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Main St. and the Internet: Closing the Tax Gap

The Senate this week is taking up legislation to even the tax-collection playing field between Internet retailers and bricks-and-mortar retailers. It’s an important issue for commercial real estate professionals, because their clients face a disadvantage against out-of-state Internet retailers on tax collection.

It’s not that no tax is due when something is purchased in a different state over the Internet. A tax is in fact due, but states have no way of systematically collecting it. And a Supreme Court case from 1992 prohibits them from requiring out-of-state retailers to collect the tax on their behalf.

As a result, it’s largely been up to buyers to pay the tax, in the form of a “use tax,” but they rarely do. Correcting this disparity is the rationale behind the Marketplace Fairness Act, S. 366, which the Senate is set to pass any day now. Lawmakers and analysts generally agree that the bill will in fact pass, and then it needs to be taken up in the House, where the outcome is less clear.

NAR supports the bill, mainly for two reasons. First, it will help the commercial real estate sector, which finds the playing field tilted against it as buyers go online to buy things from vendors in another state that, if bought in a store, would require them to pay state tax. Second, it’s a good bill for states, because it will bring in tax revenue that’s owed to them, helping those with a budget gap improve their bottom line. By some estimates, states are losing out on more than $20 billion a year.

Critics say the bill equates to a new tax, but in fact the tax is already in place. The bill is intended to make it practical and simple for states to collect what they’re owed.

There are plenty of arguments on both sides of the issue, but for the real estate industry, it’s simply about creating an even playing field between them and Internet retailers. In the 4-minute video above, NAR Government Affairs analysts talk about the bill and why NAR supports it.

Access NAR’s letter in support of the bill.

Robert Freedman

Robert Freedman is manager of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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