A top House Republican is hoping to strike a deal on the contentious issue of how states levy taxes on online transactions, circulating a draft of a compromise bill just ahead of the end of Congress’ summer break.
Rep. Bob Goodlatte is now working to drum up support for his “Online Sales Simplification Act of 2016,” after preventing similar proposals from clearing his Judiciary Committee over the last few years. While a state can currently only collect a tax on an online sale if the seller has a physical presence within its borders, Goodlatte’s proposal would construct a new framework for online transactions, according to a draft provided to StateScoop by a Judiciary Committee aide.
Specifically, the legislation would establish a central “clearinghouse” laying out a standard tax rate for goods shipped to buyers living in each state — that would involve creating an online portal to display the rates and securely accept data from remote sellers. Additionally, the bill would mandate that sellers follow the rules and regulations around selling goods in the states they’re based in.
The legislation also includes a set of practices for the five states without sales taxes to follow, and outlines procedures governing how states would collect and audit data from remote sellers based within their borders.
“We’re glad to see [Goodlatte’s bill] occupy center stage as Congress returns to work next month,” Steve DelBianco, executive director of the e-commerce trade association NetChoice, told StateScoop via email. “The states are enacting ‘nuisance nexus’ laws and bringing court challenges that are vexing online businesses, so we need a national solution that does not empower tax collectors to audit any business anywhere in the country.”
Indeed, the issue has prompted fierce debate between state governments hoping to earn a revenue boost from these transactions and the remote sellers resistant to the idea of wrangling with a complex web of different tax rates in each state.
A pair of proposals currently languishing in Congress — one from Sen. Michael Enzi, R-Wyo., another by Rep. Jason Chaffetz, R-Utah — would have given states the power to levy their own taxes on purchases made by buyers outside their borders. Yet DelBianco and other opponents of those bills argue that any system letting states impose their own taxes across state lines, while also examining the records of other states would be an unwieldy solution to this debate.
In a release, the free market think tank R Street Institute argued that Goodlatte’s proposals marks a welcome departure from “an unworkable ‘destination sourcing’ system” that would wipe away all geographic limits to state tax power, impose staggering complexity on internet-enabled businesses, and create an uneven playing field between local and remote transactions.”
“Though we are reviewing details, we welcome Chairman Goodlatte’s fresh thinking to what had become a very stale debate,” Andrew Moylan, the group’s executive director, said in a statement. “His legislation should prove the final nail in the coffin of fatally flawed bills … which would empower states to tax outside their borders.”
Yet state advocates like the National Conference of State Legislatures argue the proposal won’t help their members realize the revenue benefits of the taxes.
“NCSL opposes federal remote sales tax legislation that does not establish parity at the point of purchase, which is necessary to level the playing field between remote sellers and in-state businesses,” the group wrote in a statement to StateScoop.
In the past, the organization has supported states passing their own laws to levy these sorts of taxes on their own, and several (like Alabama and South Dakota) have followed suit, largely in hopes of forcing a court battle to overturn the 1992 Supreme Court decision that establishing the current equilibrium. Accordingly, the NCSL also “opposes federal remote sales tax legislation that preempts the laws of states that choose to not comply with the legislation’s requirement.”
Yet, despite the group’s concerns, brick-and-mortar retailers largely support Goodlatte’s latest effort.
“The fact is that online retailing is a mature business and these retailers should compete with brick-and-mortar sellers on price, inventory and customer service, not on sales-tax treatment,” Tom McGee, president and CEO of the International Council of Shopping Centers, said in a statement. “We encourage the Judiciary Committee to maintain constructive momentum by holding a hearing and actively working with interested parties to achieve this year a bipartisan, bicameral solution to a longstanding and important issue of national concern.”
But Goodlatte won’t have long to move the bill through the Legislative process — Congress isn’t back in session until Sept. 6, and will only meet sparingly ahead of November’s elections.