March 13, 2014, 2:52 PM

‘Defects’ mar a federal tax bill, a congressman says

At a hearing for the Marketplace Fairness Act, U.S. Rep. Robert Goodlatte points to three flaws in the bill.

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A federal online sales tax bill that passed the U.S. Senate and now before the U.S House contains significant “defects,” according to a leading Republican congressman.

U.S. Rep. Robert Goodlatte (R, VA), chairman of the House Judiciary Committee, said yesterday that the Marketplace Fairness Act is flawed in three ways:

• The public views the bill “as Congress taxing the Internet.” He cited Gallup poll data that shows 57% of U.S. consumers opposed the bill.

• E-retailers would face significant challenges in complying with the bill. That’s because while the bill as it stands requires states to provide free tax compliance software, the cost of integrating the software remain unaddressed, he says. Goodlatte also says that “compliance costs estimates vary widely. There are over 9,600 taxing jurisdictions, and the Affordable Care Act experience has left voters wary of highly touted software solutions.”

• The federal sale tax bill would leave e-retailers exposed to “multiple audits in jurisdictions in which they have no voice,” Goodlatte says.

As of today, there were no further House Judiciary hearings scheduled on the Marketplace Fairness Act, a spokeswoman for the committee says. Goodlatte’s office declines comment but the committee spokeswoman released a statement from the congressman in which he says “we will now continue to further examine these and any other proposals that are submitted through a collaborative process with members, interested parties and the public.”

The Marketplace Fairness Act would allow states to mandate sales tax collection by online and catalog retailers even if they have no  physical in-state presence such as stores or distribution centers—a legal concept known as nexus. Current federal law says states can only mandate tax collection by retailers with an in-state physical presence such as stores or distribution centers.

The U.S. Senate passed the Act in May. Its version exempts retailers with less than $1 million in remote sales—that is, sales to customers in states where they have no physical presence and no existing requirement to collect sales tax.

The bill is supported by retail chains and industry groups including the National Retail Federation and Retail Industry Leaders Association, as well as Amazon.com Inc., the world’s largest retailer by web sales. Amazon is No. 1 in the Internet Retailer Top 500 Guide. The bill is opposed by many online retailers, including eBay Inc. and Overstock.com Inc., that are represented by industry lobbying groups such as NetChoice.

Amazon, eBay and Overstock did not immediately respond to requests for comment today. A spokesman for the National Retail Federation sounded a note of optimism.

“It is evident from yesterday’s House Judiciary Committee hearing that online sales tax fairness remains a priority for the committee and its members,” says the spokesman. “NRF looks forward to working with the committee throughout the process and we look forward to the day that retailers can compete for customers no matter their preferred channel.”

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