Bill would put brakes on U.S. states’ rush to tax internet sales

CHICAGO (Reuters) – The ability of states to quickly cash in on a June U.S. Supreme Court ruling that lifted restrictions on their ability to tax all internet sales would be restrained under federal legislation announced on Friday.

U.S. Representative Jim Sensenbrenner, a Wisconsin Republican, said the bill he introduced this week will clarify interstate sales tax collection requirements. The measure would prevent states from imposing sales tax collections on retailers before Jan. 1 and would also bar retroactive taxation.

“This bipartisan legislation reins in the taxation free-for-all created by the Supreme Court’s ruling in Wayfair. Online sellers need clarity and stability in the sales tax arena. Our bill will protect small businesses and Internet entrepreneurs from excessive regulatory burdens,” Sensenbrenner said in a statement.

In a ruling in a case brought by Wayfair Inc and other online retailers against South Dakota, the high court overturned a precedent that had barred states from requiring businesses with no physical presence within their borders to collect sales taxes.

For the 45 states that collect sales taxes, the decision opened the door to billions of dollars in additional revenue. Since the June 21 Supreme Court ruling, several states have already expanded taxation, with a few more scheduled to follow starting on Oct. 1, according to the National Conference of State Legislatures (NCSL).

The bipartisan group said on Friday it opposes any effort to delay or limit states’ efforts, calling Sensenbrenner’s bill “an unwarranted intrusion on state authority which if enacted would continue the competitive advantage online sellers enjoy over Main Street sellers.”

“For 26 years states petitioned Congress to address the remote sales tax issue and it did nothing. Now Congressman Sensenbrenner rushes legislation to tie states’ hands in implementing the Wayfair decision,” NCSL said in a statement.

The bill, co-sponsored by two Democrats and another Republican, also calls on states to develop an interstate compact that would simplify the tax collection process for remote sellers. NCSL said states and retailers are working on a “fair and simplified collection system.” A streamlined sales and use tax agreement has been adopted by 24 states.

Reporting by Karen Pierog in Chicago; Editing by Matthew Lewis

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