Congresswoman Suzan DelBene helped introduce bipartisan legislation that would close an internet tax loophole and allow local Main Street retailers to compete on a level playing field with out-of-state businesses on Feb. 14.
The measure, called the Marketplace Fairness Act, would allow state and local governments to collect existing sales taxes from out-of-state Internet retailers. The bill would level the playing field for Main Street businesses that are currently at a competitive disadvantage because they must collect sales and use taxes while a growing number of remote retailers do not.
“We have to support small businesses to create jobs and help grow our economy,” said DelBene. “The existing loophole unfairly hurts local retailers, many of which are small businesses, by giving out-of-state retailers an unfair advantage. This legislation updates our laws for a 21st century economy, addresses an inequity in the marketplace and helps ensure everyone plays by the same rules.”
The Supreme Court stated in the Quill vs. North Dakota decision that if an online retailer does not have a physical presence (nexus) within a state, they are not required to collect and remit sales tax there. When Quill was decided by the Supreme Court in 1992, the internet was not yet a viable retail marketplace. But today, this loophole effectively gives out-of-state businesses a nearly 10% price advantage over local retailers.
By enacting the Marketplace Fairness Act this year, Congress would provide a pathway for Washington state and localities to collect an estimated $284 million in the 2013-15 biennium and an estimated $845 million in the 2015-17 biennium, according to the state Department of Revenue. These dollars could help close looming budget deficits that Washington state and many local governments face over the next few years.
DelBene, during her tenure as Director of Washington state’s Department of Revenue, worked to close the internet tax loophole and saw firsthand the negative impact this loophole caused Washington businesses and local governments struggling to fund critical public services such as local police and fire.
“Local brick-and-mortar shop owners should not lose out because their online competitors are allowed to avoid a sales tax everyone else pays,” said DelBene. “When I was leading the Department of Revenue, I heard from our local business owners that they just want a level playing field and a competitive market that is fair. This legislation provides a common-sense solution that will do just that. It is also a sensible way to lend a hand to local governments working to provide basic services such as public safety and infrastructure without raising or creating any new taxes.”
Specifically, the Marketplace Fairness Act would provide states the authority to enforce existing sales and use tax laws, if they choose to do so, by adopting one of the following options:
· Streamlined Sales and Use Tax Agreement (SSUTA): Allows any state that is a member of SSUTA (Washington state is a member) 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 requirements as outlined in the bill.
This legislation also includes an exemption for small businesses, by prohibiting states from requiring remote sellers with less than $1 million in annual nationwide sales to collect sales and use taxes.
The lead House co-sponsors of the bill include Rep. Steve Womack (R-Ark), Jackie Speier (D-Calif.), John Conyers (D-Mich.) and Peter Welch (D-Vt.).
Prior to being elected to Congress, DelBene served as head of the Washington State Department of Revenue, where she oversaw more than 1,000 employees. Previously, DelBene pursued a successful career in business, working as an executive at Microsoft, and in biotech, technology and microfinance.
