New Federal Online Sales Tax Legislation Introduced

It’s time to “modernize our nation’s outdated sales tax collection framework.” That’s the goal of H.R. 2775, the Remote Transactions Parity Act introduced yesterday by Rep. Jason Chaffetz (R-UT) and a bi-partisan group of his colleagues in the House.

Rep. Chaffetz has been working on an online sales tax solution since early last year, when it became apparent the Senate-approved Marketplace Fairness Act of 2013 was dead. His is one of three remote sales tax bills currently exchanging hands in the capital:

• Marketplace Fairness Act of 2015 (Senate Bill 698)
• Online Sales Simplification Act (in draft form only)
• Remote Transactions Parity Act (R. 2775)

Each bill would create a different set of obligations and consequences for remote sellers. Read a summary of the three remote sales tax bills.

Remote Transactions Parity Act

Sponsors of the Remote Transactions Parity Act (RTPA) disparage the “current tax loophole that skews the free market,” taxing local brick-and-mortar stores while exempting remote sellers. Their solution “would close this loophole in a way that is generous to small remote sellers and puts our neighborhood retailers on a level playing field – without completely changing our current state sales and use tax structure.” (That last bit is a jab at the Online Sales Simplification Act.)

The press release issued by Rep. Chaffetz calls out the following aspects of RTPA:

• Entirely exempts small businesses (under $5 million in gross receipts) from remote state audits
• Protects small businesses from audits
• Phases-in collection requirements for small businesses
  • First year: exemption for small businesses under $10 million
  • Second year: exemption for small businesses under $5 million
  • Third year: exemption for small businesses under $1 million
• States give remote sellers tax collection and remittance software
• States pay for set-up, installation, and maintenance costs on the software

Chaffetz believes it is possible to “return more powers to the states and create parity within the retail community.”

A state of conflict

State sovereignty and taxation without representation are at the core of the remote sales tax conflict. The differing philosophies are reflected in these three Internet sales tax bills and their supporters and detractors.

For example, the National Governors Association supports the Chaffetz bill: “The nation’s governors have long called for the authority to modernize their sales tax systems and collect the taxes already owed to their states. This is an issue that must be solved before Congress takes up any other state tax issues.”

The Shopping Center Industry also applauds the new legislation: “The Remote Transactions Parity Act of 2015 restores free market principles to retailers by removing the government-sanctioned tax subsidy that is currently given to online-only sellers. Importantly, it also strikes a balance between states’ rights and regulatory protections for remote and multichannel sellers.” Other supporters include the National Retail Federation, Amazon and Overstock.com.

However, the National Taxpayers Union calls the bill “a threat to taxpayers, e-commerce.” Its press release expressed “tremendous disappointment and concern over the Remote Transactions Parity Act of 2015,” which it says “would violate an important, long-standing Constitutional limitation on state government power by allowing states to reach beyond their borders to collect taxes.” Other opponents include the R Street Institute and, perhaps most importantly, House Judiciary Committee Chairman Bob Goodlatte (R-VA).

Chairman Goodlatte has drafted the Online Sales Simplification Act (OSSA), which differs significantly from the RTPA and the Marketplace Fairness Act. Under OSSA, sales would be sourced to the point of origin – the location of the seller – not the location of the buyer.

Rep. Goodlatte is extremely concerned that there be “no regulation without representation.” He argues that when lawmakers can regulate or tax out-of-state businesses, they “dodge accountability for the burdens associated with their policy choices.”

It is time

From the beginning, remote sales tax has been a divisive issue. It often seems the matter will never be resolved, in spite of continued calls for resolution.

If federal lawmakers cannot reach accord, the United States Supreme Court may find itself drawn into battle. At least one justice thinks it is time the Court get involved; earlier this year, Justice Kennedy wrote that “it is unwise to delay any longer a reconsideration of the Court’s holding in Quill” – the case that set a physical presence requirement for taxation.