The History of the Main Street Fairness Act—Where Is It Now?

These sales tax bills mostly affect online merchants

Businesswoman sitting at office workstation working on computer with dog sitting on her lap.

The Main Street Fairness Act. The name has a great ring to it, but it's actually a little deceiving because this federal bill was never intended to make anything fairer for the average Joe. What it did attempt to do was level the playing field between online retailers and storefront retailers by making online retailers collect sales taxes.

The History of Online Sales Taxes

This type of legislation comes up repeatedly for consideration by Congress in one form or another. The House of Representatives referred the Main Street bill, known as "H.R. 166," to the House Committee on Ways and Means on Jan. 3, 2017...and that's where it stalled. This was the 115th Congress and it met until Jan. 3, 2019 with no resolution on the bill.

The same thing had already happened with the 114th Congress where the bill was referred on April 27, 2016.

This didn't mean that the issue of interstate sales taxes was dead, however. On June 21, 2018, the Supreme Court effectively overturned a previous decision in Quill Corp. v. North Dakota with a ruling in South Dakota v. Wayfair.

Overriding Nexus Rules

The 1992 U.S. Supreme Court case Quill Corp. v. North Dakota (504 U.S. 298) set a precedent requiring that sellers must pay sales tax only if they had "nexus" in a state—legalese for a physical presence there. It was generally accepted that this meant they had either property or employees located within the state.

The Court also said that only Congress had the power to require out-of-state sellers to collect sales taxes, and that's exactly what the Main Street Fairness Act had previously sought to do—get Congress involved. If it had passed, Congress would have been able to give states the ability to require out-of-state retailers to collect and remit sales taxes on all sales made within their jurisdictions.

The decision ultimately came down to the states, however. They could require these taxes if they wanted to. All online and catalog sales could become taxable regardless of whether the seller had a physical location in the state. 

South Dakota sought to require sales taxes, eventually suing a group of retailers when they resisted complying. This led to the SCOTUS decision in South Dakota vs. Wayfair. South Dakota came out the victor when the Court ruled that such taxation presented no barrier to interstate commerce...although more extensive forms of taxation might.

Which States Would This Affect?

This Main Street Fairness Act applied only to states that were approved for membership in the Streamlined Sales Tax Project, an organization made up of state government officials. Its goal was to standardize sales tax laws and registrations for all states, and 23 states were members. If the Main Street bill were to eventually pass, at least in its previous form, those 23 states would have the authority to require online retailers to collect taxes in their states, even if those retailers don’t have a physical presence or nexus there.

The presumption was that many other states would have been compelled to become members of the Streamlined Sales Tax Project if this law were passed. These new member states would then also be able to enforce sales taxes on out-of-state online retailers. This law could potentially affect more than just these 23 states, depending on how many chose to join.

A total of 31 states had implemented laws allowing taxation of internet sales by 2018.

The Bill Wouldn't Create a New Tax for Consumers

The most important thing about this bill was what it didn't change. It wouldn't result in a new tax on consumers. They're already responsible for remitting sales taxes for online and catalog purchases even if the retailer doesn't make any effort to collect the money. And who among us dutifully sends in sale tax on online purchases when no one asks us or bills us for it?

The only thing this bill would have done was give states the ability to require online retailers to collect and remit sales taxes instead of leaving it up to the consumer. But, of course, if we haven't been paying sales taxes and online merchants begin to collect it, consumers are bound to feel the resulting pinch. 

It Would Not Obligate Retailers to Pay Other Taxes

The bill expressly stipulated that it did not obligate sellers to pay income taxes, franchise taxes, or any other type of taxes levied by states simply because they collect sales taxes there. The bill states that it only applies to sales and use taxes. Nexus rules for income taxes, franchise taxes, corporate taxes, and any other state taxes would remain in full effect.