Online Sales Tax Measure May Snag in House
Though the Senate appears ready to pass a second bill allowing states to require online retailers to collect sales taxes on purchases made by their residents, House leaders seem intent on keeping the issue out of an end-of-Congress rush for action.
The Senate passed legislation (S 743) in May, sponsored by Wyoming Republican Michael B. Enzi, to allow the tax collections and Enzi has another measure (S 2609) queued up on the floor that would combine the sales tax provisions with an extension of the popular moratorium on state and local taxes on Internet access for 10 more years, until November 2024.
Supporters of the measure hope for final action by the end of the year.
The House, though, is more difficult for them. Republican leaders back an extension of the Internet access tax moratorium, but Speaker John A. Boehner of Ohio and Judiciary Chairman Robert W. Goodlatte of Virginia want to handle the issue separately from online sales taxes. Earlier this month, a Boehner spokesman said the Senate sales tax bill is as good as dead.
The access tax moratorium is set to expire, along with government funding, on Dec. 11, but House leaders might attach it to another stopgap spending bill or legislation to continue expiring tax breaks.
Keeping the online issues separate, though, might be challenging. Some states that want to collect Internet access taxes may find online sales tax collections to be a suitable substitute.
In addition, state legislatures in Virginia and Maryland passed transportation budgets that rely on anticipated revenue from online sales taxes to avoid increases in other taxes.
Without the bill, gasoline taxes in those two states would jump next year.
House Weighs Alternatives
The prospect of Virginia’s gas tax increasing could put more pressure on Goodlatte, though he is unlikely to introduce legislation before next year.
Tax policy analyst Andrew Moylan, who spoke with the members of House Judiciary about the online sales tax issue in March, said one of the alternatives Goodlatte is considering would require online vendors to claim a physical presence somewhere, such as a brick-and-mortar store, and apply that state’s sales tax to its sales.
Called origin sourcing, the concept is intended to keep retailers from having to keep up with nearly 10,000 tax jurisdictions across the U.S. and prevent the precedent of giving states the power to tax outside their borders, said Moylan, who is executive director of R Street Institute, a conservative think tank.
“To give states taxing power that’s as massive and unlimited as the Internet is not a particularly conservative impulse,” Moylan said.
Other groups that agree with the destination-source method in Enzi’s Senate bill say the challenge of determining the physical presence of an online vendor — whether by the location of warehouses, call centers or employees — would ultimately require a more cumbersome tax code to ensure online vendors don’t create tax havens by physically locating in states with no sales tax.
In fact, under pressure from a number of states, some big online stores already collect sales taxes on behalf of states where their customers reside.
Michael Mazerov, a senior fellow with the Center on Budget and Policy Priorities, a liberal think tank, said some online retailers already use software to calculate various tax codes and remit the revenue to states.
“There’s just really no need for this complexity,” he said.
Goodlatte has indicated he plans to bring legislation forward, but Congress, which has held more than 30 hearings on the issue over the past decade, may be in store for a few more.
Countdown to 2015
Faced with the possibility of another delay, a coalition of businesses and retail associations is expected to launch targeted ad campaigns across the country in the coming weeks hoping to make this year’s holiday shopping season the last one without an online sales tax policy.
Earlier this month, the National Retail Federation PAC reported a healthy return on the $345,000 it contributed to candidates in the 2014 election cycle. Ninety percent of the 103 House and Senate campaigns that received RetailPAC money won, including former federation board member David Perdue, a Georgia Republican who will replace retiring Sen. Saxby Chambliss next year.
However, the election victories may not make up for the loss of Democratic control in the Senate next year. Online sales taxes don’t top the list of Republican priorities, at best falling somewhere under the general calls for tax code changes.
Also, the support of Illinois Democrat Richard J. Durbin, who is the majority whip for the next seven weeks, has been extremely valuable in making the online sales tax measure a priority, J. Craig Shearman, the National Retail Federation’s vice president of government affairs and public relations, wrote in a Nov. 5 post.
“With Durbin in the minority, the issue may be more challenging in 2015, so retailers need to step up efforts for the legislation to receive final passage during the lame duck session that begins next week,” Shearman wrote.
Federal lawmakers also may get an earful from their state counterparts as they start a new year.
State legislatures are going to be convening “and it would be advantageous for them to know what they’re dealing with so they could implement state-level legislation in the work period that starts in January,” said Jason Brewer, vice president of communications and advocacy for the Retail Industry Leaders Association. “A three-month punt in Congress could be a one-year punt in reality because it won’t give states the time to implement a solution.”