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Sales Tax Act - Main Street or Marketplace. Is SST Issue Key?

author photo of Sylvia F. Dion

If you follow my posts in the blog (and I hope many of you do), you’re probably well aware that my focus area for this blog is internet sales taxes. When I wrote my first post for SalesTaxSupport back in July, I assumed my focus would primarily be State “Amazon Law” developments. As a matter of fact, my first post was titled, “Amazon Laws: The New Normal? Internet Sales Tax Law Update”.

And while individual state attempts to legislate and pass nexus expanding statutes – ones where a mere web-link on an in-state website creates a “presumption” of nexus – haven’t ceased, the focus on passing federal remote seller legislation has certainly stolen the spotlight lately.

As you’re probably aware, there are multiple, competing bills before Congress, all which seek to grant States the authority to mandate out-of-state (“remote”) sellers to collect sales tax on sales to in-state customers. The first two bills, S. 1452 and H.R. 2701, which read identically, were introduced on July 29, 2011 and go by the same “Main Street Fairness Act” title. The next bill, H.R. 3179, “The Marketplace Equity Act”, was introduced on October 12, 2011. The final, and most recent bill, S. 1832, “The Marketplace Fairness Act” was introduced on November 9, 2011. (See my prior SalesTaxSuport posts on the Main Street Fairness Act, the Marketplace Equity Act and the Marketplace Fairness Act for more on each proposal.)

In today’s post, I’ll provide a quick update on these proposals, but more so, I’ll share my insights and observations on the November 30th, U.S. Judiciary Committee hearing on the Constitutional Limitations on States' Authority to Collect Sales Taxes in e-Commerce.

The purpose of the hearing, per Chairman Lamar Smith’s opening statement, was to explore two issues; “whether Congress should exercise its Commerce Clause power to enact sales tax reform legislation”, and “if Congress should act” how Congress “can do so in a manner that does not increase administrative and compliance burdens on America’s small business”. Amongst those invited to testify at this hearing were Dan Marshall, President of Marshall Music, who testified on behalf of the Michigan Retailers’ Association; John Otto, a State of Texas Representative; Tod Cohen, VP and Deputy General Counsel of eBay; Dr. Patrick Byrne, Chairman and CEO of Overstock; Indiana State Senator Luke Kenley, President of the Streamlined Sales Tax (“SST”) Governing Board; and Paul Misener, VP of World-wide public policy for Amazon. You can read the Chairman’s statement and the written testimony of each of the witnesses (by clicking on their name) at this link:

As “internet sales taxes” are my focus for the SalesTaxSupport blog (and I’m genuinely interested in sales tax developments in this area), I watched the hearing on C-Span. And, at the risk of sounding like a total tax geek, I was completely enthralled by what I witnessed.

Now, during the days that followed the hearing there was an abundance of media coverage mostly about the “rhetoric” between Tod Cohen of e-Bay and Paul Misener of Amazon, whose views proved vastly different. But the testimonies given and discussion that followed were about so much more than this highly publicized clashing of two high ranking e-Commerce executives.

There were several points that stood out for me. One was that the “debate” about whether remote retailers should be required to collect sales tax on sales to customers in non-nexus states, isn’t strictly about leveling the playing field between “brick-and-mortar” and on-line retailers. There’s debate between small on-line retailers and big on-line retailers, between small on-line retailers and big “bricks-and–clicks”, between small “brick-and-mortars” and the “big box” retailers. There are many more issues that impact achieving a level playing field, and, according to the various testimonies given, imposing a sales tax collection requirement on remote sellers won't address all of the perceived inequities.

During the hearing, Judiciary Committee members had the opportunity to pose questions to the witnesses. It was clear to me that some Judiciary Committee members do not understand the issues in any real depth. Sadly, I heard some rehash those very “internet sales tax misperceptions” that many in the general public believe.

On the other hand, it was encouraging to see some committee members ask poignant, relevant questions, such as Representative Ben Quayle (R-AZ), who voiced his concern that eliminating a “nexus” requirement for sales tax collection purposes could open the door to allowing states to impose all types of state taxes without regard to nexus.

Here’s another point I’ll note. I previously reported that out of the three proposals in Congress, I felt that neither the Main Street Fairness Act (S. 1452, H.R. 2701) or the Marketplace Equity Act (H.R. 3179) stood much chance of passing. My reasons were based on the fact that the Main Street Fairness Act lacked bi-partisan support from the get-go, and the Marketplace Equity Act, a quickly drafted proposal, was viewed by some as a proposal that surrenders Quill protection without demanding adequate simplification. And so, I had reported that the most recent legislation, the Marketplace Fairness Act (S. 1832), might possibly have the best chance of passing simply because, as a hybrid solution, S. 1832 grants remote seller collection authority to full-member Streamlined Sales Tax states but also offers an alternative set of simplification requirements for states that are not currently, and do not wish to become, Streamlined states.

