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Sept. 27 — Rep. Robert W. Goodlatte's (R-Va.) latest proposal delineating a federal framework for taxing sales across state lines is “unworkable even if its drafting problems are fixed,” according to the Multistate Tax Commission.
An analysis posted online Sept. 23 by the MTC outlines several concerns with Goodlatte's long-tendered legislation, including potential constitutional, legal and administrative hazards.
The House Judiciary Committee released Aug. 25 a discussion draft of the Online Sales Simplification Act (OSSA)—Goodlatte's hybrid origin-based system that bases the taxation of remote purchases on the seller's location, but at the tax rate of the consumer's location. The proposal, not yet introduced, updates a prior iteration of the OSSA released in early 2015 (166 DTR G-6, 8/26/16).
The MTC responded to Goodlatte's original proposal in a January 2015 letter, highlighting tensions with state sovereignty and principles of federalism.
In the recent analysis of Goodlatte's regime, the MTC underscores textual deficiencies as well as political and constitutional issues. The MTC further noted there are legislative alternatives.
“Although the Multistate Tax Commission does not endorse any federal preemption of state tax law, it is important to note that the Marketplace Fairness Act (MFA) uses a workable destination-sourcing system and lacks the numerous drafting and constitutional challenges of this draft,” according to the MTC's analysis.
The OSSA is one of four federal proposals competing to define the scope of states' taxation power over remote vendors, including the MFA. After the Aug. 25 release of Goodlatte's discussion draft, some states shared concerns and criticism of the updated proposal.
Observing that Goodlatte's plan “creates political and constitutional issues that are as great as those it seeks to resolve,” the MTC found that the hybrid-origin sourcing regime can't be fixed even through drafting. The MTC's conclusion that the proposal is unworkable echoes feedback from select states (181 DTR J-1, 9/19/16).
“We obviously conclude that origin sourcing cannot be saved,” Thomas Shimkin, MTC legislative counsel and director, told Bloomberg BNA Sept. 27. There is “no combination of improvements we believe can save it as long as it's got origin sourcing as the base.”
Shimkin explained that the MTC document isn't intended to represent the states' position. The MTC also didn't develop the analysis for lobbying purposes, but rather for providing its member states with a resource that could be passed along to state tax officials or used as a springboard for further research.
While many states are looking for Congress to weigh in on the issue, the Goodlatte framework faces dim prospects.
“I have it on very good authority” that it is dead on arrival in the Senate, Shimkin said, also noting that it is doubtful there will be House movement this session.
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The MTC's analysis of Goodlatte's plan is at http://www.mtc.gov/getattachment/2016-09-20-MTC-OSSA-Analysis.pdf.aspx.
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