WASHINGTON – A coalition of business groups this week called for the House Judiciary Committee to vote on legislation that would allow states to collect sales tax on purchases from Internet retailers located outside of their borders.
The 26 organizations, including the U.S. Chamber of Congress and the National Retail Federation, are worried that if Congress does not approve legislation on this issue, states will act to continue to adopt their own varying measures.
In a letter addressed to House Judiciary Committee Chairman Robert Goodlatte, R-Va., the coalition urged lawmakers to act on either H.R. 2775, the Remote Transactions Parity Act, which was introduced last June by Rep. Jason Chaffetz, R-Utah, or the Online Sales Simplification, which was drafted by Goodlatte early last year.
Chaffetz's bill, pending before the Judiciary Committee's regulatory reform, commercial and antitrust law subcommittee, would authorize states to require out-of-state online retailers to collect their sales taxes. It has support from state and local government groups.
Chaffetz said his bill would "modernize current law and strike the appropriate balance between sales tax parity and a state's right to manage tax policy within its borders." He argues that brick-and-mortar businesses are harmed by online retailers who do not collect states sales taxes. Businesses bringing in less than $5 million in gross revenue annually would be exempt from remote state audits, he contends.
Goodlatte's draft takes a different approach and would require businesses to pay collected taxes to the state they are located in, which would eliminate the need to determine an individual customer tax rate for each purchase.
State and local governments groups have opposed Goodlatte's draft, warning it would create a "taxation without representation" situation because the buyer would pay taxes in a state in which he did not receive services and where he cannot vote.
Both bills would effectively put brick-and-mortar retailers on a par with online sellers in terms of sales tax collections.
In its letter, the coalition called online sales taxes a "serious issue" that is disadvantaging small businesses and communities and said now is the time to enact uniform federal legislation.
"We believe that Congress should exercise its right and responsibility to oversee matters of interstate commerce," the groups wrote.
The Judiciary Committee has jurisdiction over the issue of remote sales tax collection because of the interstate commerce implications.
The issue of online sales tax has permeated the House and Senate for several years to little or no avail.
The Marketplace Fairness Act, S. 698, which would give states the power to require sales tax collection from online retailers, passed the Senate in May 2013 but was stalled in the House by Goodlatte. It was reintroduced to the Senate in March 2015 by Sen. Michael Enzi, R-Wyo., but has been declared all but dead since. That bill, like the one offered by Chaffetz, would base sales tax on the buyer rather than the seller, in contrast to Goodlatte's draft.
Although the Chaffetz bill and the MFA are similar, there are some key differences.
Under Chaffetz's bill, there is an exemption for businesses with: $10 million or less in annual gross receipts in the first year after the effective date, $5 million or less in the second year; and $1 million or less in the third year. Remote sellers are not exempt if they use electronic marketplaces "for the purpose of making products or services available for sale to the public." Under the MFA, remote sellers are always exempt if they have annual gross receipts of $1 million or less.
Another difference is that under Chaffetz's bill, remote sellers with annual gross receipts of less than $5 million cannot be audited by a state unless there is reasonable suspicion that the businesses engaged in intentional misrepresentation or fraud. This provision is intended to address concerns that under the MFA, small businesses could be audited multiple times, state government group officials said.
Due to the standstill in federal legislation, five states including Colorado have passed remote seller tax laws of their own.
The groups behind Tuesday's letter argued against these individual state laws, saying they create privacy concerns and prevent businesses from access to uniform definitions and free tax software that would be created under federal legislation, while also creating what it calls an "unnecessary administrative burden" for online sellers.
The Colorado law – recently upheld by the U.S. Court of Appeals for the 10th Circuit - requires online sellers to report information to buyers and state agencies for purchases over $500. The coalition called for a vote on federal online sales tax legislation to happen this year – a time frame promised in February by Senate Majority Leader Mitch McConnell, R-Ky.
"The lack of movement from Congress on the issue of remote sales tax collection has left states, local governments and our merchants with no choice but to seek disjointed and confusing remedies through individual state activity," the groups wrote, while also referring to meetings they have held with the House Judiciary Committee to discuss remote sales tax over the past three years.
Other business groups that signed the letter addressed to Goodlatte include the International Economic Development Council, The National Association of Wholesaler-Distributors, the Auto Care Association and the American Supply Association.
