Main Street Fairness Act

The Main Street Fairness Act.  It has a great name doesn’t it?  Who doesn’t want fairness for all of us out here on Main Street, especially when Wall Street has had more than its fair share of help from the government?  Well, the name can be a little deceiving since the bill doesn’t necessarily make anything more fair 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.

This type of legislation comes up repeatedly for consideration by congress.  Although these types of bills haven’t yet passed, this legislation has a good chance of passing this time around because many states are so desperate for tax revenue.  If The Main Street Fairness Act does pass it will change the current law which only requires online retailers who have nexus, or a physical presence in the state to collect sales taxes.

Overriding Nexus Rules

The 1992 U.S. Supreme Court case Quill Corp. v. North Dakota (504 U.S. 298) set a precedent that in order for sellers to pay sales tax they had to have a physical presence in the state.  The court also said that only congress has the power to require out of state sellers to collect sales taxes.  That is exactly what the Main Street Fairness Act seeks to do.  If passed, congress would be giving states the ability, if they so choose, to require out-of-state retailers to collect and remit sales taxes on all sales in their state.

That means all online and catalog sales could become taxable, whether or not the seller has a physical location in the state.  However, if this law passes it may not affect every state.

Which States Would This Affect?

This bill only applies to states that have been approved for membership in the Streamlined Sales Tax Project, which is an organization made up of state government officials that seeks to standardize sales tax laws and registrations for all states.

  There are 23 states who are members of this organization.  If this bill were to pass, those 23 states would have the authority to require online retailers to collect taxes in their state, even if those retailers don’t have a physical presence (or nexus) in that state. 

Presumably, if this law were passed many other states would be compelled to become members of the Streamlined Sales Tax Project.  These new member states would then also be able to enforce sales taxes on out-of-state online retailers, so this law could potentially affect more than just these 23 states depending on which states choose to join.

This Does Not Create a New Tax

The most important thing about this bill may be what it does not change.  This bill does not result in a new tax on consumers.  Consumers are already responsible for reporting and remitting sales taxes for online and catalog purchases to their state, even when the retailer does not collect the tax.  And I'm sure all of you out there are paying the taxes on your online purchases with your state income tax return right?  Right. 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.

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 taxes levied by states simply because they collect sales taxes there.  The bill states that it only applies to sales and use tax and that companies required to collect taxes under this law would not be automatically required to pay other state taxes.  Nexus rules for income taxes, franchise taxes, corporate taxes, and any other state tax would remain in effect.

More information:  Read the Main Street Fairness Act (HR 5660),