WASHINGTON, DC - In an effort to help local Main Street businesses compete more effectively against out-of-state Internet sellers and retailers, U.S. Senator Jack Reed (D-RI) today joined with nine of his Senate colleagues in introducing the bipartisan Marketplace Fairness Act.  This bill would require online retailers and catalogue sellers to follow the same rules as businesses on Main Street and collect state sales taxes.  Closing this Internet tax loophole and collecting revenue from out of state retailers will save jobs in Rhode Island and could help the state generate an additional $70 million annually in revenue.

The bipartisan bill gives states the ability to enforce their own sales and use tax laws and relieves consumers of the legal burden to report to state tax departments the sales taxes they owe on online purchases.  The bill does not create new taxes or increase existing taxes.  Instead, the bill will help states and cities collect billions in unpaid taxes already owed, reducing the need to raise new taxes on tax compliant businesses and citizens. 

“Rhode Island businesses and workers suffer from an unfair tax disparity that harms many local small businesses and benefits large out-of-state e-retailers.  This bill would correct that inequity and help Main Street businesses compete.  At a time when states like Rhode Island are struggling with their budgets, this bill would be a significant boost,” said Reed.  “It has bipartisan support in Congress and broad support from both mom and pop shops and even internet businesses like Amazon.com.”

Currently, retailers which have a physical presence in the states collect state and local sales tax on goods ordered online and delivered in the respective state.   Retailers that do not have a physical presence, known as remote retailers, are not obligated to collect state and local sales tax.   Some remote retailers voluntarily collect state and local sales tax at the time of purchase; however, many remote retailers do not.  Most consumers are unaware of the legal requirement to pay sales tax on remote purchases and the potential penalties for failure to report.

The Marketplace Fairness Act would give states the option of collecting the so-called sales and "use tax," or the tax collected on goods sold online.  Small businesses and sellers with annual sales of less than $500,000 would be exempted from collecting individual state sales taxes.

Rhode Island Governor Lincoln Chafee has estimated that the state will forgo $70 million in sales-tax revenue in fiscal year 2012 because of Internet sales.  In his March 2011 address to the General Assembly, the Governor noted this would provide the state “with enough revenue to allow us to repeal the 1% sales tax.”

The bill, which is cosponsored by 5 Democrats and 5 Republicans, has been endorsed by a diverse coalition of groups that span the business and political spectrum, from consumer protection advocates to Amazon.com to the American Conservative Union.

Summary of the Marketplace Fairness Act

The legislation provides all states the ability to enforce existing state and local sales and use tax laws in a way that does not unduly burden e-commerce or remote retailers by adopting one of the following options: 

•             Streamlined Sales and Use Tax Agreement: The legislation allows any state that is a member of the SSUTA to require remote retailers to collect state and local sales and use taxes. 

•             Alternative Minimum Simplification Requirements: States that are not SSUTA members may require remote retailers to collect state and local sales and use taxes if they adopt minimum simplification requirements. 

Small Seller Exception: The legislation would prohibit states from requiring the collection of state and local sales and use tax by remote sellers with less than $500,000 in annual remote sales.