The businesses that line the streets of our nation’s small and rural towns provide essential goods and services to the farmers and ranchers who work the fields that surround them. But home-town businesses are at a disadvantage when they compete with on-line only retailers who don’t have to collect sales taxes. When this disadvantage causes a “main street” business to close or scale back, the impact is especially hurtful to already struggling rural towns.
In addition to placing local merchants at a disadvantage, the disparity deprives state and local governments of the tax revenue they need to provide essential services. Since local governments and schools rely heavily on property taxes for funding, when sales tax revenues decline they often turn to property taxes to make up the difference. For land based-businesses like farming and ranching, this is particularly onerous.
Farm Bureau supports allowing the collection of sales taxes on internet sales of consumer goods by out-of-state sellers.
The Commerce Clause of the Constitution gives the federal government power to regulate interstate commerce and prohibits certain state actions that interfere with trade among the states. In 1992, the Supreme Court ruled, in Quill Corps. V. North Dakota (Quill), that out-of-state sellers can only be required to collect sales tax if they have a store or other physical presence in the customer’s state.
As a result of Quill, 44 states responded by working with local governments and the business community to adopt a comprehensive interstate system to harmonize and simplify their sales tax rules and administrative requirements called the Streamlined Sales and Use Tax Agreement. To date, 24 states have changed their laws to comply with this interstate agreement. The Quill decision made it clear Congress would need to authorize and sanction such an agreement.
In March 2015, S. 698, the Marketplace Fairness Act of 2015, was introduced in the Senate by Sen. Mike Enzi (R-Wyo.). The bill promotes fair competition between local and main street retailers and internet-only sellers by allowing states to apply sales tax laws across the board. It allows states to enforce their existing sales tax laws but does not create new taxes or increase existing ones. States must adopt the Streamlined Sales and Use Tax Agreement or alternative simplification requirements in order to be able to collect sales taxes on remote retailers. The bill provided a small seller exemption so that remote sellers with less than $1 million in annual sales do not have to collect sales taxes and says that remote sellers must be provided software for collecting the tax to ease the administrative burden.
Similar legislation, H.R. 2775, the Remote Transactions Parity Act of 2015, was introduced in June by Rep. Jason Chaffetz (R-Utah).