Legislation Proposes Federal Solution to E-Tailer Sales Tax Controversy

Aug 4, 2011 - LegalZoom News Sources
Online retailers will have to charge sales tax if proposed legislation becomes law.

Senator Dick Durbin, Democrat from of Illinois, recently proposed legislation that seeks to establish federal guidelines for the collection of sales tax by online retailers.

Under current law, online retailers like Amazon do not have to collect sales tax from customers at the time of purchase. Current law requires consumers to pay taxes on online transactions when filing their annual returns, but according to the Retail Industry Leaders Association, few people do this.

Many brick-and-mortar businesses argue this situation gives online retailers an unfair competitive edge, and in response, some states have passed laws requiring internet sellers to charge tax. After California passed similar legislation last month, Amazon controversially discontinued its affiliation with about 10,000 Golden State businesses and began the process for overturning the law at the ballot box.

Durbin's legislation has won broad support. The RILA says his Main Street Fairness Act will help traditional retail businesses compete with web-based "e-tailers," and Amazon said it supports the creation of a streamlined, nationwide sales tax code.

The bill specifies small businesses will be exempt from collecting sales tax.

NetChoice, the Computer and Communications Industry Association, NetCoalition and other e-commerce groups oppose the bill on grounds it will stifle internet-based businesses and hurt the overall economy.