The past few years have been frustrating and confusing for catalog or online sellers. With no regard for established law, states from Alabama and South Dakota to Utah, Colorado and Tennessee have engaged in open warfare against long-standing precedent that protects businesses from regulation and taxation by states in which they have no physical presence. Meanwhile, retailers have watched as several lawsuits against cross-border sales tax regulations spawned by those states have begun to wend their way through the judicial system.
But the biggest obstacle businesses face could come before the end of this year if Congress uses its lame duck session to deepen the chaos and uncertainty created by these state actions by passing the fatally-flawed and inaccurately-named Marketplace Fairness Act, or MFA.
Senate Majority Leader Mitch McConnell (R-KY) said earlier this year that the Senate would likely vote on Internet sales tax collection legislation before year’s end. But to stick with that plan would hurt thousands of remote sellers, while short circuiting the current robust debate over how to fairly and properly update the law in light of the explosion of e-commerce.
MFA would require small- and mid-sized Internet and catalog retailers to comply with the sales tax rules of more than 10,000 jurisdictions around the country, including observing thousands of varying sales tax holidays and diverse definitions of different products. In addition, sellers could be on the hook to submit to as many as 46 audits in states where they have no physical presence. That not only is counter to this nation’s founding principles of no taxation without representation, but it also could lead some businesses curtailing sales in many states, harming competition and consumer buying options.
MFA would permit states to provide their own “free” compliance software, but businesses would be saddled with potentially hundreds of thousands of dollars in costs to integrate this software into their systems. Once the software is integrated, businesses will likely find they must continue to pay hundreds of thousands of dollars to maintain such systems, and to regularly map each of those products to the software systems.
Though Congress tried to enact MFA three years ago, even now the bill has never had a hearing or been approved by committee vote. What’s more, since Sen. McConnell outlined his tentative plan in February, a better choice has surfaced. This past summer, the House Judiciary Committee released draft legislation that would provide a fair, clear and simple solution to this issue. Already endorsed by more than 100 retailers nationwide, the committee’s measure, known as the Online Sales Tax Simplification Act, would allow catalog and online retailers to abide by tax rules and audits only in states where they have a physical presence.
In the meantime, remote sellers should take an active role in this issue and contact their members of Congress and their state representatives in order to resolve this issue in a fair and workable way. Additionally, online and catalog retailers currently can rely on established Supreme Court precedent when states try to bully them into collecting sales tax. Unless the high court reverses itself or Congress acts, remote sellers should reject unconstitutional state efforts by telling regulators, “Based on established Supreme Court precedent, our company does not recognize your right to impose sales tax burdens on us when we have no physical presence in your state.”
Congress needs to solve this issue, and the House Judiciary Committee’s draft from this summer is a good starting point. Members of Congress should be aware of MFA’s shortcomings by now. But if they aren’t, then retailers need to remind them of the very real harm and burdens MFA would impose on remote sellers across the United States.
The American Catalog Mailers Association is a trade group for catalog marketers.