Sales Tax Slice: Rep. Chaffetz’s Surprise Bid for Speaker Complicates Future of ITFA and Remote-Seller Tax Legislation

In case you missed it, we narrowly avoided a government shutdown last week.  On Wednesday, Sept. 30, 2015, the U.S. Senate and House each approved a continuing resolution (H.R. 719) to fund the federal government into its new fiscal year.  President Obama signed the bill late that night.  Huzzah.

But hold your horses—the continuing resolution is just a stop-gap measure.  It funds operations only through Dec. 11, 2015.  Legislators are already gearing up for another conflict in about two months.  One needn’t look far down the road to see a kicked can.

As state tax professionals, why do we care?  We care because among the many interesting topics at play in this budget battle, the continuing resolution keeps the Internet Tax Freedom Act (ITFA) alive—for a while, at least—as reported by Bloomberg BNA in the Daily Tax Report.  Absent Congressional action, the ITFA would have expired on Sept. 30, 2015, and states would have been free to start taxing Internet access.

To be clear, the ITFA prohibits states from imposing sales tax on Internet access, but it does not address a more controversial matter lurking behind the scenes for Congress: whether states should be able to require sellers to collect and remit sales tax on remote sales.  States can’t do that currently; they can require a seller to collect and remit sales tax only if the seller has an physical presence in the purchaser’s state.  In particular, online retailers tend to love that framework—many online sellers are physically present in just one or a few states.  These online sellers enjoy a constitutionally narrow tax-collection burden elsewhere, they can sell their products at more competitive overall prices than their tax-collecting brick-and-mortar competitors.

But I digress.  Extending the ITFA via continuing resolution is not a novel approach.  Congress has done so several times since enacting it in 1998, and we have even seen failed attempts to make the ITFA permanent.  But here we are again, uncertain of what will transpire in December and relying only on limited conditional guidance from a few states.

With President Obama having announced on Friday that he refuses to sign another continuing resolution, let’s consider a hypothetical situation for December: might Congress package a permanent ITFA bill with remote-seller tax legislation?  Who knows, but House Speaker John Boehner’s sudden resignation announcement in September certainly muddied the waters, as reported in the Daily Tax Report.

In an interesting turn of events, just this Sunday Rep. Jason Chaffetz (R-Utah) announced a surprise bid for the Speaker position.  Rep. Chaffetz is an important figure here because he sponsored the Remote Transactions Parity Act (“RTPA”), one of the two bills introduced this year that, if enacted, would address the remote-seller tax issue.  Like the other bill, the RTPA has stalled at the gate thus far, but perhaps that would change if Rep. Chaffetz were House Speaker.

Rep. Chaffetz has much more on his plate than just the RPTA, and he is by no means a shoe-in for House Speaker.  Even so, his surprise announcement represents a curious turn of events that makes it fun to hypothesize about some important sales tax topics.  For more information, stay tuned to this Thursday’s Republication caucus and the full House vote on October 29.

Continue the discussion on LinkedIn: How if at all, should Congress address the moratorium on Internet access taxes?  Does remote-seller tax legislation stand a chance?

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