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Main Street Fairness Act: A bill to close the sales tax loophole
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Main Street Fairness Act: A bill to close the sales tax loophole

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Studies show that states are losing about $23 billion annually in sales taxes. The tax is legally due on purchases but goes uncollected because the seller is not required to collect the tax and the purchaser fails to report and remit the tax due. This situation creates a huge disparity and an extreme disadvantage for our main street retailers who are competing with retailers selling over the Internet or by some other remote means.

On July 29, 2011, the Main Street Fairness Act was introduced in Congress. Sen. Richard Durbin, D-Ill., is the lead sponsor for S1452, and Rep. John Conyers,

D-Mich., is the lead sponsor for HR2701. Both bills have bipartisan support and are similar to ones that have been introduced in previous sessions of Congress. Unlike previous versions, a number of big-box retailers, including Amazon.com, are supporting the bill.

The Main Street Fairness Act addresses the issue of fairness and levels the playing field for all retailers. If passed, it will overturn the 1992 United States Supreme Court ruling of Quill Corp. vs. North Dakota. In this ruling, remote retailers (those retailers conducting sales via catalog, Internet or some other remote means) were relieved of their obligation to collect sales or use tax in certain situations. At the time of the ruling, the court said the complexity of state and local sales tax laws creates an undue burden for remote sellers.

That decision meant that retailers are required to collect sales or use tax only in states where they have a physical presence. The court also stated that Congress has the ability to require all retailers to collect sales and use tax.

Until now, Congress has been unwilling to support federal legislation that requires out-of-state sellers to collect tax in each state because state and local sales tax laws have been considered too complex and vary greatly from state to state.

In order to address Congress' concerns, a group of state and local government leaders, including North Dakota leaders, partnered with the business community to work on simplifying state sales tax laws and modernizing the collection process. The group, known as the Streamlined Sales Tax Project (SSTP), agreed on common definitions and the use of technology to make the sales tax collection process easier for all retailers, regardless of their location.

The Main Street Fairness Act will not result in a new tax on consumers. It addresses a tax that purchasers are already obligated to pay. The legislation will affect remote sellers who currently do not collect and file sales tax returns on goods or services delivered into North Dakota regardless of the sellers' location.

Under current law, if a retailer does not collect sales tax, the purchaser is then required to report and pay the use tax on that purchase. Unfortunately, consumers rarely do, resulting in an estimated $23 billion annually in uncollected state and local tax revenue.

This bill will give states like North Dakota the ability to move the responsibility off the shoulders of the consumer and put it back onto the retailer by requiring online sellers to collect and remit sales taxes. In addition, because the Main Street Fairness Act only addresses the sales tax, it will not change any other state tax laws such as the income tax.

This means that Internet-based and mail-order retailers would not be subject to additional state income tax or other taxes just because they are now complying with the Main Street Fairness Act - the rules for those other taxes remain untouched.

Currently, North Dakota has 126 cities and four counties that impose a local sales tax. Cities, counties and state government rely on sales and use tax revenue to provide services to our residents and to build and maintain a high quality infrastructure for the businesses operating here. The Main Street Fairness Act is an important bill for the retail industry and states - it provides for fairness across the retail industry while permitting individual state sovereignty and supporting a fair sales tax system.

As a long-time member of the SSTP, we believe that this legislation is the right thing to do. The proposed legislation will go a long way to support and encourage growth in our local North Dakota businesses along with main street retail industry across the country. We encourage Sens. Kent Conrad and John Hoeven and Rep. Rick Berg to sign on to the legislation and support it when it comes up for a vote.

(Cory Fong is the North Dakota tax commissioner. Dwight Cook is a state senator from District 34 in Mandan and is chairman of the state Senate Finance and Taxation Committee.)  

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