The U.S. Senate voted to approve the Marketplace Fairness Act, a bill that would require online retailers to comply with sales tax laws of states where they sell and ship goods. According to proponents of the measure, Internet shoppers are one step closer to losing the “unfair advantage” over consumers who choose to support local merchants. Progress Illinois takes a closer look at the bill and what it could mean for the Prairie State.
The U.S. Senate voted Monday to approve the Marketplace Fairness Act, a bill that would require online retailers to comply with sales tax laws of states where they sell and ship goods.
According to proponents of the measure, Internet shoppers are one step closer to losing the “unfair advantage” over consumers who choose to support local merchants.
“Right now, you’ve got a storefront that is collecting sales tax competing with online companies, remote companies, who don’t have to collect that tax,” said Peter Gill, communications director for the Illinois Retail Merchants Association (IRMA). “Online retailers are on a completely different footing than brick-and-mortar retailers and this bill would level the playing field.”
The U.S. Senate approved the Marketplace Fairness Act of 2013, S 734, by a 69-27 vote. Sponsored by U.S. Sen. Mike Enzi (R-WY), the bill received bipartisan support, including a “yes” vote from U.S. Sen. Dick Durbin (D-IL). U.S. Sen. Mark Kirk (R-IL) voted “no.” The bill is now headed to the House.
"I've often listened to speeches in the House and Senate about how we need to do more to make certain that small businesses - the true job creators - can succeed," Durbin said in a statement after the vote. "A solid majority of the Senate stood up for small business today. I think the support in the House will be similar if the leadership practices what they preach and calls this bill for a vote."
According to Durbin, who introduced the legislation with Enzi and U.S. Sens. Lamar Alexander (R-TN) and Heidi Heitkamp (D-ND), more than 268 labor, business and government organizations support the bill, as do 22 bipartisan governors.
Nationwide, online sales amounted to an estimated $225.5 billion last year, according to the U.S. Department of Commerce. From that figure, states missed out on collectively generating approximately $23 billion in sales tax revenue, according to the National Conference of State Legislators.
“What (the Marketplace Fairness Act is) talking about is improving sales tax enforcement and closing the sales tax gap, and making sure that sales taxes are collected on all purchases,” said Carl Davis, a senior analyst for the Institute on Taxation and Economic Policy.
Davis said the bill is going to make a difference for states that have been forced to contend with a loss of revenue as a result of the economic depression.
“These sales tax revenues are going to do a lot of good for states that have been putting off infrastructure repairs or have slashed spending in other areas,” he said.
Illinois stands to gain a revenue boost of $212 million if the bill is passed into law, according to a 2011 report from the Illinois Department of Revenue (IDOR). Of that projected figure for the 2013 fiscal year, households will contribute $130 million and the remaining $82 million will come from purchases made by businesses.
Currently Illinois’ annual state income tax return allows taxpayers to admit how much they owe from online purchases, but compliance is largely unenforced. Last year, the state missed out on an estimated $183 million is sales tax revenue, according to IDOR.
“This revenue is clearly needed,” said Ralph Martire, executive director of the Center for Tax and Budget Accountability.
With an underfunded pension sysem reaching nearly $100 billion and a $9 billion backlog of bills that threatens to consume funding for public services, Illinois has been burdened with the worst credit rating in the nation.
In Gov. Pat Quinn’s proposed 2014 budget for general funds spending, K-12 education was targeted for close to $400 million in cuts.
But Martire said the added revenue stream from imposing sales taxes on online retailers will not “make a big difference on the state's overall fiscal health.”
“Something relatively drastic has to happen on revenue policy to fix that in the long term,” he said. “But that said, any added revenue that’s logical, that doesn’t hurt the economy, that comports with the modern way business is conducted, that certainly is welcome and should be added to the stream, and Illinois sorely needs it.”
One expert said the Marketplace Fairness Act will likely face opposition from lawmakers who deem it as a tax increase.
“It’s true this will raise revenues and it’s reasonable to think of it as a tax increase, but in actual fact this is not a new tax, this is a tax consumers should already be paying,” said Doug Hall, director of the Economic Analysis and Research Network at the Economic Policy Institute.
He said the revenue stream is a “matter of collection.”
Online businesses forced to charge sales tax and therefore contend with higher costs have spoken out against the Marketplace Fairness Act.
Amazon, an online retail conglomerate, supports the legislation, while online marketplace eBay has lead the charge against it, saying the bill could negatively impact sellers.
"This legislation treats you and big multi-billion dollar online retailers - such as Amazon - exactly the same," eBay Inc. CEO John Donahoe wrote in an email to eBay merchants in April. "Those fighting for this change refuse to acknowledge that the burden on businesses like yours is far greater than for a big national retailer."
But Hall pointed out that the legislation would only apply to online retailers who do more than $1 million in out-of-state sales annually, therefore protecting small businesses.
The online auction site, eBay, has lobbied to increase the small business exemption to online retailers with less than $10 million in out-of-state sales or less than 50 employees.
“It’s true this bill will require these companies to do some things that require a bit of money ... But this is simply a matter of leveling the playing field,” Hall said.
Also, a positive addition for online retailers, according to Hall, is the provision that states provide companies with one sales tax authority and free software to calculate the sales tax.
The White House issued a statement in April expressing support for the Marketplace Fairness Act, saying the bill “would eliminate the unfair advantage currently enjoyed by big out-of-state online companies over local neighborhood-based small businesses.”
Gill said the Illinois Retail Merchants Association strongly supports the legislation.
He predicted retailers will see a reduction in “showrooming” if the bill is passed. “Showrooming”, he said, is when consumers walk into a store to discuss a product with salesmen, but then turn around and purchase the product online to get out of paying sales tax.
“Anything that puts all retailers on the same footing, in the same marketplace matters a lot,” he said. “This (bill) is fair to all businesses.”