The long-running effort to impose taxes on online sales across state lines may finally make progress on Capitol Hill this fall. That’s because House Judiciary Chairman Bob Goodlatte (R-Va.), who’s resisted Senate-negotiated compromises on the issue for the last three years, recently released his own proposal and is pushing for a vote in the chamber before the November election. Time is short, however, and the remaining hurdles are many.
The Goodlatte plan won early plaudits from House Speaker Paul Ryan and Amazon.com, the online retailing behemoth, which already collects sales tax from customers in 28 states. But other retailers remain lukewarm, and their support likely will be crucial to completing work on a measure this year. Of the House Republican’s proposal, the Marketplace Fairness Coalition, the umbrella group for brick-and-mortar retailers and other supporters of an online sales tax, has said only that it was “pleased to see engagement in the legislative process on an important issue” and looked forward to reviewing the bill’s details.
Since the rise of e-commerce, the failure of federal policymakers to enable states to collect sales taxes from online retailers has placed brick-and-mortar operators at a competitive disadvantage. A 1992 ruling by the Supreme Court found states can only force a company to collect sales tax if it has a significant presence in the state where the sale occurred. Consumers still owe the tax otherwise, but the state government has no way to compel its payment.
Under Goodlatte’s proposal, an online retailer would use the rules of the state in which it’s based to collect sales tax at a rate set by the buyer’s state. The Senate version that Goodlatte shunned adopted a simpler system. Under it, a state could force an online retailer based elsewhere to use both its rules and rates to collect taxes on sales there.
Ryan is expected to try to force a vote on Goodlatte’s bill during the Congressional work period preceding the election. But it’s so far unclear whether it has the support to pass, since conservative House Republicans remain skittish about embracing anything that could be construed as a tax hike. And even if it does, it isn’t immediately evident whether the measure has a path forward in the Senate before the end of the year. Failing to secure passage of a harmonized package in both chambers by the end of the year would mean supporters of an online sale tax would need to start again next year with a new Congress.
Goodlatte’s bill tries to address some concerns that conservatives raised about the Senate approach. One complaint they lodged: The Senate bill violated state sovereignty by empowering states to collect levies beyond their borders. In allowing the seller’s state to choose what gets taxed, the Goodlatte version aims to hand companies more authority to determine the taxes they face, as opposed to subjecting them to the whims of lawmakers in other states. (Since unlike many major online retailers, Amazon.com already claims significant physical presences across the map thanks to its distribution network, the company simply wants to see the imposition of a uniform national standard.)
If Congress fails to act, the Supreme Court has signaled it could move to revisit its 1992 ruling. Last year, Justice Anthony Kennedy noted in an opinion on a related case that state coffers and retailers continue to suffer under the current system and that the Court should weigh in. The comments moved state lawmakers in several states to pass proposals with the aim of bringing a legal challenge to the high court.
In the months ahead, PLACES Magazine will continue to monitor progress on this crucial issue for retailers all across the country.