Measure would close online tax loophole

Nov. 9, 2011 at 11:50 PM
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WASHINGTON, Nov. 9 (UPI) -- States could require most U.S. online and catalog-only retailers to collect state sales taxes from customers under a bipartisan measure introduced in Congress.

The measure, introduced Wednesday by 10 U.S. senators, is intended to close a tax loophole in which many online and catalog-only retailers don't collect and pass along the same sales taxes as traditional brick-and-mortar retailers.

"This legislation would give states the ability to close the online sales-tax loophole, created when out-of-state sellers don't collect, and purchasers don't pay, the state sales tax even though they still owe it," Sen. Lamar Alexander, R-Tenn., said in a news release announcing the measure.

The bill, called the Marketplace Fairness Act, would streamline and simplify the tax system for purchases from online and catalog-only retailers, its sponsors say.

States that voluntarily participate in a "streamlined sales and use tax agreement" could require remote sellers to collect and remit sales and use taxes after 90 days. Two dozen states have already changed their tax laws to implement the requirements of the agreement.

States that don't participate in the agreement could collect the taxes if they adopted requirements to simplify the process and provided sellers with additional notice about the collection requirements.

The legislation would exempt from the tax-collection requirement sellers that made less than $500,000 in total remote sales in the year preceding a sale.

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