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By Ryan Prete
It’s not certain that Rep. Bob Goodlatte’s (R-Va.) retirement will open the door to long-awaited federal legislation addressing states’ taxing authority over remote retailers.
Goodlatte—a long-time proponent of U.S. Supreme Court law restricting states’ ability to tax out-of-state sellers—formally announced Nov. 9 that he won’t seek re-election in 2018.
The Supreme Court soon could reconsider Quill Corp. v. North Dakota, a 1992 decision prohibiting states from imposing state sales and use tax collection obligations on vendors that don’t have a physical presence in-state. South Dakota Attorney General Marty Jackley (R) has requested the high court review a state Supreme Court ruling that found the state’s “economic nexus” law, S.B. 106 (codified as S.D. Codified Laws Chapter 10-64), unconstitutional under Quill ( South Dakota v. Wayfair, Inc., U.S., No. 17-494, friend-of-the-court briefs filed 11/2/17 ).
However, practitioners question whether Goodlatte’s successor as House Judiciary Committee chair will move the needle on federal remote sales tax legislation if the Supreme Court doesn’t take up the case. Many individuals, both inside and out of Congress, have singled out Goodlatte as the primary roadblock to e-commerce proposals expanding states’ taxing authority.
John Buhl, media relations manager at the Tax Foundation, told Bloomberg Tax that the complexity of remote sales tax legislation will fuel congressional debate long after Goodlatte leaves the House, but a high court decision to pass over the South Dakota case could encourage Congress to act.
“It’s more likely that South Dakota’s push to address this issue before the U.S. Supreme Court would prompt action. If the Court does take the case, Congress will need to step in at some point to ensure that there are guardrails in place to protect smaller online retailers from a slew of tricky state and local sales tax rules,” Buhl said in an email. “While Rep. Goodlatte has been a key player in the debate over remote sales tax legislation in Congress, this is a pretty complex issue.”
Many have considered Goodlatte the biggest hurdle to passing e-commerce legislation, particularly former House Oversight Committee Chair Jason Chaffetz’s Remote Transactions Parity Act of 2015 (H.R. 2775), which would have allowed states to collect tax from sellers without an in-state physical presence.
“If what had been called the Chaffetz bill got a floor vote, it would pass the House and the Senate,” Joseph Bishop-Henchman, executive vice president at the Tax Foundation, told Bloomberg Tax. “The chairman did what chairmen do, which is kept it from coming to that vote. Lots of Republicans have said they support the bill but don’t want to cross the chairman, so who the next chairman is matters quite a lot.”
Jamie Yesnowitz, principal and state and local tax practice and National Tax Office leader at Grant Thornton LLP, told Bloomberg Tax that he believed Goodlatte to be a “major reason why the remote seller bills were blocked.” However, he expects “Congress to be wary of remote seller legislation until the U.S. Supreme Court comes to a decision on the Wayfair case.”
Two bills pending in Congress seek to undo Quill. Lawmakers presented in late April the Marketplace Fairness Act of 2017 (S.976) (MFA) and the Remote Transactions Parity Act of 2017 (H.R. 2193) (RTPA), 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 received a floor vote.
Goodlatte is a co-sponsor of the No Regulation Without Representation Act of 2017 (H.R. 2887) (NRRA), which would, in part, codify Quill. The NRRA received a House Judiciary subcommittee hearing in July, where a handful of members, including Rep. John Conyers (D-Mich.), ranking member on the subcommittee, voiced concern over the lack of consideration for the RTPA and MFA.
Goodlatte was also behind 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 discussion drafts were circulated, the measure was never formally introduced in the House.
Bishop-Henchman noted that while the next committee chair may or may not be enthusiastic about the RTPA, “they undoubtedly won’t be as enthusiastic about the hybrid origin approach that satisfied nobody.”
However, the congressman has nearly a year left on Capitol Hill, a period of time that won’t go to waste, Steve DelBianco, president and CEO of NetChoice, a Washington-based internet commerce trade association, told Bloomberg Tax.
“There is still plenty of time for Goodlatte to cement his legacy as a thoughtful and principled leader, and I expect he will be central to the internet tax debate right through his last day in Congress,” DelBianco said, adding that “court consideration of Quill will remind everyone that the Constitution gives Congress the power to regulate interstate commerce.”
DelBianco noted that due to GOP self-imposed term limits, Goodlatte would’ve relinquished his chairmanship at the close of the 115th Congress anyway.
Jeff Friedman, a tax partner at Eversheds Sutherland (US) LLP, told Bloomberg Tax that he doesn’t think any particular congressman will lead to passage or failure of legislation. “Rather,” he said, “I remain hopeful that Congress will enact legislation that will provide a fair and simple tax jurisdiction standard.”
Friedman also pointed to a Nov. 2 friend-of-the-court brief filed by congressional lawmakers urging the U.S. Supreme Court to accept South Dakota’s petition.
“The amicus brief recently filed by members of Congress in the Wayfair case demonstrates their continued interest. Both political parties are seeking a solution,” he said. “While the composition of Congress will continue to evolve, I expect that Congress will show continued interest in sales tax legislation, remote workforce legislation and other legislation affecting state taxation.”
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