"The National Retail Federation and the Electronic Retailers Association issued statements on Thursday squaring off over legislation that would require Internet merchants, mail-order houses, and other "remote sellers" to collect sales tax across state lines." The debate is based around U.S. Representative William Delahunt's, D-Mass., bill (H.R.3396) that would allow states that have implemented the Streamlined Sales and Use Tax Agreement (SSUTA) to require out-of-state sellers to collect sales tax on merchandise sold their residents. The legislation is different than the "Internet Tax Freedom Act Amendment Acts of 2007," which President Bush signed into law on October 31, in that the SSUTA permits states implementing the Streamlined Sales Tax Project to collect sales and use taxes on catalog and Internet purchases.

The U.S. Supreme Court ruled in 1992 that remote sellers cannot be held responsible for collecting taxes for states where they lack a physical presence. In other words, they are only required to collect sales tax from customers in states where they offices, distribution centers, stores, or other facilities.

The SSUTA aims to simplify sales tax collections from more than 7,600 states and localities with various tax laws and rates. Some states have voluntarily adopted the agreement, created with input from the NRF, collection cannot be mandatory without new federal laws.

The ERA opposes the bill, saying it would stifle e-commerce and burden electronic retailers with costs and compliance problems.

"In a very short amount of time, the Internet has become an unprecedented marketplace where the playing field is level for retailers both large and small," Barbara Tulipane, ERA President and CEO, said. "The Streamlined Sales Tax Project and its provisions would create a cost-prohibitive barrier for smaller retailers who are the lifeblood of our economy."

The NRF, which represents traditional and online retailers, said it supports provisions in the SSUTA bill that would compensate sellers for sales tax collection. The bill would exempt retailers with under $5 million in annual gross remote sales.

The NRF said the SSUTA would make it easier for merchants to determine out-of-state tax rates and rules.

"Many of our competitors do not collect, which gives them a competitive advantage" Wayne Zakrzewski, J.C. Penney VP and Associate General Counsel, Tax, said at a congressional hearing this week. "This is not because they are innovative or provide incremental value to the consumer, but because the states do not have the ability to require collection of a tax that is due from the consumer."

J.C. Penney collects sales tax on in-store, catalog, and Internet purchases. The company, like other traditional sellers, argued, at the House Judiciary Committee's Subcommittee on Commercial and Administrative law, that the new bill would level the playing field.

ERA said it will actually discriminate against online sellers.

"Making electronic retailers responsible for computing, collecting, and remitting tax for thousands of taxing jurisdictions with different rates and coverage is unfair and will significantly harm the growth of e-commerce," the group said in a statement released this week. The group pointed out that the agreement allows states with multiple tax rates to adopt new an additional rate, which the ERA said could force electronic retailers to administer 15,000 tax rates. The ERA also said that direct marketers would have to pay for taxes customers fail to pay, while traditional retailers are not held responsible. Finally, it said that online retailers don't enjoy tax incentives available to in-state businesses. Those requirements would put online sellers at a competitive disadvantage, ERA said.

The ERA said more time is necessary to develop consensus among the affected parties for a "rational, practical and simple system for assessing and collecting taxes" from Internet sales.