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League Supports Federal Marketplace Fairness Act and Amendment into Senate Budget Resolution

City Officials Urged to Send Support Letters Immediately

March 22, 2013
This week, the League issued a support letter for S. 336/H.R. 684, the Marketplace Fairness Act, which would require out-of-state merchants to collect use taxes for electronic and mail sales.
 
The legislation is designed to address the long-standing issue of leveling the playing field between traditional “brick-and-mortar” establishments and Internet sellers, and ensuring the proper collection of state and local taxes. In order to move the bill, which has bipartisan support in both houses, Sen. Richard Durbin (D-IL) has introduced S. 336 as an amendment to the Senate Budget Resolution to be considered on the Senate floor as early as today.
 
Background
 
For several years, the League has worked extensively on the issue of use tax collection, including assembling two separate task forces to evaluate use tax collection problems and make recommendations. The California Board of Equalization recently estimated that $1.1 billion of use taxes related to internet sales are not collected. If collected and remitted, the state’s General Fund would be owed $755 million, with the remainder owed to local governments. It is currently estimated that only about 1 percent of consumers comply with use tax obligations.  
 
S. 336/H.R. 684
 
S. 336/H.R. 684 incorporates ideas supported by the League’s former task forces and negotiations from previous legislative efforts. The text of S. 336 is available online.
 
The bills contain sufficient flexibility to work with California’s unique tax structure including:
  • Allowing state participation without having to join the Streamlined Sales and Use Tax Agreement (SSUTA), which does not work for California;
  • Requiring sellers to collect the full destination rate of sales tax (both state and local);
  • Clarifying that the measure is limited to the collection of sales and use taxes; and
  • Preserving flexibility for how individual states distribute taxes from sales occurring within the state. 
If this legislation is enacted, California would be required to adopt implementing legislation that specifies the products and services to which the taxes will apply, and include simplification requirements for remote sellers [most of which can be met by the existing State Board of Equalization (BOE)]:
  • A single state entity responsible for all state and local sales and use tax administration, return processing and audits:
  • A single audit of a remote seller for all state and local taxing jurisdictions;
  • A single sales and use tax return to be filed with the single entity;
  • A uniform sales and use tax base among state and local jurisdictions (BOE staff believe the language in the measure on this issue will permit compliance without affecting California’s existing system);
  • Source all interstate sales in compliance with the bill’s sourcing* definition. For purposes of taxing remote sales, the bills define “sourced” as “the location where the item sold is received by the purchaser, based on the location indicated by instructions for delivery that the purchaser furnishes to the seller.”   
  • Information on taxability of products and exemptions in a rates and boundary database. Free, certified software must be provided to vendors to calculate transactions; software developers and vendors that use it to calculate and remit taxes are not liable if the state provides incorrect information; and
  • 90 day notice of rate changes to remote sellers and certified software providers. 
Both the National League of Cities and the U.S. Conference of Mayors have also issued their support for the legislation. California State Association of Counties is also supporting the legislation.
 
Take Action
 
City officials are urged send support letters to their senators asking them to cosponsor the bill and commit to voting for the Marketplace Fairness Act on the Senate floor.
 
The League’s support letter and a sample support letter are available on the League’s federal webpage.


 
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