BOSTON — Lawmakers in Washington are weighing several plans that may complicate the efforts of Massachusetts and other states to collect sales taxes from online retailers.
A bill filed by U.S. Rep. Jim Sensenbrenner, R-Wisconsin, would prohibit states from collecting sales taxes from online sellers with less than $10 million in annual sales. States that begin collecting sales tax before Jan. 1, 2019, would have to refund online businesses that paid the taxes.
Congressman Bob Gibbs, R-Ohio, has filed a bill to prohibit states from collecting online sales taxes for at least a year, to give businesses time to comply.
Both proposals come on the heels of a U.S. Supreme Court ruling this summer that allows states to collect sales taxes from out-of-state online retailers.
The 5-4 decision in South Dakota v. Wayfair was heralded as a victory for states that have been losing billions of dollars annually in online sales taxes, as well as brick-and-mortar retailers losing customers to online sellers. Justices weighed arguments from three-dozen states pressing for a ruling that would allow them to collect taxes on purchases involving out-of-state merchants.
Still another proposal, filed by Sen. Jon Tester, D-Montana, would undo the Wayfair decision and prevent states from collecting from sellers with no physical presence there.
NetChoice — a trade group representing Overstock.com, eBay, PayPal and other online retailers — says the proposals on Capitol Hill are aimed at Massachusetts and other states that are trying to squeeze more money out of retailers than the court’s decision allows for, by collecting taxes on purchases made prior to the ruling.
“The unreasonable approach that’s being taken by Massachusetts is exactly why we need congressional action,” said Steve DelBianco, the group’s executive director.
“We need to stop the madness,” he said. “Congress needs to prevent retroactive liability for companies by the states, we need a moratorium on new demands so that retailers have time to comply, and we need incentives for states to simplify their tax regimes and in the meantime protect small businesses.”
Retail groups that have been prodding the state for years to tax online sales decried the push in Congress to blunt the impact of the court’s ruling.
“It’s wrongheaded and it’s being driven by online companies like eBay that want to delay this ruling as long as possible,” said Jon Hurst, president of the Massachusetts Association of Retailers, which opposes the legislation. “This has been a 20-year battle — it’s time to put this behind us and get everyone on the same playing field.”
Hurst’s group has signed onto a letter to congressional leaders from a coalition that includes the National Retail Federation and National Association of Realtors, calling on them to reject the proposals.
“For Congress to insert themselves post-ruling only creates additional uncertainty and further complicates the implementation process, while undermining the level playing field created by the Wayfair decision,” the letter reads.
Last year, Massachusetts issued a directive ordering out-of-state companies that meet certain criteria — 100 or more online sales involving Bay State consumers, or that are worth at least $500,000 per year — to collect the state’s 6.25 percent sales tax. At least 250 companies have agreed to do so.
At the time, the state Department of Revenue relied on their argument that ‘“cookies” stored on a computer or smartphone apps by websites effectively create a retailer’s physical presence in the state. But state officials say the high court’s ruling eliminated as “unsound and incorrect” the physical presence requirement.
On Monday, the Department of Revenue issued a notice clarifying that it intends to collect sales taxes from online retailers who meet the criteria for the nine-month period prior to the court’s ruling.
“A significant number of vendors complied with the regulation as of the Oct. 1, 2017, effective date, or shortly thereafter, and continue to collect and remit sales or use tax,” Revenue Commissioner Christopher Harding wrote in the advisory to taxpayers.
Meanwhile, the state is still embroiled in a legal challenge by a Virginia-based internet retailer over efforts to collect online sales taxes. Crutchfield Corp., which sells electronics, sued last year claiming the state’s policy violates interstate commerce laws.
The company’s attorneys have said in court filings the rule “imposes an obligation on certain internet vendors to collect and remit sales or use taxes on electronic commerce” that are not applied to other businesses. Neither side would comment on the litigation.
In Massachusetts, revenue officials say about $200 million a year is lost to online sales — a figure that has swelled as consumers do more business in cyberspace.
Retailers near the border with New Hampshire — one of five states that don’t charge sales taxes — face a double blow from tax-free competitors.
Massachusetts has a so-called “use tax” that requires residents to pay sales taxes on purchases made out of state or online. The state asks taxpayers to self-report online spending, but analysts say enforcement is almost nonexistent.
“If Massachusetts is so desperate for that tax revenue, let them pursue their own citizens to pay the use tax they already owe on those purchases,” DelBianco said.