Loading Time for Online Sales Tax Is Expiring
Anyone hoping for an online sales tax bill out of the 114th Congress might as well be staring at a spinning circle on a computer screen.
A push to allow states to enforce sales taxes on remote online vendors faces likely stalemate, with a quiet retreat by Senate supporters and a splintering of House Republicans. That’s a big disappointment to backers of an overhaul of the tax structure for Internet sales; they had hoped the momentum from Senate passage of a bill in the last Congress would carry over into 2015.
House Judiciary Chairman Robert W. Goodlatte, R-Va., said he has no firm timetable for introducing his draft bill to require sales tax collections by remote vendors — based on rates in effect in the seller’s home state. Under Goodlatte’s proposal, the buyer’s home state would receive sales tax revenue from a remote online transaction involving one of its residents, but only up to the rate charged by the seller’s home state.
“The time frame is when we have an agreement,” Goodlatte said in an interview this month. “We are working with a wide variety of parties to reach an agreement on how to proceed. We are looking to work this out. … We need people on board with widely differing points of view — governors, state legislators, big box retailers, online retailers, technology companies.”
Goodlatte has said in the past he would issue a bill. But he faces resistance from some conservatives, who argue that any legislation would be perceived as a tax increase.
Goodlatte said he and Rep. Anna G. Eshoo, D-Calif., will hold back on moving his draft bill until there is an agreement among key groups, including the National Retail Federation, National Governors Association and National Conference of State Legislators. All three groups support the Marketplace Fairness Act proposed by Budget Chairman Michael B. Enzi, R-Wyo., that would clear the way to enforce traditional sales taxes based on rates in the buyer’s home state.
But the Enzi plan has no clear path to the Senate floor, even though a similar bill won easy passage, 69-27, in May 2013. It was never acted on in the House.
That’s because the bill is opposed by Senate Majority Leader Mitch McConnell, R-Ky., and other key players such as Majority Whip John Cornyn, R-Texas, and Finance Chairman Orrin G. Hatch, R-Utah.
Instead of bucking Senate GOP leaders, Health, Education, Labor and Pensions Chairman Lamar Alexander said he and other supporters of the Enzi bill think the House should go first this time.
“In the last Congress, the Senate took the lead and passed legislation first. Now, the House should pass legislation and send it to the Senate,” the Tennessee Republican said.
With Goodlatte at odds with House backers of the Enzi approach, lobbyists say prospects for a 2015 deal are fading, and will vanish completely in the 2016 campaign season.
“The chances are less than 50 percent that we will see a bill pass the House in 2015,” said Steve DelBianco, executive director of NetChoice, an alliance that represents eBay, Facebook and other online commerce companies such as Utah-based Overstock.com.
Even that may overstate the potential for action. If Congress simply does nothing, opponents of a national online sales tax plan can maintain the status quo, where states have little chance of enforcing sales taxes for online purchases across state lines.
Goodlatte disputes the gloomy predictions. “I wouldn’t rate it that way at all. I think it’s something we can solve. And we’re committed to doing it,” he said.
Goodlatte said he had not decided whether to try to move an online sales tax compromise with his separate proposal for a permanent extension of the moratorium on new Internet access taxes, which expires at the end of September.
Talks are ongoing between Goodlatte and Oversight and Government Reform Chairman Jason Chaffetz, R-Utah, who has been working on a proposal similar to the Enzi plan with a streamlined audit process for online vendors and other adjustments. Like Goodlatte, Chaffetz said he had no timetable for introducing a bill, but would like to reach an accord.
Instead of holding a markup with votes on rival proposals, Goodlatte said he wants to broker a deal that brings together states and retailers backing the Chaffetz and Enzi measure with business alliances backing Goodlatte’s approach: NetChoice and the Northern Virginia Technology Council, which includes Google and Hewlett-Packard Co.
David French, a senior vice president of the National Retail Federation, confirmed that a coalition of retail industry groups had sent suggestions to Goodlatte in hopes of reshaping his bill. “We have encouraged the chairman to consider a destination-sourced model instead,” French said. “We think the chairman wants to solve the problem.”
Critics say Goodlatte’s origin-based approach favors some Silicon Valley businesses and would hurt Main Street retailers. For example, they said it could prod manufacturers and online retailers to move to states with low sales taxes or to lobby home-state legislatures for exemptions or reduced rates for certain products such as computers or health-related items.
Goodlatte denies he is tilting in favor of Silicon Valley, where he has long been a GOP rainmaker with his purview over patents, copyrights and foreign skilled-worker visas. He raised more than $435,000 in the last cycle from entertainment, technology and Internet businesses and their employees, according to the Center for Responsive Politics.
Goodlatte said his approach is best for many businesses.” It’s better for growing our national economy because it does not allow states to regulate businesses outside of their jurisdiction,” he said.
Enzi introduced his latest version of the Marketplace Fairness Act this month, and cited help from an unlikely ally: Supreme Court Justice Anthony M. Kennedy.
He said he hoped to gain support because of Kennedy’s recent written remarks expressing a desire to reverse the court’s 1992 ruling in the Quill v. North Dakota case that prevented states from compelling sales tax collection by vendors with no nexus or presence in their borders.
Kennedy, in his concurring opinion for a court decision in a Colorado online commerce case, wrote that he believed it was time for “a reconsideration of the court’s holding in Quill,” citing concerns about state fiscal problems and “changes in technology and consumer sophistication.”
“A case questionable even when decided, Quill now harms states to a degree far greater than could have been anticipated earlier,” Kennedy said.
The comments were connected to the court’s ruling Tuesday in favor of online retailers in Direct Marketing Association v. Broehl. The court cleared the way for vendors to challenge a Colorado mandate for customer information to expedite enforcement of sales taxes.
Supporters of the Enzi bill say Kennedy’s remarks may spur legislation by raising the possibility of new court rulings that favor states.
NetChoice’s DelBianco said he’d prefer legislation, but not at all costs.
“I would rather take my chances with the Supreme Court than have Enzi’s bill,” he said.