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Bipartisanship is a rare beast in Washington D.C.  these days, especially when it comes to new taxes. So when 35 house members and 18 senators introduce new tax legislation, it’s worth taking notice.

Dubbed the Marketplace Fairness Act, the bill seeks to essentially create a nationwide sales tax for online retailers. The goal being to even the playing field for traditional retailers whose business model is either not compatible with ecommerce, or whose majority of sales are not from online but from their storefront.

The effort, in the Senate, is spearheaded by Senator Mike Enzi (R-WY), Assistant Senate Majority Leader Dick Durbin (D-IL), and Senator Lamar Alexander (R-TN). It is Durbin who has the best soundbite on the legislation, “All they (businesses) want is a level playing field. By giving states the authority to enforce existing tax laws, the Marketplace Fairness Act of 2013 eliminates the competitive advantage currently enjoyed by many Internet retailers at the expense of local businesses. Every day we don’t act to pass this bill, we risk another small business closing its doors because they can no longer survive.”

Senator Durbin knows this is issue is hardly new. Since the Supreme Court’s 1992 ruling, Quill Corp. v. Heitkamp, where the court found that states had a right under the Due Process Clause of the Constitution to collect sales taxes, but the burden placed on out-of-state businesses violated the Commerce Clause; online retailers have been citing the Quill decision as their reason for not charging or collecting sales tax in states where they do not have a physical presence.

Congress in their usual timely manner is finally getting around to addressing the loophole. This however is not the Marketplace Fairness Act’s first appearance in Congress. It was introduced by Senator Alexander, and Representatives Steve Womack (R-AR) and Jackie Speier (D-CA) during the 112th Congress, and didn’t see the light of day due to negotiations over the fiscal cliff.

Dick Durbin

Should the bill finally pass, it could potentially be a major windfall for most states who are losing an estimated $23 billion in tax revenue every year, according to The National Conference of State Legislatures, because of their inability to tax online purchases.

According to The Hill, BestBuy.com e-commerce president Scott Durchslag stated the bill was the company’s top priority: “We need a level playing field to compete on.” Considering that Best Buy is struggling to survive, their support of the bill is hardly a surprise. One wonders if the chain will flounder and sink anyways.

The bill has made strange bedfellows though, seeing the rare combination of support from big box retailers like Best Buy and Wal-Mart team with e-commerce giants like Overstock and Amazon.

Amazon, perhaps, has the most to gain, since it has been singled out for a series of poorly thought out tax laws nicknamed the Amazon Tax. Passed in a handful of states, including New York where the suit against their version of the Amazon Tax reached the New York Court of Appeals last week. The legal and legislative battles over the Amazon Tax have been a thorn in Amazon’s side for several years.

They have also hurt 76,000 affiliates, online sites that make a living commission based advertising, whose businesses have been cut off by e-tailers attempting to dodge the legislative bullet meant for Amazon. Senator Durbin was even named Affiliate Industry Advocate of the Year by Affiliate Summit (disclosure, I serve on Affiliate Summit’s board of advisors).

In fact, Amazon loves the bill, which would render the current Amazon Tax Laws in various states toothless, so much that VP of Global Policy Paul Misner even wrote a thank you letter to Congress saying:

“Amazon.com has long supported a simplified nationwide approach that is evenhandedly applied and applicable to all but the smallest volume sellers. With this in mind, I am writing to thank you for your bill, which will allow states with simplified rules to require sales tax collection by out-of-state sellers who choose to make sales to in-state buyers.”

Considering the great lengths Amazon has gone to in the past to avoid paying sales tax, I find it all rather ironic.

While there is no doubt that the Marketplace Fairness Act is a step in the right direction, the question is whether or not it is good legislation. Enabling states to collect the sales tax is not the same as creating a sales tax that is fair and viable. Currently there are over 10,000 taxing jurisdictions in the U.S., all with separate rates and rules, that small ecommerce companies would be forced to comply with.

Americans for Tax Reform President Grover Norquist published a statement warning that the legislation would be a nightmare to enforce, stating: “At the end of the year if there are any disputes over sales tax collection, the Virginia business would be subject to the New York Department of Revenue and New York Courts.”

Norquist goes on to predict that:

“Currently, states can only tax those consumers who reside within their borders. This “physical presence standard” ensures that the businesses taxed by states have the ability to express their approval or displeasure with state tax code through elections, referendums, etc. This legislation encourages states to collect taxes across their borders from businesses with no recourse. Thus states will compete for revenue by increasing cross-border taxes, rather than lowering taxes. An incentive to raise taxes can never prove beneficial.”

Several online tradegroups including the Direct Marketers Association, and the Computer and Communications Industry Association have also come out against the bill under the belief that it will stifle growth.

As Steve DelBianco, executive director of e-commerce trade group NetChoice told ComputerWorld: “Failing to require that states simplify their tax systems before enacting these new taxes is putting the cart before the horse.”

Now that’s something Congress is good at.

Startups and small online retailers would be faced with managing compliance over multiple jurisdictions where as small retailers would only have to comply to taxes in the jursdicition where they are located. The question is would the new inbalance created be unmanagible and stifle growth?

The current bill does contain an exemption for small businesses with less than $1 million in sales. And while I have my concerns about the legal nightmares the bill may cause in terms enforcement, there are enough robust and relatively inexpensive tax tools out there that etailers can plug into their shopping cart systems that will keep them in compliance.

It may cost extra, but playing fields don’t get leveled unless someone pays.

Angel Djambazov is a GeekWire contributor. He is the former editor-in-chief of ReveNews and the owner of Custom Tailored Marketing.

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