September 18, 2013, 12:30 PM

U.S. House releases principles for an online sales tax bill

Backers and opponents of a pending tax bill welcome the House initiative.

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A U.S. House committee today released principles for proposed legislation that could lead to a broad expansion of sales tax collection by online retailers. Although the proposed Marketplace Fairness Act has stirred up controversy among supporters and opponents, representatives from both sides say they’re encouraged that the guidelines will lead to a fair legislative outcome.

“The principles created a sensible starting place to develop legislation that considers the interests of many stakeholders,” says Brian Bieron, executive director of global public policy at eBay Inc., which has argued that the existing bill would be too onerous for many small online sellers, including many that sell through the eBay.com marketplace.

"These principles are the best framework for a reasoned-based dialogue on this complex and sensitive subject that we've seen to date," says Jonathan Johnson, executive vice chairman of Overstock.com Inc., which also opposes the bill. "We commend Chairman Bob Goodlatte for putting forward a slate of issues which ground the discussion in reality, raher than in the sloganeering that has fogged this issue in the past."

The National Retail Federation—which supports the bill, contending that it would create a level playing field by subjecting web-only retailers the same tax duties of retail chains—says the seven principles released by the House Judiciary Committee lay the groundwork to structure a fair and constitutional solution to the pending legislation. “The way the committee chairman and staff articulated their goals, we share their goals,” says David French, a lobbyist for the National Retail Federation, a trade organization for large retail chains as well as web merchants.

The Judiciary Committee, chaired by Bob Goodlatte (R, VA), says in its principles for the legislation that sales tax compliance should be equal among web-only, bricks-and-mortar and multichannel retailers. But they also state that retailers bearing responsibility for collecting state sales tax should have “direct recourse to protest unfair, unwise or discriminatory rates and enforcement.”

French notes that the principles appear to be intended to spur constructive dialogue on the legislation to reach a compromise that would lead to a law on the books. “There is probably no other member of the House who understands the constitutional issues around taxes and how to make a constitutional solution better than Bob Goodlatte,” French says.

Adds Overstock's Johnson: "We see in these House Judiciary Committee principles many of the very same principles we have discussed with lawmakers of both parties—principles that are sadly lacking in the hastily passed, ill-conceived and mislabeled, Marketplace 'Fairness' Act. We hope that these principles lead to a more balanced dialogue than occurred in the Senate and federal legislation that works for remote sellers, brick-and-mortar sellers and states and cities."

The bill, known as the Marketplace Fairness Act—which passed the Senate by a wide margin in May and is now before the House Judiciary Committee—as currently written would allow states to mandate sales tax collection by online and catalog retailers whether or not they have a physical in-state presence such as stores or distribution centers. In effect, that would overturn existing federal law in place since a 1992.

The Senate version exempts retailers with less than $1 million in remote sales—or sales to customers in states where they have no physical presence and no existing requirement to collect sales tax. EBay and others have contended the sales volume threshold should be much higher—eBay has proposed $10 million in annual remote sales—so as not to subject smaller online retailers to the costs of collecting sales tax and remitting it to states, though eBay says it’s encouraged the principles will help lead to a compromise. “EBay is very encouraged that the remote sales tax principles released today by Chairman Goodlatte address concerns that we have raised on behalf of our small business community,” Bieron says.

“Americans across the country are affected by the issue of Internet sales tax whether they are consumers or business owners,” Goodlatte said when releasing the principles today. “The aim of the principles is to provide a starting point for discussion in the House of Representatives. I greatly look forward to hearing fresh approaches to this issue and continuing the discussion.”

Following are the seven principles the Judiciary Committee released today:

Tax relief –Using the Internet should not create new or discriminatory taxes not faced in the offline world. Nor should any fresh precedent be created for other areas of interstate taxation by states.

Tech neutrality – Bricks-and-mortar, exclusively online, and bricks-and-click businesses should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses.

No regulation without representation – Those who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement.

Simplicity – Governments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary.

Tax competition – Governments should be encouraged to compete with one another to keep tax rates low and American businesses should not be disadvantaged vis-a-vis their foreign competitors.

States’ rights – States should be sovereign within their physical boundaries.  In addition, the federal government should not mandate that States impose any sales tax compliance burdens.

Privacy rights –Sensitive customer data must be protected.

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