Utah Congressman Crafts Compromise For Shaping Online Sales Tax Measure

For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

By Marc Heller

Feb. 10 — A congressman from the home state of Overstock.com may play a key role in shaping legislation enabling states to collect more taxes on online purchases.

Rep. Jason Chaffetz (R-Utah) is working with sponsors of the Marketplace Fairness Act (H.R. 684 and S. 743) and House Judiciary Committee Chairman Bob Goodlatte (R-Va.) to refine the legislation to address opponents' concerns, a spokeswoman for Chaffetz told Bloomberg BNA Feb. 10.

Chaffetz is not crafting a specific bill but instead is working on concepts that would address Goodlatte's priorities for online sales tax legislation, said Chaffetz's spokeswoman, M.J. Henshaw. Goodlatte hasn't scheduled a hearing on the issue and is still collecting ideas, a Judiciary Committee aide said.

Overstock, based in Salt Lake City, is among a coalition of businesses that has joined against the Marketplace Fairness Act. The legislation would allow states to compel out-of-state online retailers to collect sales tax.

The National Governors Association has said states lose out on as much as $23 billion annually in uncollected sales tax on remote sales. Most consumers don't declare such purchases on state income tax returns as required, officials have said.

“We do think that a federal solution is achievable,” said Mark Griffin, Overstock's senior vice president and general counsel. The group opposing the bill is the NetChoice Coalition.

Griffin said Chaffetz reached out to the company after Goodlatte in recent months asked him to work on the issue. Overstock and Chaffetz have exchanged ideas about possible changes to the bill, he told Bloomberg BNA.

Overstock, founded in 1999, employs 1,492 people and reported $1.3 billion in revenue in 2013, according to its Web site.

Goodlatte Principles

Goodlatte released a set of principles for online sales tax legislation in September 2013, such as ensuring that online retailers are treated equally with bricks and mortar stores; that out-of-state retailers should have a viable way to challenge tax-related actions by other states; and that state sovereignty is respected.

He has not commented extensively on the issue since then. A committee aide said Goodlatte welcomes input from lawmakers, industry groups, state and local governments and taxpayers and that he has received “several creative ideas.”

Some of Goodlatte's concerns will be easier to address than others, and the prospects of legislation passing in 2014, a midterm election year, appear unlikely, Griffin said. He said he hopes Congress can set groundwork for legislation that passes later, perhaps between the November elections and the end of 2014, or in another year.

The primary sponsors of the bill in the House are Reps. Steve Womack (R-Ark.) and Jackie Speier (D-Calif.). The Senate version, sponsored by Sens. Mike Enzi (R-Wyo.) and Richard Durbin (D-Ill.) passed the Senate in 2013.

Maze of Regulations

The bill's critics have said it would force retailers to comply with a maze of state sales tax regulations, including rates that vary among more than 9,600 taxing jurisdictions nationwide and don't uniformly apply to the same types of products from state to state.

In addition, Griffin said, Overstock fears having to appeal sales tax related cases to various state courts around the country instead of to federal court—an issue tied to Goodlatte's concern about retailers' appeal rights. “Venue matters to us,” he said.

From Overstock's perspective, Griffin said, inaction is preferable to the Marketplace Fairness Act. But the current system has become a complex mix of requirements from state to state, he said, as legislatures enact laws compelling sales tax collection and redefining what constitutes a physical presence in a state—the standard the U.S. Supreme Court set in the 1993 case Quill v. North Dakota for triggering sales tax collection.

“That's one of the reasons we're at the table,” Griffin said.

‘Not a New Tax.'

The legislation has support from Democrats and Republicans. How it plays out with conservatives may determine how easily it can reach the floor. Proponents see the issue as a matter of states' rights, said Jason Brewer, spokesman for the Retail Industry Leaders Association, which supports the bill.

Proponents have worked to counter the argument that the bill clears the way for a new tax, saying it merely improves compliance with sales taxes that consumers are already supposed to pay, said Max Behlke, manager of state-federal relations for the National Council of State Legislatures.

“We've proven it's not a new tax,” Behlke told Bloomberg BNA.


To contact the reporter on this story: Marc Heller in Washington at mheller@bna.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com

Request Daily Tax Report