The Main Street Fairness Act
The bill mostly affects online merchants
The Main Street Fairness Act. The name has a great ring to it. Who doesn’t want fairness for all of us out there on Main Street, especially when Wall Street has had more than its fair share of help from the government over the years?
But the name is actually a little deceiving. This federal bill doesn’t make anything fairer for the average Joe. What it does do is attempt to 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. Although these bills haven’t yet passed, lawmakers keep trying.
In the legislation's most recent incarnation, the House of Representatives referred the bill known as "H.R. 166" to the House Committee on Ways and Means on January 3, 2017...and there it sits. The same happened on April 27, 2016. The bill stalled then, too.
This doesn't mean it's dead by any stretch of the imagination. It's a safe guess that legislators will keep trying, and if the Main Street Fairness Act does eventually pass it will change the current law. As it stands now, only online retailers who have "nexus"—a physical presence in a state—must collect sales taxes there.
Overriding Nexus Rules
The 1992 U.S. Supreme Court case Quill Corp. v. North Dakota (504 U.S. 298) set the precedent requiring that sellers must pay sales tax only if they had a physical presence in the state.
The Court also said that only Congress had the power to require out-of-state sellers to collect sales taxes.
Enter the Main Street Fairness Act. That's exactly what the act seeks to do—get Congress involved. If passed, Congress could give states the ability to require out-of-state retailers to collect and remit sales taxes on all sales made within their jurisdictions.
Ultimately, the decision comes down to the states. They could require these taxes if they want to. This means that all online and catalog sales could become taxable regardless of whether the seller has a physical location in the state.
But to really complicate things, the law may not affect every state even if it passes.
Which States Would This Affect?
This bill only applies to states that have been approved for membership in the Streamlined Sales Tax Project, an organization made up of state government officials. Its goal is to standardize sales tax laws and registrations for all states, and 23 states are members. If the Main Street bill were to pass, 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 is that many other states would be 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 which and how many states choose to join.
It Does Not Create a New Tax
The most important thing about this bill might be what it doesn't change. It doesn'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 for it? The only thing this bill does is give states the ability to require online retailers to collect and remit sales taxes instead of leaving it up to the consumer.
Of course, if we haven't been paying sales tax 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 stipulates that it does 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.