Congressman Offers Online Sales Tax Proposal

Published October 11, 2016

An intergovernmental state agency is criticizing a congressman’s draft proposal to create a federal framework for collecting and remitting sales taxes on online purchases made across state borders.

In August, Rep. Bob Goodlatte (R-VA) released a “discussion draft” of a bill called the Online Sales Tax Simplification Act (OSSA), the third online sales tax bill proposed by lawmakers since 2015. In September, the Multistate Tax Commission, an intergovernmental state tax agency bringing together 47 state governments’ tax agencies, criticized the draft bill, saying OSSA is “unworkable.”

If officially introduced and signed into law, OSSA would create a two-tiered system for interstate e-commerce taxation, creating a new interstate “clearinghouse” government agency for the tax’s administration.

If a state government in which a business is located participates in the clearinghouse, the business would pay sales taxes to its home state. If the state does not participate, the business would pay sales taxes to the state government in which the consumer is located.

‘Very Different’ Proposal

Andrew Moylan, executive director and senior fellow at the R Street Institute, says OSSA is different from past proposals, such as the failed Marketplace Fairness Act of 2015.

“This new Goodlatte bill is a very different piece of legislation,” Moylan said. “It is a completely different concept than those represented in past, [which were] terrible bills. Past proposals relied on a destination sourcing regime: Businesses who sell online collect taxes based on where the customer is located. [OSSA] utilizes an origin-sourcing regime that says that businesses that sell online can collect on the tax base of where they are physically located. If I am a Virginia-based business, that means I can collect sales tax based on Virginia’s laws.”

‘Still Falls Short’

Curtis Dubay, a tax and economics research fellow with The Heritage Foundation, says although OSSA is better than previous online sales tax proposals floated by lawmakers, it is still flawed.

“It’s a better approach, but it still falls short,” Dubay said. “Most importantly, this bill forces businesses and states that don’t have sales taxes to collect the actual tax or information. It is imposing a requirement on the businesses that their home state didn’t choose to apply to them. For those states that don’t have sales taxes, I would say that it is a federal sales tax.”