However, as I listened to the Judiciary Committee hearing I noted that all three proposals were equally discussed. Towards the end of the hearing, Streamlined Sales Tax Governing Board President and Indiana State Senator, Luke Kenley, was asked why any proposal should be allowed to “cede authority to the Streamlined Sales Tax Governing Board”, the suggestion being that to allow the SST Board to dictate the simplification requirements and processes that states must meet to be granted remote seller collection authority, would be similar to making the SST Governing Board into a non-elected, legislative body. Thus, my point is that some in Congress may believe that the Main Street Fairness and Marketplace Fairness Acts grant too much authority to the SST Governing Board, making the Marketplace Equity Act the most palatable option.

Here’s a status of the various proposals as of today’s date. Currently, all of the proposals are “in committee”. The two Senate proposals, S. 1452 (Senate version of the Main Street Fairness Act) and S. 1832 (the Marketplace Fairness Act) have been referred to the Senate Finance Committee, led by Chairman, Senator Max Baucus (D-MT) and Ranking Member, Orin Hatch (R-UT). The two House proposals, H.R. 2701 (House version of the Main Street Fairness Act) and H.R. 3179, the Marketplace Equity Act, have been referred to the Judiciary Committee’s subcommittee on Courts, Commercial and Administrative Law, led by Chairman, Representative Lamar Smith (R-TX) and Ranking Member, John Conyers (D-MI). And yes, that's the same Representative Conyers who sponsored H.R. 2701.

Keep in mind that these committees are like "mini Congresses". Most bills begin by being considered by one or several congressional committees which may "report" the bill favorably or unfavorably to the Senate or House as a whole allowing it to receive consideration by the full body and move forward, or may fail to consider a bill at all preventing the bill from moving forward. Most bills never receive any committee consideration and are never reported out. Also, internal committee discussions are generally not made public, therefore, not much will be known until a bill is "reported on".

Will any of these proposals pass? Some are adamant that none will, others not so sure. But certainly there are many compelling arguments all around. So in conclusion, I thought I end with some of the quotes heard during the Judiciary hearing.

From Dr. Patrick Byrne, on Overstock's arguments against all three proposals and why nexus is critical:

"In my opinion, the pending bills allow states to shirk their responsibilities to administer and collect the taxes they impose on the taxable “end consumer”. “We oppose the pending bills because they ‘outsource’ to retailers, without compensation, the burden of collecting taxes from residents of states where those retailers have no physical presence nexus”. “Imposing an obligation on a company that has no political say in the taxing decision, the election of state and local officials who make that decision, or how the tax revenues are used, is about as perfect a definition of taxation without representation as can be devised in the 21st Century”

(Note: Overstock has drafted it's own proposal, The Equity in Sales Tax Collection Act Bill <-click to see the bill.)

From Paul Misener, on the “small-seller exception” threshold and how Amazon is ready to help small on-line retailers deal with their collection responsibility (with a jab against eBay thrown in):

“Much attention has been paid to the size of the ‘small seller exception’ threshold in federal legislation – and rightfully so. Such a threshold, which would exempt some sellers from a collection requirement, must be kept very low to attain the objectives of protecting states’ rights, addressing the states’ needs, and creating fairness among sellers”. “..…Amazon is prepared to make its technology available as a service to help sellers by collecting sales tax for them, eBay seeks to avoid any role in collection, claiming that small volume sellers will be burdened and, implicitly, that eBay’s technology is not capable of helping its largest sellers to collect”.

And finally, from Tod Cohen, e-Bay, on “the false paradigm”, the need for a high "small- seller" exception, and why sameness doesn’t mean fairness:

“The very idea that this debate is about ‘The Internet’ v. ‘Stores’ is a false paradigm.” “The story of retail competition did not begin with the Internet….. At the heart of the story has been the expanding dominance of giant retailers at the expense of small business.” “Some have said that e-commerce does not need ‘infant industry protection’. While this debate is not about an infant industry, it is about infant and small business.” “A true Small Business Exception will be an incubator for new businesses…” “You hear a lot about fairness in this debate. Some have claimed that a ‘level playing field’ means all retailers using the Internet should be held to the same remote sales tax standard. However, sameness is not fairness”


What’s up next? "An Update on State "Amazon Law" Efforts", "Amazon as Tax Collector? Amazon Rolls Out its New Tax Collection Service" (exact titles TBD)

About the Author: Sylvia Dion is the Founder and Managing Partner of PrietoDion Consulting Partners LLC, a SALT advisory firm which provides SALT services to businesses in the U.S. and throughout Europe, Canada, Latin American and Australia. Since 2011 Sylvia has served as a contributor to the SalesTaxSupport blogs and currently blogs on Internet Sales Tax, U.S. Sales Tax for Foreign Sellers, and Massachusetts Sales Tax. Sylvia has written articles for State Tax Notes, Bloomberg BNA and other premier tax journals. You can follow Sylvia on twitter and on Google+ and can contact Sylvia via e-mail at

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. Other contact options (and Consultation Requests) are also available on Sylvia's associated Firm Profile page.

Other recent “Internet Tax / E-Commerce” posts by Sylvia F. Dion, CPA:

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