Enacting the Marketplace Fairness Act: now or never.

• Author: McDonald, Dustin
• Position: Federal Focus

On May 6 the Senate passed S 763, the Marketplace Fairness Act, by a vote of 69-27. The legislation would give state and local governments the option to collect taxes on remote sales, which are already owed to them under current law. Despite the broad bipartisan approval of the measure in the Senate, the legislation has languished in the House and faces an uncertain future without significant engagement by state and local government officials and other supporters. The GFOA is working with its state and local government coalition partners to encourage House action on the Marketplace Fairness Act and oppose efforts to attach harmful legislation to the measure as it advances.

The swift Senate passage of the Marketplace Fairness Act stoked state and local government hopes for a similarly expedited path for the bill in the House. However, House leaders have deferred decisions on the fate of the measure to House Judiciary Committee Chairman Bob Goodlatte (R-Va.). Citing concerns raised by some House members over how the bill would affect small businesses and whether or not the bill authorizes states and local governments to collect a new tax, Goodlatte has pledged to take a slower approach to House consideration of the bill. Many of the concerns being presented to the Chairman largely spring from a misinformation campaign that is being waged by opponents of the bill and a general lack of awareness about the decade-plus effort by state and local governments, supportive retailers, and some federal champions to compel remote sellers to collect online sales taxes.

THE QUILL DECISION

For example, the argument that the Marketplace Fairness Act would permit new taxing authority to state and local governments distorts the facts with respect to current state laws and federal law as established under the Supreme Court's decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). That decision holds that a state may not require a seller that does not have a physical presence in the state to collect tax on sales into the state. In states that impose a sales tax, however, online buyers are required to pay a use tax for items upon which no sales tax has been paid--although sellers often do not apply this tax and most buyers are not aware of their obligation to remit it. This negligent tax compliance arrangement has imposed increasingly negative fiscal consequences on state and local governments as a greater number of consumers have begun to shop online...