Updated: May 28, 2013 7:53PM
Online retailing has made a mess of sales taxes in America. States get short-changed on revenue that is legally due, and brick-and-mortar stores suffer when they have to collect taxes on goods their online competitors are peddling tax-free.
Capping a two-year effort by Sen. Dick Durbin (D-Ill.), the U.S. Senate has a chance to inject some sanity here. The eminently fair Marketplace Fairness Act would require online businesses to collect taxes that are legally due and fork them over. A Senate vote could come as early as Thursday, and a House vote would be next.
The law would replace a 1992 Supreme Court ruling that said states can’t require out-of-state retailers to collect the sales taxes. Legally, individuals are supposed to pay the taxes anyway, but generally don’t. In 2011, Durbin put revenue loss in Illinois alone at $153 million a year, and the National Retail Federation says it’s $24 billion nationwide.
Handling this on the state level is difficult. In April 2011 Gov. Pat Quinn signed legislation requiring big out-of-state retailers to collect sales taxes if the order came through an online affiliate based in Illinois. Amazon promptly severed its ties with Illinois affiliates, some of whom then moved out of state.
To protect mom-and-pop online ventures from daunting paperwork, the bill exempts businesses with less than $1 million in out-of-state sales a year. States also will be required to simplify their sales tax laws, and software to collect and remit the sales taxes will be free.
Internet retailers can’t be expected to be overjoyed with this bill. But having everyone comply with the same law is the fairest way to do it.