Online Sales Tax Moving in U.S. Senate, Faces Uncertainty in House

The taxation of internet sales has been a topic of discussion in recent years at the federal and state level. Retailers and others believe this would level the playing field among companies who sell products over the internet not collecting a state’s sale tax because a physical location does not exist in a state, and those who have a physical store location in a state, and are therefore required to collect and remit sales taxes. This change would also bring in additional state sales tax revenue.

Legislation to impose a sales tax on internet sales has been introduced at both the federal and state level, however this is the first time legislation has advanced. As reported by the Washington Business Journal:

Sales taxes on Internet purchases grew one step closer to becoming a reality Monday evening when the Marketplace Fairness Act easily cleared a Senate procedural hurdle by a 74-20 margin.

Final passage is expected later this week. The legislation would allow states that simplify their sales tax systems to collect taxes on purchases made by their residents from online businesses based in other states. Under current law, retailers have to collect sales taxes only for states where they have a physical presence.

Although the legislation is moving in the Senate, it is projected to have a more difficult time moving through the House as there are concerns that this change will feel like a new tax to consumers, subject online companies to many different state sales tax structures, and lead to an expansion of financial transaction taxes.

For Marylanders, this legislative change at the federal level will result in the gas tax, which passed during the 2013 session, increasing at a lower rate.  As reported by the Baltimore Sun:

In Maryland, the General Assembly just approved legislation that is expected to increase the state’s 23.5-cents-a-gallon gas tax by about 20 cents by mid-2016. But if the federal government allows the state to apply its sales tax to Internet retailers, motorists could be spared about 7 cents of the gas tax increase, General Assembly officials have said.

The motor fuel tax legislation that passed phases in a 5-cent sales tax on gasoline with the final two percent increase taking effect if the federal legislation does not take effect.

This change could also have broader fiscal consequences for local governments.  As previously reported on Conduit Street:

State law says Maryland will adopt if the authority to require online retailers to collect taxes on remote sales is provided by the U.S. Congress. This Agreement provides for a more simple collection of sales taxes through uniform product definitions and centralized collections, among other changes.

Under this Agreement, local taxes that are not widely imposed or whose rates vary would not be permitted.  Since most counties impose a hotel tax, the effect is unclear. However, other local sales and service taxes such as those on energy and utilities will most likely be affected.

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