NRF Says Online Sales Tax Advantage is 'Stifling' Local Stores

National Retail Federation urges House committee to require Internet retailers to collect sales tax the same as local merchants.

The National Retail Federation has urged the House Judiciary Committee to support legislation that would require Internet retailers to collect sales tax the same as local merchants, saying online sellers have a price advantage that is “stifling” Main Street stores’ ability to compete.

“Different retailers have different strategies for going to market, but one feature is beyond a retailer’s control: only some collect sales taxes,” said David French, NRF senior vice president for government relations. “This disadvantage is not created by the marketplace but by the current state of the law following the Quill decision, stifling retailers across the country.”

“As retailing evolves and Internet sales become a more prominent portion of total retail sales, it is critical that Congress address the sales tax collection discrimination that exists between brick and mortar and remote retailers,” French said. “Congress must resolve the Constitutional questions posed by the Quill decision in a fashion which promotes a level playing field between retail competitors.”

French’s comments came in written testimony submitted for a hearing today on sales tax fairness legislation. The panel is scheduled to examine constitutional limitations on states’ ability to require out-of-state sellers to collect tax on sales made to their residents.

Online sellers are already required to collect sales tax from customers in their own states, but congressional action is needed because of a 1992 U.S. Supreme Court ruling. The court ruled in Quill v. North Dakota that retailers are required to collect sales tax from out-of-state customers only if they have a physical presence such as a store, warehouse or office in the customer’s state. The court held that the 45 state and 7,600 local sales tax systems across the nation were too complicated for a retailer to otherwise know how much tax to collect.

Three bills that would address the issue – the Main Street Fairness Act, the Marketplace Equity Act and the Marketplace Fairness Act – are pending in Congress. French said collection authority is a priority, but requirements included in each bill for states to simplify their sales tax systems are also key to ensuring sales tax reform.

“Sales tax fairness requires all sellers, whether brick and mortar or remote, to collect sales taxes, but only after the states have simplified their collection requirements,” French said. “NRF urges the committee to enact sales tax collection reform that will level the playing field between brick and mortar and remote sellers by granting states the authority to collect sales taxes from all sellers regardless of their distribution method.”

French said sales tax fairness legislation would not only level the playing field between retailers but also ease the burden on cash-strapped states that are currently losing an estimated $24 billion a year to untaxed online purchases. Recouping that revenue would help support essential local services such as teachers, police officers, firefighters and ambulance crews, she said.