NLC Calls on Congress to Allow Cities to Collect Owed Sales Taxes

July 27, 2012

by Lars Etzkorn

Calling for Congress to give cities the authority to collect sales taxes owed on internet purchases, the National League of Cities (NLC) with other groups representing local governments sent a letter to the House Judiciary Committee last week before its hearing on the Marketplace Equity Act (H.R. 3179).

"The Marketplace Equity Act would give state and local governments the option to collect the sales taxes that are already owed under current law from out-of-state businesses, rather than rely on customers to pay those taxes to the states when filing their annual state tax returns," NLC wrote. "Customers are already required to pay taxes when they make online purchases, just like when they make purchases in a store; however, most taxpayers are not aware of this responsibility, and states and localities do not have the resources to enforce payment."

Representatives Steven Womack (R-AR) and Jackie Speier (D-CA) introduced the legislation in the House. Senators Mike Enzi (R-WY) and Dick Durbin (D-IL) have introduced similar legislation, the Market Place Fairness Act (S. 1832), in the Senate.

Recalling his prior service as mayor of Rodgers, AR, Rep. Womack said at the hearing, "Revenue generated through retail sales lifted our city. Retailers across America are crying out for help to eliminate the loophole that chases more and more shoppers away from Main Street and to the Internet, where the feeling of buying something "tax free" is all-too-often a major factor for shopping on-line."

"If a Republican from Arkansas and a Democrat from California can come together on a bill that deals with tax issues, then the time really has come to finally resolve this issue. And this is an issue that only Congress can resolve," Rep. Speier said at the hearing.

In 1992, the United States Supreme Court ruled that states cannot require retailers to collect sales taxes from purchasers who are not located in the same state as the seller. In its decision (Quill v. North Dakota), the Court explicitly stated that Congress, with its clear constitutional authority to regulate interstate commerce, can give states and local governments the option to require sellers who do not have a physical presence in their jurisdiction to charge and collect sales taxes from their customers. As a consequence, local retailers who compete with online companies are at the mercy of a 6-10 percent price disadvantage, and state and local governments are deprived of billions of dollars in revenue. This year alone, states and local governments stand to lose an estimated $23.3 billion, according to a University of Tennessee study.

In a sign of support for the bill, a top legislative priority for NLC, may be growing, the Senate Committee on Commerce, Science, and Transportation scheduled a hearing on the Senate version of the bill, S. 1832, for Wednesday, August 1, 2012.

The hearing will be webcast live via the Senate Commerce Committee website.

Related:

NLC Legislative Priority: Preserve Local Revenues