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With Legislation in Limbo, House Judiciary Outlines 7 Online Sales Tax Principles

The legislation to allow states and localities to collect online sales taxes has been stuck in the U.S. House, but the issue may gain momentum back.
September 18, 2013
AP/Paul Sakuma

House Judiciary Committee Chairman Bob Goodlatte released an outline Wednesday of how he thinks online sales tax legislation should proceed, signalling that the issue could once more gain momentum.

State and local government leaders have long-advocated for the legislation, arguing that consumers' shift to online purchases threatens a key revenue source: sales taxes.

The outline seems to suggest that Goodlatte believes the existing online sales tax bill, the Marketplace Fairness Act (MFA), isn't simple enough, and that some serious tweaks need to be made.

"The aim of the principles is to provide a starting point for discussion in the House of Representatives," Goodlatte said in a statement.

The Marketplace Fairness Act, introduced by U.S. Rep. Steve Womack earlier this year, passed on a bipartisan basis in the Senate in May. But since then, Womack's bill has stalled in the House, where Goodlatte and Speaker John Boehner quickly expressed skepticism of the legislation.

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The announcement didn't mention the existing MFA legislation, but Womack said Goodlatte's points "reflect the spirit of the Marketplace Fairness Act, and I am extremely supportive of and encouraged by them."

The document emphasizes that online sales tax legislation shouldn't be used to create new taxes that don't exist offline. It also says online retailers shouldn't have a sales tax compliance burden that's greater than what brick-and-mortar stores face.

Critics of the Marketplace Fairness Act argue it would be too difficult for online businesses to collect sales taxes because they would need data on sales tax rates and policies from a vast number of jurisdictions. But advocates for the bill say online retailers would be provided with software to make such calculations simple.

The committee's outline also says  "states should be sovereign within their physical boundaries." Some MFA skeptics have said states might aggressively try to collect sales taxes outside of their borders; Goodlatte would seemingly make that less difficult.

Though the Marketplace Fairness Act exempts businesses that make less than $1 million a year in online sales, Goodlatte says the law should be so straightforward and compliance should be so simple that a small business exemption would be unnecessary.

Jason Brewer, vice president for advocacy at the Retail Industry Leaders Association, said although the Senate acted quickly to pass its bill, it's not a surprise the process is taking longer in the House.

"I think we always knew this would be a slower, more deliberative process in the House," Brewer said.

Lars Etzkorn, program director for federal relations at the National League of Cities, said the list of principles released by Goodlatte didn't contain any "fatal flaws," and they are all issues that have been raised and debated for many years.

"He wants to have his fingerprints on the final product instead of just taking over that which the Senate passed," Etzkorn said.

Etzkorn says he's optimistic that Goodlatte will work to pass a bill, but the true test of his commitment will be revealed based on how soon a hearing is held.

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