Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
Rep. Jim Sensenbrenner (R-Wis.) has fired back against federal and state lawmakers seeking to expand states’ sales tax authority over online retailers.
The Wisconsin congressman on June 12 introduced the No Regulation Without Representation Act of 2017 (H.R. 2887). The bill, which has been referred to the House Judiciary Committee, provides that “to the extent otherwise permissible under Federal law, a State may tax or regulate a person’s activity in interstate commerce only when such person is physically present in the State during the period in which the tax or regulation is imposed.”
According to a June 12 news release, the bill would prohibit states from:
“Over-taxation and regulatory burdens weigh heavy on American businesses,” Sensenbrenner said in the release. “These practices prohibit economic growth, stunt hiring, and make it harder for businesses to expand. The No Regulation Without Representation Act of 2017 helps alleviate these burdens, promotes entrepreneurial endeavors, and is an ally of small business. It reduces overregulation, keeps government overreaches in check, and ensures that only businesses within a state are subjected to state tax obligations.”
Sensenbrenner filed a bill ( H.R. 5893) in July 2016, proposing to codify the U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota, which precludes states from imposing sales and use tax collection obligations on vendors without a physical presence in-state. States have launched an increasing number of direct challenges to Quill as they have expanded their reach over online sales, triggering lawsuits percolating in Alabama, Tennessee, and South Dakota—where it has already reached the state supreme court.
The 2017 proposed legislation is broader in scope—however, it incorporates the same ban prohibiting states from imposing or assessing sales or use taxes on remote sellers, and likewise bars states from imposing reporting requirements related to remote sales.
The 2017 NRRA follows the introduction of two measures adopting an alternative approach. Lawmakers presented in late April the Marketplace Fairness Act of 2017 and the Remote Transactions Parity Act of 2017, in the Senate and House respectively, both allowing states to mandate out-of-state sellers and online vendors collect tax on in-state sales. Neither has advanced further and versions of both have been introduced in prior years.
Co-sponsors of H.R. 2887 include House Judiciary Committee Chair Robert W. Goodlatte (R-Va.), who has long pushed the Online Sales Simplification Act, a proposed hybrid origin-based system that generally would base the taxation of remote purchases according to the seller’s location, but set the tax rate according to the consumer’s location. While several discussion drafts were circulated last year, the measure has never been formally introduced in the House.
“I am encouraged by the bill Mr. Sensenbrenner has introduced,” Goodlatte said in a statement emailed to Bloomberg BNA. “It addresses efforts by some aggressive states to impose regulation without representation, including in the online sales tax arena, though the bill is much broader than that specific context.
“The bill is entirely consistent with the proposals put forth by the committee to address the online sales tax issue, which also prevents regulation without representation. I look forward to exploring its merits at the Committee level, and to continuing to look for a solution to the online sales tax issue.”
Goodlatte didn’t indicate whether his support of the 2017 NRRA reflects a plan to abandon the OSSA.
Many have singled out Goodlatte as the primary roadblock for competing e-retailer proposals that widen the reach of states’ taxing authority. The House Judiciary Committee has jurisdiction over the bills.
Stephen P. Kranz, a Washington-based partner with McDermott Will & Emery, said during a 2016 District of Columbia Bar event that Goodlatte’s world view is grounded in the principle of “no regulation without representation.” Originally frustrated with California’s chicken cage law, which sets cage dimensions for any farmer selling eggs into the state, the Virginia lawmaker’s dislike for cross-border regulation has bled into the tax discussion, Kranz explained.
In a May 5 posting, Sensenbrenner highlighted the California battleground where the agricultural industry is contesting the state’s cage-size rules. He wrote that in-state egg producers complained of a competitive disadvantage, which precipitated broadening the regulation to all eggs sold within the state—including those from out-of-state producers.
“California is free to regulate the size of its chicken coops, but if it does so, it must also accept the economic consequences of that decision for its producers. By regulating the sale of all eggs in its state, California is dictating policy to producers in other states,” Sensenbrenner said, stressing that “individual states should not influence national policy.”
In a June 13 post, McDermott practitioners analyzed the scope of the 2017 NRRA, noting that the legislative breadth is likely related to litigation over the California law.
“Missouri and other states sued to invalidate California’s law, but lost in the 9th Circuit and certiorari was denied by the U.S. Supreme Court on May 30, 2017,” according to the post. “Thus, the 2017 bill is unlike anything seen before in the tax context—and the impact, whether enacted or not, remains to be seen.”
“If enacted, this constitutionally questionable legislation would codify a radical federal overreach that would undermine the longstanding constitutional right of states to protect the health, safety, and welfare of their citizens and local businesses, as well as preempt countless laws in all 50 states. In short, this legislation would strip states’ ability to govern.”
The Marketplace Fairness Coalition, which for years has pushed Congress to legislation allowing states to collect sales tax from online transactions, called the Sensenbrenner bill “outdated and harmful to America’s small businesses.”
The bill “codifies an uneven playing field for brick-and-mortar retailers nationwide and hurts states by rolling back existing local legislation,” the group said in a statement. “This regressive legislation will harm small businesses and overly burden communities facing revenue shortfalls. Congress should reject this antiquated approach.”
Several e-commerce trade associations and retailers struck a different tune, however, applauding the new bill.
“States should not be allowed to regulate businesses beyond their borders, whether it is imposing sales tax obligations, labeling, or other regulatory restrictions and mandates on business that are not located within their borders,” Steve DelBianco, executive director of NetChoice, said in a statement. “Congress must step in to stop this madness.”
“We urge the full House to quickly take up this measure to provide small and mid-sized retailers protection from unlawful state policies that threaten to harm consumers, businesses and our national economy,” he added.
“More and more states have begun imposing regulatory burdens on out-of-state businesses that don’t have the means to fight back,” Hamilton Davison, president and executive director of the American Catalog Mailers Association, said in a statement. “Rep. Sensenbrenner’s bill bars states from imposing tax or regulatory burdens on businesses that are not physically present in the state, which is good for remote sales businesses and their customers.”
NetChoice and ACMA are parties in several cases contesting states’ economic presence models—that require sales tax collection from out-of-state sellers satisfying a specified monetary threshold or volume of in-state sales—including South Dakota and Tennessee. Both have also opposed reporting mandates, such as the Colorado regime, requiring remote retailers to report in-state sales to state tax officials.
“Consumers and online retailers around the country are under assault by more than a dozen states seeking to adopt onerous and unworkable sales tax collection regimes, but Rep. Sensenbrenner’s commonsense bill would put a stop to the chaos,” DelBianco said. “Whether it’s invading consumer privacy through tattletale reporting laws or establishing dubious ‘economic nexus’ policies that flout established Supreme Court precedent, this state sales tax feeding frenzy must be stopped in order to preserve consumer choice and competition.”
Charlie Wagner, vice-chairman of Jewelry Television (JTV), also voiced support of the legislation “as an important first step towards Congress finally resolving the remote sales tax issue.” He added that the company looks forward “to continuing policy discussions with lawmakers going forward.”
“As a remote retailer of colored gem stones and jewelry, JTV supports this bill because it will put a stop to the onslaught of out-of-state legislation and regulation designed to regulate interstate sales without representation and without nexus,” Wagner said in a statement. “This growing patchwork of state level laws and regulations undermines interstate commerce and further development of e-commerce which is so important to our nation’s economy.”
To contact the reporter on this story: Jennifer McLoughlin in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Ryan C. Tuck at email@example.com
Copyright © 2017 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)