Largely because we wish to see the playing field leveled for so-called "brick-and-mortar" local retailers, we support the idea of out-of-state online businesses (also known as remote sellers) having to collect state sales taxes.
Because they are required to collect local and state sales taxes, local retailers in Iowa - many of them small operations - face a competitive disadvantage with (often-large) Internet sellers.
All businesses who sell a product in Iowa should be compelled to collect our state's 6 percent sales tax. This isn't an anti-business position; rather, it's a position of advocating for fairness. This isn't pushing for a new tax; rather, it's an effort to take down a barrier behind which some sellers can avoid collection of an existing tax. (By state estimates, Iowa is missing out on as much as $13.5 million annually by not collecting every penny of online sales tax.)
"Let me be clear: The Marketplace Fairness Act is not a new tax. It is not a tax on the Internet. It simply gives states the ability to close the online sales-tax loophole created when out-of-state sellers don’t collect, and purchasers don’t pay, state sales tax – even though they still owe it," Sen. Dick Durbin, D-Ill., said in a speech to the National Association of Counties Legislative Conference earlier this year.
Iowa Gov. Terry Branstad recently joined other governors, both Republicans and Democrats, in support of federal legislation requiring online businesses to pay state sales taxes to those states choosing to collect them. In a letter, Branstad urged Senators Charles Grassley and Tom Harkin of Iowa to vote for a bipartisan Senate bill known as the Marketplace Fairness Act.
We join Branstad in pushing for passage of this bill.
The legislation grants states the authority, if they choose, to require online retailers - regardless of location - to collect sales tax at the time of a transaction, just like local retailers are required to do. States who seek collection authority first would be required to take one of two steps to simplify their sales tax laws in order to streamline multi-state sales tax collection. This is important in order to insure the process isn't unduly burdensome for remote sellers.
Online sellers with less than $500,000 in annual sales would be exempt.
Twenty years ago, the U.S. Supreme Court ruled states can't force out-of-state businesses to collect sales taxes without congressional approval. At the time, the act of collecting sales taxes from multiple states was considered too complicated for out-of-state retailers. Since then, in our view, the business world has evolved to the point where collection of these taxes should no longer be viewed as an insurmountable hurdle.
"Retailers will receive the software to calculate state and local sales taxes. All a business will have to do is type in an address and click the mouse. In less than a second, the software will calculate the sales taxes owed -- the same way online sellers calculate shipping costs now," Durbin said in his speech.
The Marketplace Fairness Act evens the playing field for local retailers, insures the process won't be unduly burdensome for online sellers, shields small Internet businesses and provides states with additional revenue to which they are entitled. It deserves passage.