Online Sales Tax Legislation Faces Uncertain Future in House

With Congress back in session, tough issues like Syria and the deficit may put the bill known as the Marketplace Fairness Act on the back burner.
September 12, 2013

Rep. Steve Womack, the second-term congressman championing the Marketplace Fairness Act, is hoping to remind people that even as Congress deals with a bevy of important topics -- Syria, immigration reform, tax reform and the deficit, to name a few -- his legislation continues to plod along.

Back in May, the Senate passed the Marketplace Fairness Act, which would allow states and localities to collect sales tax on online purchases. Lawmakers did an end-run to ensure it could skip the Senate Finance Committee, where chairman Max Baucus (D-Mont.) was an ardent critic. The move was a major victory for brick-and-mortar retailers, who felt they were at a competitive disadvantage compared to their online counterparts, and state and local governments, who were desperate to capture revenue.

But then, not much happened. Despite the legislation's overwhelming, bipartisan vote (it passed 69-27) and its historic nature (it was the first time the legislation passed either chamber) it seemed to peter out after that, when advocates turned their eyes to the House.

House Speaker John Boehner quickly expressed skepticism of the legislation, as did Rep. Bob Goodlatte (R-Va.), chairman of the House Judiciary Committee, which would handle the legislation.

But with Congress wrapping up its first week back after a long summer recess, Womack, who's sponsoring the House bill, is urging the media, fellow members of Congress, state and local lawmakers -- just about anyone who will listen -- that while his legislation faces hurdles, it's not dead yet.

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In a conference call with reporters Thursday, Womack said he's very aware of the crowded list of more high-profile issues before Congress, but "that doesn't mean other very meaningful issues facing our country should be set aside and just deferred."

For Womack's legislation to move forward, it will have to emerge from Goodlatte's committee, which won't be an easy task. The Virginia congressman does not support the legislation that emerged from the Senate, saying it's too complicated and opens the door for states to try to enforce tax issues beyond their borders.

"I am open to considering legislation concerning this topic, but these issues, along with others, would certainly have to be addressed," he said earlier this spring.

At some point -- it's not exactly clear when -- Goodlatte is expected to release a "statement of principles" that will indicate his approach to the legislation. Womack said he doesn't know what they'll contain, but he has some concerns with how the bill might be altered.

For starters, Womack said, he wants to be careful to ensure that if the bill is changed, it doesn't become more "instructive" and dictate to state and local governments what they should do with the tax revenue they might collect from online sales. While some conservative state lawmakers are working to lower taxes in anticipation of gaining revenue from online sales taxes, Womack said states shouldn't be required to take that approach.

Womack also said he would be "very apprehensive" about raising the threshold for the size of businesses that are exempt from the law. In the existing bill, online retailers who collect less than $1 million in annual sales will continue to be exempt from the sales tax. If that figure increases, "then you start neutering the effects of the bill," Womack said.

The Judiciary Committee's staff did not answer Governing's questions about Goodlatte's approach to the legislation or when a hearing might be held.

Other aspects of the bill that could potentially be altered include the date it would take effect, whether online retailers would be subject to state audits, and who would be civilly liable (if anyone) in the event that software errors result in inaccurate taxing.

Meanwhile, on Thursday, a pair of conservative organizations released polls indicating opposition to the plan, though Womack questioned their methodology and said it's not surprising voters would instinctively oppose online sales taxes without being presented with the nuances of the issue.

"I don't want to pay any more taxes," Womack said. But, he added, "the last thing I want to see is tumbleweeds blowing down Main Street in my community."

While advocates have long painted online sales tax collection as a way for state and local governments to capture much-needed revenue, they're increasingly changing their pitch, in part to cater to more conservative lawmakers.

Now, they're describing it as an issue of fairness, arguing that online retailers, who don't have to collect sales tax, enjoy a loophole that's not available to brick-and-mortar retailers. Womack and his allies have also tried to craft the issue as one tied to states rights, arguing it's time for Washington to give states the flexibility to decide their own tax policies -- including whether or not to take online sales.

Womack's legislation has been stuck in the Judiciary Committee since it was introduced in February. It has 66 co-sponsors.

One of the biggest hurdles it faces could be the anti-tax attitude of many House Republicans. Grover Norquist, the author of the famous anti-taxation pledge signed by many Republican lawmakers, has expressed opposition to the bill.

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