to $35 billion in online sales in 2010, had earlier said it would cut jobs in states passing a sales tax on internet retailers, but is now in favor of the bill. The company’s turnaround on the issue is to avoid having to fight the issue on a state-by-state basis. Amazon has come to agreement with some states where it has shipping or service facilities to be able to continue doing business without charging sales tax.
Online retailer eBay is among the sellers opposed to the Marketplace Fairness Act. As it generates profit mostly from charging sellers fees for using its website to auction goods and does not a similar agreement to Amazon exempting it from sales tax, the bill is not advantageous to the outfit.
EBay claims the bill is unfair to small businesses, and affords larger online retailers an even greater competitive advantage. The retailer argues the bill will further harm the economy by dissuading economic activity and making it more difficult for entrepreneurs to create employment.
Also coming out against the bill, the Computer & Communications Industry Association claimed the bill would hinder small internet businesses, thwarting economic growth.
To date, online shoppers have been subject to “use” taxes on products and services purchased over the internet, but these have not been applied. Whether the bill goes ahead or not, the US government faces a challenge in finding a way to collect sales tax from a retail sector that is becoming increasingly based on internet sales.
Key Statistics - Online Sales in the US (source: Forrester Research)
- In 2011, online sales in the US market should total $197 billion, up from $176 billion last year.
- US e-retail sales are expected to grow 10% a year until 2015.
- In 2015, US e-retail sales should total nearly $280 billion.
- Online sales should account for 11% of all retail sales, and 15% of all grocery sales by 2015.