Tech Groups Oppose Internet Sales Tax Legislation

A bill in the U.S. Congress that would require Internet sellers in many states to collect sales tax would hurt small businesses online, a tech trade group said Wednesday.

The Main Street Fairness Act, introduced last Thursday by Representative Bill Delahunt, would allow states to force online sellers to collect sales tax, even if the seller has no physical presence in the state. Under current U.S. rules, Web sites must charge a tax on sales only when the customer is in a state where the seller has a physical presence.

Tech groups have long fought efforts to expand Internet sales taxes, and legislation in past sessions of Congress has failed to pass. The legislation by Delahunt, a Massachusetts Democrat, would place a huge burden on small online businesses to collect taxes for "thousands" of state and local tax jurisdictions, said the Computer and Communications Industry Association (CCIA), a tech trade group.

The legislation would slow the growth of the Internet economy, said CCIA President and CEO Ed Black.

"Given the current economy, it would be unfair and unwise to burden online vendors with the task of sorting through the policies of thousands of taxing authorities around the country, and serving as revenue collection agencies for each of them," Black said in a statement. "Many mom-and-pop businesses could not afford the tax attorneys and [accountants] that would be needed to comply with that many different state and local tax laws and would just close their business."

EBay also voiced opposition to the Delahunt bill.

"Year after year, supporters of increased Internet sales taxes recommend legislation that would impose significant new costs on hundreds of thousands of online small businesses and e-commerce entrepreneurs, which is sure to harm the economy and kill small business jobs," Tod Cohen, eBay's vice president for government relations, said in a statement. "At a time when unemployment rates are high and small businesses across the country are closing shop, we are confident that Congress will protect small internet retailers and the consumers they serve from another Internet tax scheme."

Delahunt's bill would allow states that have signed on to a multistate pact called the Streamlined Sales and Use Tax Agreement to collect sales tax from all online sellers. The agreement, an effort to simplify the collection of sales taxes, is now endorsed by 20 of the 50 U.S. states, and three more are working toward compliance. Among the states signed on to the agreement are Michigan, New Jersey, Indiana and North Carolina.

The legislation is necessary because "Main Street" businesses are shouldering an unfair tax burden, said Delahunt, who's retiring from Congress in November. This year, an estimated $18.6 billion of sales taxes will go uncollected because states can't tax Internet sales, he said on his Web site.

"This bill is designed to help states retrieve billions in sales tax revenues that are owed but currently going uncollected while providing long overdue relief to Main Street businesses by restoring fairness and competition to the marketplace," he said. "These revenues go uncollected because of the complex array of sales tax rules across the country. These outdated systems allow many online retailers to avoid collecting sales taxes from out of state consumers, and place retailers on local Main Streets at a competitive disadvantage simply because they collect and remit sales tax revenue. This is wrong."

The legislation will help state governments balance their budgets without raising taxes, he said.

The Main Street Fairness Initiative, a group of small businesses, state legislators and others pressing for an online sales tax, said the continued soft economy is forcing state and local governments to cut budgets and jobs.

"Our mom-and-pop businesses on Main Street and our local firefighters and police officers need our help," the group said on its Web site. "In these difficult economic times, we need to ensure our Main Streets stay vibrant while protecting much needed local jobs. Our communities are facing budget shortfalls that may lead to the loss of essential services in our communities such as education and first responders."

The bill is supported by the National Retail Federation, Retail Industry Leaders of America, National Governors Association, U.S. Conference of Mayors, the National Conference of State Legislatures, National Association of Counties, and National League of Cities, Delahunt said.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantusG. Grant's e-mail address is grant_gross@idg.com.

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