Internet Sales Tax Proposal Discussion

On May 3, Advocacy hosted a small business roundtable meeting on the taxation of Internet sales. Small business owners and representatives and Capitol Hill staffers participated.

The debate over whether and how to tax Internet commerce goes back over a decade. Some small business stakeholders contend that it is unfair that brick-and-mortar businesses (i.e., those with a physical location) must be responsible for collecting and remitting sales taxes while many online retailers do not share this same requirement. These small business representatives want a level playing field where online retailers would also have to collect and remit sales tax.

Other small business stakeholders have expressed concern about the disproportionate burden that small online retailers would face in comparison to large online retailers if Internet merchants were required to collect and remit sales taxes. This group recommends that policymakers and legislators consider exempting small online retailers from Internet sales tax requirements.

Policy groups and legislators have tried to develop a national taxation policy for online retailers that is both fair for all retailers and not overly burdensome for small business. At the May 3 roundtable, Capitol Hill staffers from the offices of Senators Mike Enzi, Dick Durbin, and Lamar Alexander discussed some proposed legislative efforts, including the Marketplace Fairness Act, S. 1832. The Act would make it easier for states to collect sales tax on online sales, giving states broad authority to require online merchants to collect and remit sales taxes. The bill would exempt sellers who made less than $500,000 in total remote sales in the year preceding the sale from being required to collect sales tax.  Much of the roundtable discussion centered on the appropriate size of such an exemption.

More detail on the proposal is available in the November 2011 press release announcing the bill.

The Capitol Hill staffers welcomed feedback about the legislation and the proposed exemption. Feel free to leave your comments here.

—Dillon Taylor, Assistant Chief Counsel