Tale of two houses: Seeking fairness in the Internet sales tax debate
October 27, 2014, 12:00 pm
By Hamilton Davison
The upcoming lame duck session may very well determine the future of online and remote taxation. When Congress finally goes home in December, we may know whether we are moving toward true fairness for all types of retailers, as well as their customers, or if there may be new and unnecessary burdens imposed on some of the most vibrant companies in our economy, thereby creating “fairness” – but primarily to big-box retailers with stores in most or all of the 50 states.
Note that this is not a debate over whether online and catalog sales should be subject to sales tax. Virtually all sides of the debate have long since accepted that notion. The only question is whether those taxes will be collected in a manner that disadvantages an entire class of sellers and consumers, or if they will be imposed in a manner that preserves the fairness and redress provided by the current system.
The picture in the Senate is bleak. It is no secret that Senate Majority Leader Harry Reid intends to use every parliamentary tool at his disposal to push the so-called “Marketplace Fairness Act” (MFA) all the way to the president’s desk before Congress closes the books on 2014.
The most likely scenario is that Reid will attach MFA to the vital extension of the Internet Tax Freedom Act (ITFA), a law that has protected Americans from taxes on their Internet access for more than 15 years. It’s a cagey ploy, and one that just might work, given the critical importance of the ITFA to the health of the Internet economy.
Supporters of MFA rightly view the waning months of this year as their last, best chance to force their increasingly unpopular measure to passage. The bill would require online and catalog sellers to collect sales taxes from consumers in every tax jurisdiction in the nation–more than 10,000 at last count–and subject them to audits from every state that collects sales tax. This is a burden unknown to all but the largest and most deep-pocketed brick and mortar retailers.
The only good news is that from the outset, the House has taken a more responsible and deliberate approach to addressing the thorny issue of remote retail sales taxation. Lead by House Judiciary Committee Chairman Goodlatte (R-Va.) the House is engaged in a wide-ranging deliberation over how to collect taxes remotely in a manner that keeps all retailers on a level playing field.
Toward that end, Goodlatte has held hearings and developed a series of core principles that should govern any remote collection plan. He is reportedly finalizing legislation that fulfills those principles, and corrects the well-documented flaws of MFA.
Rather than beginning the process with a preconceived concept of how remote taxation should work, House leaders sought a broad range of views on the issue and the challenges of allowing for remote taxation in a manner that provides much needed revenue to states without placing unique burdens on any types of retailers.
One of the issues the House bill is likely to fix is the problem of the “free” software, which is intended to allow Internet and catalog companies to collect remote sales taxes. Provided by Certified Software Providers who have an enormous monetary interest in seeing MFA approved, the software may be free to acquire, but it will be anything but free to implement on legacy systems, a potentially highly expensive problem MFA flat-out ignores.
The Goodlatte bill likely will offer a greatly simplified solution that could all but eliminate discriminatory software costs as well as the threat of tax audits from auditors in more than 40 states. It will also provide critical relief for catalog sellers, whose unique collection concerns (including printing 10,000 tax codes in every printed catalog) have been routinely swept under the rug by MFA advocates.
While the House continues its vital work to develop real solutions to this issue, it will be incumbent on senators who support innovation, competition and consumer choice, to resist the 11th-hour politicking of desperate MFA backers.
The very future of the Internet rides on it.
Davison is the president and executive director of American Catalog Mailers Association (ACMA) and co-founder of the True Simplification of Taxation (TruST) coalition.