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States edge closer to collecting sales tax from online retailers

High Point, N.C. - Brick and mortar home furnishings stores have long decried a perceived competitive advantage of online retailers because many sites don't collect state and local sales taxes.
That could change before the year ends.
S. 1832, also known as the Marketplace Fairness Act, was introduced in Congress last year and is now in committee. It would authorize states to collect sales tax from remote sellers like Internet retailers.
While congressional legislative efforts to force Internet retailers to collect sales taxes are nothing new, what's different this time is that some big Internet retailers like Amazon have buckled in recent months and have agreed with states including Indiana and California to start collecting the taxes at a future date.
S. 1832 would begin requiring collection 90 days after legislation is passed. The bill exempts small sellers - businesses with less than $500,000 in remote sales. Through the bill, states can join the Streamlined Sales and Use Tax Agreement or adopt a set of simplified guidelines to collect sales taxes.
It aims to collect what a University of Tennessee study estimates is $11.3 billion in lost revenue from e-commerce sales taxes that states and localities won't collect this year.
Industry analyst Jerry Epperson of Mann, Armistead & Epperson said that online retailers were once unified against collecting state sales taxes. But as the Internet has evolved from its wild frontier beginnings into a solid and growing retail channel, some of those retailers are now viewing it as inevitable.
"I think most people recognized this was going to happen," Epperson said.
Two rules govern the current online retail approach to sales tax.
In 1967, the Supreme Court ruled in National Bellas Hess v. Department of Revenue that mail order resellers needed to have physical contact with a state - other than mail - to be required to collect state sales tax.
In Quill Corp. v. North Dakota, the Supreme Court in 1992 ruled that a business must have a physical presence in a state to collect, but said Congress could "overturn" the decision by legislating the parameters of state taxation.
While S. 1832 wouldn't overturn the Supreme Court rulings, it would allow Congress to authorize collection of sales taxes by states without retailers needing a physical presence, said Ronald Alt, a senior research associate with the Federation of Tax Administrators.
A number of companies, including Wal-Mart, Barnes & Noble and Apple, already collect sales taxes from online sales. But those companies have a physical presence in states, he said.

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