Congressman Steve Cohen (TN-09) today introduced Tennessee Governor Bill Haslam at a House Judiciary Committee hearing on the Marketplace Equity Act of 2011 (H.R. 3179) -- legislation Congressman Cohen co-sponsored to establish a uniform national standard for determining when a state can tax an online sales transaction. Click here to see a video of Congressman Cohen and Governor Haslam discussing this issue.
"It was good to have Governor Bill Haslam in Washington to discuss how this legislation would benefit Tennessee and its economy," said Congressman Cohen, Ranking Member of the Subcommittee on Courts, Commercial and Administrative Law. "Current law needs to be updated to account for the tremendous growth in e-commerce over the last decade and a half. Tennessee relies heavily on sales tax revenue, as it does not have an individual income tax. It's important that Congress act to establish a clear, uniform standard for collection of sales taxes on online sales."
Congressman Cohen is the co-sponsor of another bill that addresses this same issue -- the Main Street Fairness Act (H.R. 2701). These measures stem from a recognition that the law needs to be updated to account for the tremendous growth in e-commerce over the last decade and a half. Currently, states can require a seller to collect and remit sales taxes when there is a nexus between the state and the seller -- usually, though not necessarily, the seller's physical presence in the state.
For online sales, however, there is usually no such constitutionally required nexus present between the state and the online seller. As a consequence, a state cannot require online sellers to collect and remit sales taxes for a transaction that might have otherwise been taxable had the seller been a physical "brick-and-mortar" store.
And while purchasers have a duty to remit taxes to their state of residence, they rarely do so, and compliance with this requirement is rarely enforced. For years, brick-and-mortar retailers -- be they Wal-Mart or the small mom-and-pop store on Main Street -- have rightly complained that online retailers hold an unfair competitive advantage because many states were unable to establish the necessary nexus to oblige online retailers to collect and remit sales taxes. As a result, a customer could purchase the exact same product online for less money than they would have paid had they purchased it at a store.
According to the National Conference of State Legislators, states will lose $23.3 billion in uncollected sales tax revenue in 2012 because online retailers are not required to collect and remit sales taxes.