Digital Sales Tax Measures Materialize in Congress

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By Jennifer McLoughlin

Congress is taking another stab at legislation broadening states’ taxing authority over remote retailers.

On April 27, a bipartisan group of four senators reintroduced the Marketplace Fairness Act, a proposal permitting states to require tax collection from out-of-state sellers and online vendors. The senators are Michael B. Enzi (R-Wyo.), Richard J. Durbin (D-Ill.), Lamar Alexander (R-Tenn.) and Heidi Heitkamp (D-N.D.).

Several representatives from both parties reintroduced the Remote Transactions Parity Act, granting states the same authority, the same day. Sponsors include Rep. Jason Chaffetz (R-Utah), Rep. Steve Womack (R-Ark.), John Conyers (D-Mich.), Kristi Noem (R-S.D.) and Jackie Speier (D-Calif.).

An earlier Marketplace Fairness Act, also sponsored by Enzi, was the first attempt at a national standard addressing states’ sales tax jurisdiction, authorizing states to mandate remote sales tax collection. The measure passed the Senate in 2013 on a bipartisan 69-27 vote, but didn’t advance to a vote in the other chamber after failing to make it out of the House Judiciary Committee. Reintroduced in 2015, the MFA has since made little movement.

Chaffetz first introduced the RTPA in 2015, but the bill was held up in the same House committee.

State Frenzy

The long-awaited measures respond to the U.S. Supreme Court’s 1992 decision, Quill Corp. v. North Dakota, 504 U.S. 298, which prohibits states from imposing sales and use tax collection obligations on vendors without a physical presence in-state.

The states have been active while awaiting a congressional solution, which the high court called for in Quill. Challenges are weaving through Alabama, South Dakota and Tennessee over “economic nexus” regimes that expand each state’s taxing jurisdiction over e-retailers. Through administrative rule or statute, the states require that retailers satisfying a specified threshold of sales must collect and remit sales tax. Similar economic nexus bills have surfaced in at least 15 statehouses during the 2017 legislative session, riding the growing wave of interest in capturing lost revenue from untaxed remote sales—and ultimately nullifying Quill.

Many anticipate the Supreme Court will accept a Quill appeal, looking to Justice Anthony Kennedy’s 2015 call for a case that triggers reconsideration of the court’s earlier holding, given “changes in technology and consumer sophistication.” That optimism has been buoyed by the nomination of Neil Gorsuch to join the high court, a judge who has indicated in a past opinion that Quill may be dated.

Efforts at E-Fairness

Several competing proposals to resolve the remote sales tax debate have surfaced, but stalled, in Congress through the years.

During a Feb. 27 media briefing with the National Governors Association, Alexander said that senators had agreed “in a large bipartisan way that we ought to get Washington out of the business of telling you how to collect your state sales taxes, how do you collect them from out of state or in state.”

Max D’Onofrio, Enzi’s press secretary, told Bloomberg BNA in an April 27 email that the senator is “working with supporters of internet fairness in the House and Senate to look for opportunities to move legislation forward,” and is optimistic.

“As the Senate passed the Marketplace Fairness Act a few years ago with 69 votes, Senator Enzi knows that real bipartisan cooperation to pass this legislation is possible,” D’Onofrio added.

“The Marketplace Fairness Act is about supporting jobs and services we have in our towns while ensuring states have the ability to collect taxes they are owed, if they choose to,” Enzi said in a Senate news statement. “Right now, thousands of local brick and mortar businesses are forced to do business at a competitive disadvantage because they have to collect sales and use taxes and remote sellers do not.

This legislation promotes internet fairness by putting Main Street businesses on a level playing field with online retailers.”

Hodgepodge in House

Sources had told Bloomberg BNA that House Speaker Paul D. Ryan’s (R-Wis.) office met with staffers of key House sponsors behind multiple bills to push for a resolution in 2017. And lawmakers had indicated they were working towards that end—including Womack, House sponsor of the 2013 MFA.

Claire Burghoff, communications director for Womack, told Bloomberg BNA in a March email that the Arkansas lawmaker was “encouraged by conversations he’s had with House and committee leadership and their recognition that an e-fairness solution must be considered by the whole House and Senate as soon as possible.”

As an “eternal optimist,” Chaffetz told Bloomberg BNA in January that a solution could surface this session. “As you talk to governors, state legislators and, increasingly, the online retailers, they need relief,” Chaffetz said. “And they need it soon. The system is not fair. It’s not balanced. And the lawsuits are flying everywhere across the country.”

Other House proposals have included:

  •   Rep. Robert W. Goodlatte’s (R-Va.) discussion draft of the Online Sales Simplification Act, a hybrid origin-based system that generally bases the taxation of remote purchases on the seller’s location, but at the tax rate of the consumer’s location; and
  •   Rep. Jim Sensenbrenner’s (R-Wis.) No Regulation Without Representation Act, first introduced in July 2016, which would codify Quill and dictate that no state could require collection or reporting from retailers without a physical presence.

Immediate Reaction

“For too long, congressional inaction has created an outdated, pre-internet online sales tax loophole that hurts Main Street job creators,” according to a statement from the Marketplace Fairness Coalition, applauding the re-emergence of e-fairness legislation. “Communities across America are forced to live with crumbling infrastructure and cannot hire teachers and first responders thanks to the lost revenue resulting from this loophole.

It’s time for Congress to bring our tax system into the 21st Century and pass federal E-Fairness legislation immediately.”

“We are pleased that legislation was reintroduced in Congress this week to empower states to modernize their tax laws and provide parity to local businesses and the communities they serve,” Tom McGee, president and CEO of the International Council of Shopping Centers, said in a statement. “These important measures will fix an outdated tax loophole that currently gives online retailers a price advantage of up to 10 percent over brick-and-mortar stores, has shortchanged communities on much-needed sales tax revenue and overcomplicated our country’s current sales tax system.”

The National Conference of State Legislatures and the ICSC released a March report saying states lost out on almost $26 billion in uncollected sales and use taxes in 2015 from online or remote retailers. This was up from an estimated $23 billion in 2012.

However, some have disputed revenue estimates from untaxed remote sales.

To contact the reporter on this story: Jennifer McLoughlin in Washington at jmcloughlin@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

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