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Senate Budget Resolution Includes Provisions for Collecting Online Sales Tax

Government leaders claim that the lack of authority for collecting sales tax with many online purchases costs the U.S billions each year, and to address this issue the United States Senate included a measure allowing state and local governments to collect sales tax directly from online purchases as part of their budget resolution.

Collecting sales tax for online purchases has been a debated issue for several years with brick-and-mortar merchants arguing that online retailers have an unfair advantage while eCommerce merchants object that the complications of charging many tax rates that differ by state and county would be a burden to small businesses. As the laws stand currently, merchants are required to collect sales tax for online transactions at the time of purchase when they have a nexus or physical presence in the state where the sale occurred. For all other online transactions states have the ability to collect use tax, equivalent to the sales tax but remitted later, although very few consumers acknowledge this or remit these payments.

The Marketplace Fairness Act, which was first introduced in late 2011, would have businesses collect sales tax for all U.S. online purchases and remit the tax to the states where the buyer lives. Without being enacted in the 2012 Congressional sessions the bill expired, but was revived as the Marketplace Fairness act of 2013. The act was then included in recent budget resolutions with 75 Senators voting to keep it in the resolution. However, the Marketplace Fairness Act will still need to go through the legislative process as an act separate from the budget. But strong support of the measure early on suggests that 2013 might be the year the Marketplace Fairness Act and online sales tax measures are approved.

In addition to the many Senators the National Governors Association, Wal-Mart and Amazon all support the bill. Although opponents argue that these companies already collect sales tax in all or many states and that it would have much greater effects on smaller competitors. There is an exemption in the bill that does not require businesses with online sales less $1 million per year to collect sales tax with online purchases, but many opponents think that threshold is set too low. Meanwhile federal and state government officials are most concerned with increasing tax revenues. Estimates from the National Conference of State Legislature found that U.S. states collectively lost more than $23 billion in tax revenue from online purchases in 2012.

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