MELISSA BLOCK, HOST:
Later today, the Senate approved a bill that would allow states to collect sales tax from online retailers. It's called the Marketplace Fairness Act. And proponents say it's necessary to level the playing field with brick-and-mortar stores, as well as to raise revenue for states. But some online retailers are crying foul. They say that with 9,600 tax jurisdictions around the country, collecting sales taxes will b a nightmare. NPR's Yuki Noguchi reports.
YUKI NOGUCHI, BYLINE: Simply put, the new law would require any online retailer with over a million dollars in annual sales to collect and remit sales tax. Joseph Henchman, a vice president at the nonpartisan Tax Foundation, says it's not that simple. He says at about five pages of text, the bill is unusually brief. And, he says, it doesn't come close to matching how complex collecting sales tax can get.
JOSEPH HENCHMAN: It also doesn't include a lot of detail about implementation.
NOGUCHI: For example, the bill says states will have to provide businesses automated tax software free of charge. But what if a business' existing systems don't work with the available tax software? Who pays? What if a state doesn't provide adequate software? Where does a business takes its complaint?
These are the types of questions that dog Stacey Strawn. She's president of Silver Gallery, a gift shop that has a small storefront in Waynesboro, Virginia, but which does the lion's share of its $3 million in annual sales online and over the phone. She says trying to comply would be daunting.
STACEY STRAWN: It's going to be a nightmare.
NOGUCHI: If the law passes, she'd have to collect taxes for every purchase, then remit them to every state and local government where her customers live. She says software that automates tax collection is not a plug-and-play solution that meets all needs.
STRAWN: Something gets exchanged, then it's sent to another state, then we have to figure out how to refund the taxes from the first state, collect our refund from that state, then charge the customer the new tax.
NOGUCHI: Strawn estimates it would cost $15,000 to set up, plus ongoing tech support, costs, she says, she can't pass along to her customers without losing business. And let's say she gets audited out of state. What then, she asks?
STRAWN: As a small business owner, accountants are - whoo - not only is it expensive but hard to find one people who are in tune with your business to begin with.
NOGUCHI: Proponents of the law say automated tax software has been around for years and works, despite the huge variability in tax rates across the country.
Charles Collins is director of government affairs for Taxware, a tax software maker. He says a lot of Strawn's concerns are misplaced. For one thing, companies like his would provide tech support to businesses. Also, he argues, technology simplifies most processes, including returns and exchanges, as well as handling audits. Under the bill, Collins says if a business gets audited, the state and the software company would largely handle the burden.
CHARLES COLLINS: We or the state would be responsible for resolving those issues. It wouldn't be any issue that the seller would have to pay.
NOGUCHI: Scott McFarlane is CEO of another automated taxware firm called Avalara. He agrees details of the law need to be fleshed out. But the complexities, he says, are overstated.
SCOTT MCFARLANE: There are certainly questions. But I think that they're probably not as difficult of an issue as people are making them.
NOGUCHI: But the Tax Foundation's Henchman says he has another bigger beef with the bill. He argues it's forging an entirely new frontier for taxes. Historically, taxes have always been tied to a physical location. People pay income tax where they live because that's where they use social services. Stores have paid taxes where they operate because they use local roads and so forth. But this bill is a proposal to collect taxes beyond geographic location.
HENCHMAN: And that creates a lot of implications for where are we going with everything else. Do we apply that to income tax too? If you're a business traveler who are just in the state, or if you participate in conference calls with the state, is that enough to bring you within the scope?
NOGUCHI: The bill now faces more opposition in the Republican-controlled House. Yuki Noguchi, NPR News, Washington.
NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR’s programming is the audio.