Main Street Fairness Act – Taxing Ecommerce to Level the Playing Field?

HR 5660, Main Street Fairness Act

HR 5660, also known as the Main Street Fairness Act, is a proposed bill that requires online retailers to collect sales tax for all purchases. But what is this bill and what would it mean for your online business? Read on to learn more.

The ecommerce world is swarming with buzz regarding the latest piece of proposed legislation from the US House of Representatives. HR 5660, also known as the Main Street Fairness Act, is a bill that is intended to “promote simplification and fairness in the administration and collection of sales and use taxes.” In other words, if passed, this bill will require online retailers like you to charge an internet sales tax.

There’s already tons of debate and sharp words moving back and forth. Even eBay’s vice president of government affairs included his two cents by denouncing the bill. Proponents of the bill hope to even the playing field for brick and mortar stores that are required to charge sales tax, and thus, charge higher prices to their customers.

This isn’t the first time this type of legislation has been introduced to the halls of Congress. But now, e-tailers are particularly worried about new talks of an online sales tax due to the deep budget deficits that several states around the country are facing. Some reports estimate that passage of this bill could bring in over $23 billion in new taxes to cash-strapped states. Obviously, this would be helpful for states looking to balance their budgets and pay debts, but on the other hand, how much would the Main Street Fairness Act burden online businesses? And for that matter, how much would this burden the states required to implement this potential law?

That’s what I wanted to find out. After researching various cookie-cutter articles, I realized that no one had taken the time to actually read the bill. Just to preface, this analysis is personal in nature and doesn’t reflect the views of Volusion.

So let’s dive into this big ole’ bill, shall we?

First, take a look at the title of the bill: “The Main Street Fairness Act.” As we know, members of Congress are inundated with hundreds of bills a day and don’t have time to analyze every word, so titles are important. The context of the phrase “Main Street” is most often related to the battle between “Main Street” and “Wall Street,” so from the gate the title doesn’t accurately reflect the bill’s content.

Once you start reading the bill, Section 3 lists a series of 6 findings that the legislation is based on.

  • States need to simplify their tax systems
  • All sales transactions should be taxed equally, regardless of type (retail, phone, online)
  • Congress has the power to make this law based on a 1992 Supreme Court decision, Quill v. North Dakota
  • Sellers should have to collect taxes on sales that are delivered to a state outside of their home base
  • States have a vested interest to collect these taxes and should lead this effort
  • Online privacy is important to ecommerce and should be protected

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These findings are pretty easy to digest and are agreeable to most. So now, let’s move to Section 4 and 7 of the bill to see where things get a little bit hairy – this is where implementation of the Main Street Fairness Act is explained.

First, this bill would only apply to “Member States under the Streamlined Sales and Use Tax Agreement.” This only amounts to 24 states who signed a tax agreement back in 2002. In order for any of these 24 states to become a part of this new legislation, there is a list of requirements that must be met and approved by a governing board.

A summary of the requirements detailed by HR 5660 include:

  • State must create a multistate registration system for a seller (online retailer) to register under, with full privacy controls in place
  • State must create standard definitions of products and product-based tax exemptions
  • State must create a set of procedures to certify ecommerce software to be compliant and usable in light of new tax rules
  • Each jurisdiction within a state must create a single tax rate
  • State is required to provide “reasonable compensation” to reimburse sellers for expenses caused by administering and collection said sales tax
  • State must build standard rules for sellers to handle this sales tax with returns

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Sounds like a lot of work to get this going. Especially when you consider that the next set of requirements demands a state to “reduce the administrative burdens associated with sales taxes.”

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That pretty much sums up the bill, which left some looming questions:

Is this really going to help?
This bill could be of extreme benefit to buyers, sellers and states alike if it created a uniform internet tax code. But if only 24 states are eligible to enforce this law, online taxes only become more complicated. For this bill to make the desired impact, there needs to be a sweeping reform of online tax rules for all 50 states. This would allow for states to easily direct sellers on how to collect taxes, which would increase the number of sellers who actually report these taxes to their state governments.

