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States’ ability to tax remote sales closer to becoming a reality

by Tim Anderson ~ May 2013 ~ Stateline Midwest »
Twenty-one years ago, the state of North Dakota’s attempt to collect a use tax from Quill Corp. for its catalog sales ended in legal defeat. Much has changed since that U.S. Supreme Court decision — the rise of online commerce, for example, and a multistate effort to streamline sales and use tax systems.
But only a political victory will undo the 1992 court ruling, which requires congressional action before any state can compel sellers without a “physical presence” within its borders to collect and remit taxes on sales made to in-state customers.
Could this be the year that the U.S. Congress gives states this taxing authority?
The Marketplace Fairness Act (S 743) passed the U.S. Senate in May with bipartisan support. Legislation has also been introduced in the U.S. House (HR 684) with the backing of a bipartisan group of 65 co-sponsors.
Under both versions, the authority to collect remote sales and use taxes would be extended to any state that is a member of the Streamlined Sales Tax Agreement. The proposed legislation would also extend this new taxing authority to states that meet certain sales-tax-simplification requirements.
Nine of the Midwest’s 11 states are full members of the Streamlined Sales Tax Agreement; Ohio is an associate member (largely conforming) and Illinois is an “advisory state” (not conforming). The goal of this agreement is to minimize the costs and administrative burdens on retailers that collect sales taxes in multiple states.
The federal measure is supported by many state lawmakers as well as brick-and-mortar retailers. In 2012, The Council of State Governments Executive Committee called on the U.S. Congress “to regulate e-commerce through legislation that allows states to enforce their existing sales and use tax laws.”
A national study done four years ago by University of Tennessee researchers estimated that state and local governments would lose $11.4 billion in sales tax revenue due to e-commerce in 2012 — with losses in the Midwest ranging from a high of $506.8 million in Illinois to a low of $15.3 million in North Dakota (see map).
General sales-tax collections are the largest source of revenue for three Midwestern states: Indiana, Michigan and South Dakota. They are the second-largest source in the region’s eight other states.