Proposed sales tax collection law has businesses on edge

By JOYCE M. ROSENBERG Modified: January 23, 2013 at 9:10 pm •  Published: January 24, 2013

A thorny issue

State and local government officials have wanted to change the law for years, even before the catalog boom of the 1980s and the Internet boom of the '90s.

Small business owners have resisted along the way. They argue that the burden of keeping up with the estimated 15,000 different sales tax rates charged by the 7,500 to 9,600 jurisdictions made up of states, counties, cities and towns, is just too much.

They have a point. Knowing how much to tax, and where, can be complicated. What is taxed also varies widely.

The effort to change the law intensified as the growth of the Internet increased and companies' out-of-state sales volume swelled. Many sellers felt protected by a 1992 U.S. Supreme Court ruling that states could not force out-of-state sellers to collect sales tax. But the court, in effect, invited Congress to create a law that would give the states the authority to require that taxes be collected.

Three separate bills were introduced in the last Congress that would authorize states to require remote sellers to collect taxes. In the Senate, the Marketplace Fairness Act had bipartisan support but did not come to a vote. Sen. Dick Durbin, D-Ill., one of the bill's sponsors, has told The Associated Press the bill was tabled because of concerns by Sen. Max Baucus, D-Mont., about the burdens tax collection would place on companies in his state, where there is no sales tax.

But the burden small business owners fear may not be as bad as they think. The government would likely require that states make the process easier for small companies. And the smallest of these businesses are expected to be exempt. The proposed Marketplace Fairness Act exempts businesses that have $500,000 or less in sales from remote states. But Durbin says that number is open to negotiation.