Politics

House Dems Propose Internet Sales Tax to Help Cash-Strapped States

By Sunlight Foundation & Participatory Politics Foundation

Despite polling data showing that Americans are more concerned about the jobs situation, most Members of Congress seem to be convinced that the federal deficit will be the top issue in the fast-approaching mid-term elections. The House and Senate recently stripped billions in aid for states from their mini-stimulus bill, and they’re even struggling to pass an extension of unemployment insurance benefits, typically the least controversial form of stimulus spending.

Last week, a few House Democrats proposed a solution for helping states deal with their budget shortfalls without increasing the federal deficit. Rep. Bill Delahunt [D, MA-10] introduced a bill, co-sponsored by 4 other Dems, that they are calling the “Main Street Fairness Act.” The bill would allow states to require online retailers and other mail order businesses to collect and remit sales taxes. According to Delahunt, states are expected to lose about $18.6 billion in sales taxes to internet retailers this year, and by 2012 they are expected to lose $23 billion annually.

Currently, states are unable to collect taxes from out-of-state retailers because of a 1992 Supreme Court ruling, Qill Corp. v. North Dakota, that stated that “Congress is now free to decide whether, when, and to what extent the States may burden interstate mail order concerns with a duty to collect use taxes.” In response, since 2002 as internet commerce has become a more important economic factor, 23 states have approved legislation agreeing to join a compact called the “Streamlined Sales and Use Tax Agreement” that sets standards for states to follow in order to simplify their sales tax codes and make them compatible for purposes of collecting interstate taxes. But they need Congress to give them the go ahead to enforce their new tax codes. This bill would provide that authority.

A summary from Delahunt explains more precisely how it would work:

Once ten states, comprising at least twenty percent of the total population of all states imposing a sales tax, have become Member states, that states that implements the SSUTA are authorized to require remote sellers to collect and remit sales and use taxes. A state’s authorization will terminate if a state falls out of compliance with the Agreement, or the Agreement, as amended, no longer meets the minimum simplification requirements outlined in Section 6.

…Section 6 outlines 19 minimum simplification requirements, everything from consistent electronic filing methods to uniform rules and procedures addressing refunds.

Congress has generally been strongly in favor of keeping the internet sales-tax free. For example, in 2007, the House passed a 7-year internet tax moratorium bill by a vote of 405-2 and the Senate passed the bill by unanimous consent. But that was before the recession. Now, with states like California and New York looking at enormous budget deficits that may cause thousands of government workers to be furloughed, and with Congress unable to approve and financial aid, the political calculus may look different.

We’ll be watching to see if this bill moves ahead in the legislative process, and you can too by subscribing to the bill’s RSS feed for alerts.

Full post as published by Open Congress on July 06, 2010 (boomark / email).