The Independent View: Marketplace Fairness Act

A Bipartisan group of lawmakers has reintroduced the Marketplace Fairness Act in another effort to bring more consistency to the imposition of State Sales and Use Taxes on Online Purchases.

The act would give States the right to require Out-of-State Businesses selling Online or via catalogs to collect State Sales Taxes on Purchases sold into their States. The Bill provides States the authority to enforce existing sales and Use Tax Laws, if they choose to do so, by adopting either one of two options. The Streamlined Sales and Use Tax Agreement (SSUTA) allows any State that is a member of SSUTA to require Remote Sellers to collect State and Local Sales and use Taxes; or with Alternative Minimum Simplification Requirements, States that are not SSUTA Members could require Remote Retailers to collect State and Local Sales and Use Taxes if they adopt the Minimum Simplification requirements outlined in the Bill. There is also a “small seller exception” prohibiting States from requiring Remote Sellers with less than $1 million in annual Nationwide Remote Sales to collect Sales and Use Taxes. According to figures from the Small Business Administration, 99% of Online Sellers would fit into this "Small" Category and only a few would be required to Collect and Remit Sales Taxes with a $1 million Small seller Exemption.

The original Marketplace Fairness Act managed to pass the Senate in 2013 but never advanced beyond the Committee Stage in the House.

Senators Mike Enzi (R-WY), Dick Durbin (D-Il), Lamar Alexander (R-TN), and Heidi Heitkamp (D-ND), introduced the Act in the Senate last Thursday. It would give States the right to collect the Sales and Use Taxes they are owed under current Law from Out-of-State Businesses or Online Retailers. Cosponsors include Senators Elizabeth Warren (D-MA), Roy Blunt (R-MO), Jack Reed (D-RI), Sheldon Whitehouse (D-RI), Mark Warner (D-VA), Ben Cardin (D-MD), Tim Kaine (D-Va), Edward Markey (D-MA), Tammy Duckworth (D-IL), and Mike Rounds (R-SD).

“The Marketplace Fairness Act is about supporting jobs and services we have in our towns while ensuring states have the ability to collect taxes they are owed, if they choose to,” Enzi said in a statement. “Right now, thousands of local brick and mortar businesses are forced to do business at a competitive disadvantage because they have to collect sales and use taxes and remote sellers do not. This legislation promotes internet fairness by putting Main Street businesses on a level playing field with online retailers. In 2013, the Senate passed this bill with bipartisan support. It’s time to give states the right to enforce their own laws without having to get permission from Washington.”

“By ensuring Internet retailers meet the same tax responsibility as local businesses, the Marketplace Fairness Act creates a level playing field and gives small business owners—our nation’s job creators—a real shot at success,” Durbin said in a statement.

In the House, Reps. Kristi Noem (R-SD), and John Conyers, Jr. (D-MI) led a group of Lawmakers in Reintroducing similar Bipartisan Legislation in the House, known as the Remote Transactions Parity Act, which aims to create a level playing field so Main Street stores and Online Retailers can compete fairly. Led Co-Sponsors include Reps. Suzan DelBene (D-WA), Steve Womack (R-AR), Jason Chaffetz (R-UT), Steve Stivers (R-OH), Lou Barletta (R-PA), Jackie Speier (D-CA), Peter Welch (D-VT), and David Cicilline (D-RI).

Seven major organizations representing State and Local Governments at the Federal level: the National Governors Association, National Association of Counties, National League of Cities, U.S. Conference of Mayors, International City/County Management Association, National Conference of State Legislatures and The Council of State Governments, praised the introduction of the Legislation in Congress. “We welcome the introduction of the Marketplace Fairness Act by Senator Mike Enzi and commend Representative Kristi Noem and her co-signers for introducing the Remote Transactions Parity Act,” they said in a joint statement Thursday. “We are pleased to see an appetite on Capitol Hill to address this crucial issue. We stand ready to work with the House and Senate to achieve passage of these measures and address any discrepancies during conference.”

The shopping center industry also hailed the Legislation. “We are pleased that legislation was reintroduced in Congress this week to empower states to modernize their tax laws and provide parity to local businesses and the communities they serve,” said Tom McGee, President and CEO of the International Council of Shopping Centers, in a statement. “These important measures will fix an outdated tax loophole that currently gives online retailers a price advantage of up to 10 percent over brick-and-mortar stores, has shortchanged communities on much-needed sales tax revenue and over complicated our country’s current sales tax system.”

But these Bills are Unconstitutional. Under Quill Corp. v. North Dakota 504 U.S. 298 (1992), which I took part in representing a Mail Order Company. The United States Supreme Court ruling concerning Use Tax. Quill Corporation is an Office Supply Retailer. Quill had no physical presence in North Dakota, neither a sales force, nor a Retail Outlet), but it had a Licensed Computer Software program that some of its North Dakota customers used for checking Quill's current inventories and placing orders directly. North Dakota attempted to impose a Use Tax on Quill, which was struck down by the Supreme Court.

The original decision says you must have any type of Physical Location or a Sales Representative in a State to require you to Collect Sales Tax on Online Orders. It does not cover the ability of a website to link to another company with a Users Click to purchase their product and give the original website's Owner a Commission. The best example was the ability to
view a book on a site and Click to Buy it from Amazon, then Amazon paying a Commission to the original website, or Affiliate Marketing.

NYC Wins When Everyone Can Vote! Michael H. Drucker

Some background. I was part of the 1992 Supreme Court Quill case that said you only had to collect sales tax if a entity had a retail location, a distribution operation, or a sales team in a state. At the time of the decision, there was no concept of affiliate marketing of using blogs, coupon sites, or buying links to other websites.

When the state of Illinois passed a law in 2011 requiring online retailers to collect sales tax if they received sales through Illinois-based affiliate web sites, such as blogs and coupon sites, online retailers including Amazon.com Inc. and Overstock.com Inc. cut off their in-state affiliates. As a result, thousands of affiliate site owners moved their tax-generating operations to another state, according to the Performance Marketing Association (PMA), an industry group that challenged the state law in court.

After winning its case in lower state courts, the PMA’s case was upheld today by the Illinois Supreme Court, which ruled the law as “void and unenforceable” and was pre-empted by the Internet Tax Freedom Act of 1998, which prohibits discriminatory taxes on electronic commerce. “This means that advertisers are free to reinstate their Illinois affiliates whose contracts were terminated out of fear of the ‘click-through’ nexus law,” the PMA said in a blog posting today. The law, similar to ones in New York and other states, had sought to classify in-state web affiliate businesses as an extended physical presence of their client online retailers, and then require those retailers to collect sales tax.

The PMA estimates that about one-third of affiliates also left the 12 other states that have enacted affiliate tax laws since 2008, when New York became the first to pass one. The laws have been commonly called an “Amazon Tax” because they are aimed at forcing sales tax collection by big web-only retailers like Amazon.com, No. 1 in the Internet Retailer Top 500.

The Illinois court’s ruling took the opposite direction of a March 28 ruling from New York’s highest court, the New York Court of Appeals, which upheld a lower court ruling in favor of New York’s Amazon Tax law. Amazon and Overstock have each filed petitions to have that ruling reviewed by the United States Supreme Court.

What remains to be seen is whether today’s court ruling in Illinois will make it more likely that the U.S. Supreme Court will review the New York ruling.

We are still waiting for Congress to finalize a federal law that would provide for a nationwide system of sales tax collection, as proposed by the Marketplace Fairness Act legislation, which passed the Senate in April and is now before the House that can go to the Supreme Court to decide if the Quill case decision will be changed.