Online State Sales Tax Solution Remains Elusive After Congress Declares ‘Fundamental Defects’ In Senate Bill

After years of attempts to craft a federal law that would affirm states’ rights to tax online purchases, the issue may still be far from being resolved. The House Judiciary Committee has put the brakes on the Marketplace Fairness Act passed by the Senate in May.

On Wednesday, prospects for federal action to resolve the long-standing issue of whether states should be able to collect sales tax on Internet purchases faded after members of Congress said more debate was needed before legislation could move forward, Reuters reports.

The Marketplace Fairness Act would have granted each state the ability to decide whether online businesses need to collect the tax.

Chairman of the House of Representatives Judiciary Committee, Robert Goodlatte (R-Va.) says the Senate bill “suffers from fundamental defects” and he worries that online businesses could be targeted by state auditors and aggressive tax agents.

While Goodlatte didn’t specify if the House Judiciary Committee would create its own version of online sales tax legislation, other members of the committee say the bill shouldn’t be delayed further.

The issue has caused strife between brick-and-mortar retailers and their online competitors for years, with traditional retailers claiming the lack of internet state sales taxes creates a pricing edge for businesses that exist entirely online.

Currently, online businesses without a physical presence in a state are not obliged to collect tax from customers — even though consumers have a duty to pay this usage tax when they file their annual tax returns. However, almost no one does, or even realizes there’s a law requiring them to pay.

State governments estimate they lose $23 billion a year in uncollected sales taxes. However, 12 states now have their own Internet sales tax laws, something that complicates online purchases for retailers like Amazon.

The company has publicly opposed the collection of state sales taxes in the past, even cutting ties with physical businesses in Minnesota after the state passed a law last year requiring such businesses to collect sales taxes.

Outlook for online state sales tax fix dims in U.S. Congress [Chicago Tribune]

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.