Main Street Fairness Act Introduced: Requires Interstate Sales Tax Collection

Both the House and Senate introduced legislation to require sellers to collect and file sales tax returns on all interstate sales.  In the Senate, Sen. Durbin introduced the bill (S. 1452) with co-sponsors Sens. Reed and Johnson.  And in a surprise move in the House, Rep. Conyers introduced a companion bill (H.R. 2701), with co-sponsors Reps. Shuler and Welch.  Although Sen. Durbin had been reported to be searching for a Republican co-sponsor, bi-partisan support did not materialize in either the House or Senate.

While this legislation refers to a “small seller exception,” it leaves the determination of what constitutes a “small seller” up to a group of participating states that have signed on to a pact know as the “Streamlined Sales and Use Tax Agreement.”  The failure of this legislation to clearly define what constitutes a “small seller” leaves small businesses vulnerable to the dictates of these states, and this should not be the case.

So, as written, this legislation could require small businesses that do not qualify as a “small seller” to collect and remit sales taxes for out-of-state sales.  That is, a mom-and-pop store selling products via the Internet to 50 states could be required to collect and remit sales taxes to each of those states having a general sale tax.  (Currently, 46 states and D.C. have a general sales tax.)  This additional compliance burden would be cost-prohibitive for small businesses and would cause many small businesses to withdraw from interstate sales. 

We certainly understand the concerns of many states over the potential lost tax revenues resulting from the failure of purchasers to voluntarily file and pay use tax on out-of-state purchases.  However, we need to balance this concern with the compliance burdens that would be foisted onto small businesses.  This legislation should specifically define and exempt “small businesses” from this new compliance burden, which will affect them disproportionately.