The goal of the recently introduced Main Street Fairness Act (H.R. 5660) is to establish fairness by treating similar sales transactions equally for purposes of sales and use tax. Opponents of the Bill, however, believe that if it becomes law, the result will be far from fair. The Bill authorizes “member states” of the Streamlined Sales and Use Tax Agreement to impose a use tax collection obligation on remote sellers even though they have not established a physical presence. Those opposing the Bill contend that it will result in extremely burdensome and costly compliance requirements on small, online retailers.

On July 29, 2010, Representative Paul W. Hodes (D-NH) issued House Resolution 1570, stating that any federal legislation that would upset the strong online retail market would “effectively put an end to the robust e-commerce marketplace.” One online auction site established an online petition opposing the Bill, characterizing it as a new Internet tax. The concerns being expressed reflect the potential impact the Bill will have on small online retailers that do not have to collect and remit sales and use tax for states where they do not have physical presence. The petition opposing the Bill raises questions about the Agreement’s level of simplification, calling it “remarkably un-simplified.”

Anticipating the criticism of the Bill, the drafters have included two provisions intended to lessen the burden on small retailers:

  • First, the Bill includes a “small seller” exception, which would exempt certain remote sellers from collection requirements. The Bill, however, does not include a definition of a “small seller.”
  • Second, the Bill includes language that would require states to pay reasonable vendor compensation to cover the costs imposed on businesses to collect sales and use tax.

The Bill, however, does not define what constitutes reasonable compensation. It is unclear whether the definitions, which are under development by the Governing Board, will adequately address the concerns being raised by the online vendor community.