Online Sales Tax a Live-Wire Issue for Congress

Jason Chaffetz, the Utah Republican who chairs the House Oversight and Government Reform Committee, has assembled a bipartisan rump group around a proposal to empower states to collect sales taxes from online sellers outside their borders. At the same time, a loose coalition of retailers, state officials and allied groups is trying to rally support for the plan in both chambers of Congress.

Chaffetz confirmed in an interview Monday that he was continuing to champion the measure despite potential opposition from Judiciary Committee Chairman Robert W. Goodlatte, R-Va., and some electronic commerce businesses. “We have a lot of outside support,” Chaffetz said. “Governors and state and local government are begging us to deal with this issue. We can’t ignore it. We need a real solution.”

Goodlatte’s bill basically defines a remote seller’s home state as where he has the most employees, and ensures that the remote seller would have to deal with just one home state in terms of remitting sales tax receipts (for distribution to the home state of the buyer) and any potential audits.

The Chaffetz draft bill would make remote sellers liable to any states where they have a physical presence, meaning they would be liable to audits by their home state and any other states where they have employees. They would not face audits from all the other sales-tax states where they have no employees, offices or another presence.

“If you are personally, physically present, operating in the state, that would obviously be physical presence, and would not protect you against regular audits,” Chaffetz said.

Retailers and others are coalescing behind Chaffetz because of House Republican resistance to the main online sales tax bill in the Senate (S 698), sponsored by Budget Chairman Michael B. Enzi, R-Wyo. A similar measure passed the Senate easily in 2013 but died in the House.

Enzi made clear in an interview that the Chaffetz bill could be an alternative vehicle for action, if there is bipartisan House consensus.

“I’ve looked at an outline of it,” Enzi said in an interview. “There are some differences from our bill. But I’m encouraged with what he has. We will see how many co-sponsors sign up,”

The Marketplace Fairness Coalition, an alliance of businesses and trade associations, said in a written statement that members had worked with Chaffetz for more than a year on the draft bill, dubbed the Remote Transaction Parity Act and voiced strong support for moving the measure as part of legislation to permanently extend the moratorium on Internet access taxes.

“We believe there is a pathway forward in conjunction with the Internet Tax Freedom Act that could provide certainty for businesses and consumers about how states collect taxes from Internet access and sales that take place online,” the coalition said.

Several groups in the alliance, including the National Retail Federation, National Governors Association, National Conference of State Legislatures and the International Council of Shopping Centers, expressed support for the measure.

E-Commerce Opposition

The Chaffetz plan faces potential hurdles in the House from senior Republicans such as Goodlatte, who opposed the Enzi bill, citing the potential complexity of complying with tax laws of multiple states. Goodlatte has his own alternative draft to provide buyers’ home states with sales tax revenue from a remote online transaction, but only up to the level charged by the seller’s home state.

Steve DelBianco, executive director of NetChoice, an electronic commerce alliance that includes eBay and Facebook, said his group backed the Goodlatte draft.

“Rep. Chaffetz is trying to fix the many flaws in the Senate bill, but the simplest and fairest solution is Chairman Goodlatte’s proposal,” DelBianco said.

Critics say the Chaffetz bill leaves vendors with liability for multiple state audits in the event of fraud or mistakes in categorizing taxable goods. The vendors also would have to navigate myriad state requirements and lists of taxable items as well and pick up the tab for software integration expenses that go beyond the costs covered by states for the tax-collection software and its setup, installation and maintenance.

According to lobbyists, the Chaffetz draft bill would provide a remote sales tax exemption for businesses with less than $10 million in gross annual sales after enactment.

The exemption would be narrowed to businesses with less than $5 million in annual sales in the second year after enactment and would be permanently reduced starting in the third year to cover businesses with less than $1 million in annual sales.

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