Many “bricks-and-mortar” retail stores, as well as the nation’s largest online retailer – Amazon.com – have come together to lobby for the collection of sales tax on all online and catalog sales.
Currently, online and catalog retailers do not have to collect sales tax unless a buyer is in a state where they have a physical presence, such as a store, warehouse or distribution center. Traditional retailers collect sales tax from every buyer but must comply only with the sales tax rules where a sale is made. Amazon used to oppose an Internet sales tax but now that it has a physical presence in states where the bulk of its sales are made and therefore must collect sales tax anyway, the company has reversed its position. However, eBay and smaller online retailers oppose forcing all online sales to be taxed because of the difficult logistics of complying with the nation’s thousands of state and local sales tax jurisdictions.
To help sort out the issues and look for a possible alternative to the Marketplace Fairness Act, which would allow sales tax collections regardless of whether a remote or catalog retailer has a physical presence in a state, House Judiciary Committee Chairman Bob Goddlatte (R-VA) called a hearing in March that featured six witnesses whose opinions ranged from support to opposition to allowing states to ban interstate commerce that does not comport with their tax laws.
Lost Revenue Complaints
States could have collected another $23 billion in sales tax revenue in 2012 if all online and catalog sales had been taxed, according to the National Conference of State Legislatures, a supporter of the Marketplace Fairness Act, which would give states the power to collect online sales taxes in exchange for simplifying their sales tax systems. The measure passed the Senate last year but has not advanced in the House of Representatives.
To help sort out the issues and look for a possible alternative to the Act, House Judiciary Committee Chairman Bob Goodlatte (R-VA) called the March hearing.
‘Fresh Alternatives Needed’
“Congress is no stranger to the remote sales tax collection issue. Over the past 10 years, more than 30 congressional hearings have been held on the topic. While this is not a new conversation, the process that the Committee takes today is unprecedented,” said Goodlatte in a statement before the March hearing.
Last fall Goodlatte released seven principles for an online sales tax: tax relief, neutrality, representation, simplicity, tax competition, states’ rights, and privacy.
The hearing drew praise from opponents of the Marketplace Fairness Act and from supporters.
“We thank Chairman Goodlatte for taking up the important issue of the E-fairness, returning the rightful power to the states to determine sales tax policy. It is sound from a federalism perspective and from an overall policy standpoint,” said Nathan Mehrens, president of Americans for Limited Government, in a statement.
“The unintended consequence of current law is to dictate winners and losers between local and online sales, when it is Congress’ duty to facilitate commerce and remove artificial advantages,” Mehrens said.
“Today’s hearing made clear that a majority of the committee believes we need to end government policy that picks winners and losers in the retail marketplace,” said Melissa Palmer, owner of Chocolatepaper in Roanoke, Va., in a statement. She is a member of Stand With Main Street and a constituent of Goodlatte’s.
“This hearing brings to light the unfair advantage against our locally owned retailers,” said Louisiana State Senator Sharon Weston Broome in a statement. “E-fairness is simply about jobs and placing every retailer on the same set of rules. In 2012, my state of Louisiana was estimated to have lost more than $808 million to out of state sales.”
Range of Witnesses
Tax Foundation Vice President Joseph Henchman attended the hearing and reported the witnesses were:
- Former Rep. Chris Cox, now an advisor to NetChoice (online sellers). His testimony emphasized the importance of the existing constitutional standard, insist on meaningful simplification, and criticize the Marketplace Fairness Act and the Streamlined Sales Tax project.
- Joe Crosby, a principal with MultiState Associates and advisor to the retail industry. Crosby has worked on this issue for decades now, and his testimony discussed the possibility of requiring a simplified structure only for online retailers, leaving brick-and-mortar retailers with existing state sales taxes.
- Stephen Kranz, a partner with McDermott Will & Emery, who has worked extensively as the business representative on the Streamlined Sales Tax Project. His testimony emphasized the danger of continued congressional action as states strike out on their own.
- William Moschella of the shopping center industry. He represented retailers and his testimony urged adoption of the Marketplace Fairness Act. Alternatively, he suggested giving states the authority to ban interstate commerce that does not comply with state tax laws.
- Andrew Moylan of the R Street Institute. His testimony favored origin-sourcing, the concept of taxing sales based on where the seller is located rather than where the customer is located. Origin-sourcing reconfigures the sales tax from a consumption tax to a business activity tax, which is revolutionary. The most common critique of origin-sourcing is that it would lead to online sellers clustering in states with no sales tax, which is questionable.
- James Sutton, a lawyer and CPA from Florida. His testimony discussed specific examples of sales tax complexity and errors by state administrators. Sutton also proposed something akin to a 1099 reporting regime, whereby retailers would collect information about their customers and provide it to tax authorities.