By an overwhelming 75-24 vote, Senators, late Friday, approved an amendment to the budget draft that would authorize states to compel merchants to collect sales taxes on on-line purchases. The amendment itself is non-binding, but it signals broad support for legislation dubbed The Marketplace Fairness Act. Action on that legislation could come later this year.

Techincally, on-line purchases are subject to sales tax. A landmark Supreme Court decision, however, limits states ability to compel merchants to collect the tax, unless the merchant has a substantial “physical presence” in the state. Under current law, consumers are expected to report their on-line purchases to the state and remit the taxes they owe. Unsurprisingly, almost no one does this.

Under the terms of the Act, traditional retailers would continue to collect applicable sales taxes in the jurisdictions where their store is located. On-line retailers, however, would have to collect sales taxes applicable to where their consumer is located. On-line retailers would have to keep track of the 7,000+ sales tax jurisdictions in the country and regularly remit sales taxes there.

 

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