Digital Sales Tax Bill Set for House Subcommittee Hearing

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,...

By Ryan Prete

Only one of the digital sales proposals pending in Congress is expected to be addressed during a House Judiciary Committee hearing next week.

The Subcommittee on Regulatory Reform, Commercial and Antitrust Law has scheduled a July 25 hearing on Rep. Jim Sensenbrenner’s (R-Wis.) proposal to restrict states’ sales tax reach over remote retailers. The No Regulation Without Representation Act of 2017 (H.R. 2887) 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.”

Introduced June 12, the bill would prohibit states from:

  • telling out-of-state businesses how to make or dispose of their products; and
  • imposing income tax or sales tax collection burdens on remote businesses.

This is the first House Judiciary Committee hearing on remote sales tax since March 2014. Some welcomed the hearing as a long-overdue step in addressing the cross-border taxation debate—while others protested the narrow scope of the hearing, which isn’t expected to discuss other remote sales tax proposals.

“We’re relieved to see that Congress is waking up to the problems caused when states reach across borders to regulate and tax businesses in the country,” Steve DelBianco, executive director of NetChoice, told Bloomberg BNA in a July 18 email. “It’s reached a crisis in the area of remote sales tax, where states are creating chaos with unconstitutional and illegal regulations and laws.”

A hearing hasn’t been scheduled on a competing House measure, the Remote Transactions Parity Act of 2017 (H.R. 2193), which would allow states to mandate out-of-state sellers and online vendors collect tax on in-state sales. The RTPA was introduced in late April, alongside the introduction of the Marketplace Fairness Act of 2017 (S. 976) in the Senate, which would also expand states’ taxing authority over remote retailers.

Bypassing the Opposition?

Max Behlke, director of budget and tax at the National Conference of State Legislatures, told Bloomberg BNA July 18 that opposing proposals haven’t received hearings of their own because of House Judiciary Committee leadership.

“This hearing blindsided the Democratic leadership and took us all off guard,” Behlke said. “It is a fact that the MFA and RTPA have sat in the Judiciary Committee for four years, and never received consideration because the chairman hasn’t allowed it to happen.”

“Senate sponsors of the MFA have asked us why they should take action when they know its going to die in the House, and I can’t blame them,” he added.

Rep. Robert W. Goodlatte (R-Va.), chairman of the House Judiciary Committee, is a co-sponsor of Sensenbrenner’s bill. Many have singled out Goodlatte as the primary roadblock for competing e-commerce proposals that widen the reach of states’ taxing authority.

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. 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.

‘Clarity and Relief’

Several e-commerce trade associations applauded the hearing announcement.

“Sensenbrenner’s bill deserves attention because it has the potential to hit the pause button on state cross-border regulation, so that Congress can exercise its constitutional authority over interstate commerce,” DelBianco said.

“In recent years, rogue states have attempted to target out of state businesses to comply with onerous tax collection regimes that ran afoul to the Supreme Court precedent,” Hamilton Davison, president and executive director of the American Catalog Mailers Association (ACMA), said in a statement. “We applaud the U.S. House Judiciary Committee for holding this hearing and proposing much-needed solutions like Rep. Sensenbrenner’s No Regulation Without Representation Act.

“It’s a sound piece of legislation that would provide clarity and regulatory relief for remotely located catalog and e-commerce businesses that sell their products nationally,” Davison said.

An increasing number of states have passed legislation or regulations in recent years to challenge the Quill rule and enforce taxes on out-of-state sellers. NetChoice and ACMA are parties in several legal challenges to states’ remote sales regimes, including South Dakota, Indiana, Tennessee and Wyoming.

‘Slap in the Face’

However, state rights advocates have voiced stark opposition to Sensenbrenner’s legislation.

“This legislation jeopardizes state sovereignty and is a slap in the face to state and local governments. This is an absolutely horrible bill, and I would be shocked if it actually received a vote in the House,” Behlke said. In a June 13 letter to the House, the NCSL called Sensenbrenner’s proposal an “unprecedented preemption of state sovereignty.”

“The National Governors Association is disappointed by the decision to hold a hearing on the Sensenbrenner bill, but not the Marketplace Fairness or Remote Transactions Parity Act,” Elena Waskey, a spokesperson for the NGA, told Bloomberg BNA in a July 18 email. “The Sensenbrenner bill stands in direct contradiction to state-supported efforts to collect taxes on remote sales.”

To contact the reporter on this story: Ryan Prete in Washington at rprete@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

Copyright © 2017 Tax Management Inc. All Rights Reserved.

Request Daily Tax Report: State