What does this mean for eligible states?
Someone within various state agencies is going to be responsible for meeting the requirements of the bill before actually collecting tax monies. The most complicated piece seems to be the multi-state registration system and how to share new tax regulations with merchants from various geographies with various tax laws. This becomes even more difficult when factoring in different stipulations and rates from different states. Communication will be key here – the state will need to bear the responsibility of informing online businesses, not the other way around.

What does this mean for online business owners?
The Main Street Fairness Act would add an extra layer of work for online retailers. This would include registration with multiple states, understanding multiple state tax rules,  and reporting of taxes and other administrative duties. Also, online businesses would have to ensure that their ecommerce provider was approved by their specific state to use for their business.

If passed, how long before an online sales tax goes into effect?
Based on all of the requirements that eligible states have to meet, it seems that it’ll take quite some time for new sales tax collection to actually take place. Also, there’s a judicial approval and appeals process that has to be considered. In other words, if this bill is passed in the next month, don’t expect your operations to change for at least a year.

Will this bill even pass?
It ultimately depends on when it’s introduced – if it takes place before the upcoming midterm elections, there’s a higher probability, especially if it’s included with the increased volume of bills that are quickly decided upon before said elections. And again, with so many states under budget crises, there’s more of an urgency behind this bill than previous ones.

What about the economy?
In a time when ecommerce is booming and retail sales aren’t, we’re beginning to see the importance of ecommerce to the overall economy. Will adding a sales tax present a new barrier to entry for new business owners? Also, if consumer spending is the core of the American economy and consumers are buying more online, will this bill help or hinder economic recovery?

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If you’d like to read the bill in its entirety, check it out here.

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It’s going to be an interesting road for this bill and it’ll likely face heated debate from multiple viewpoints. But ultimately, I’m interested in hearing from you. What do you think about this bill? Is my analysis a bunch of hooey? How do you think it will impact ecommerce? Do you think it will pass? Share your thoughts so we can collectively understand this potentially important bill.

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Happy selling!
– Matt Winn, Marketing Associate

About 

Matt Winn is Volusion’s Senior Brand Manager, where he helps oversee the organization’s branding and communications efforts. Matt has created hundreds of articles, videos and seminars on all things ecommerce, ranging from online marketing to web design and customer experience. Beyond being a certified nerd, Matt is an avid college football fan, enthusiastic home cook and a self-admitted reality TV junkie.

3 Responses to “Main Street Fairness Act – Taxing Ecommerce to Level the Playing Field?”

  1. Fulcrum Inquiry

    Thank you for this enlightening post. The points you raise regarding the Main Street Fairness Act show true insight into a pressing issue of today. Here’s an alternate perspective on the Mainstreet Fairness Act for your viewing. Enjoy!

    Reply
  2. Ryan Forrest

    Between shipping and packaging costs and other maintenance and marketing fees, I don’t see that much of a difference between e-tailer prices and brick and mortars. In fact, it seems like it would be more expensive to the consumer to go online. The whole reason they’re shopping online is that they don’t have to leave their homes, not because they save a ton of money. Outside of the Amazons and Ebays of the interwebs, who is really that under-priced anyway? It seems more like an excuse for the government to make more money and I doubt it would force users to shop local versus online.

    Reply
  3. Beatrice Vaccaro

    Thank you for the well-researched article. I want to address the issue of what online retailers need to do to comply. The Streamlined States Initiative provides for vendors to become certified to handle the tax calculation and remittance on behalf of the retailer. Our company, FedTax.net, is launching a completely FREE service named TaxCloud, which automatically calculates accurate local sales tax for every jurisdiction in the United States. Internet merchants can point their existing e-commerce systems at TaxCloud for sales tax calculation, the same way they point at USPS/FedEx/UPS for calculation of shipping rates. For those states which have come into compliance with the Streamlined Sales Tax Agreement, TaxCloud will also automatically remit collected sales taxes, file periodic sales tax returns, and FedTax.net will act as the primary responder in the event of a jurisdictional audit. – again all for FREE. We invite you and your readers to check out our service and contact us for more information.

    Reply

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