Here’s the Republican vision for a national Internet sales tax system

September 18, 2013

The saddest cash register. (REUTERS/Adam Hunger)

If you're a frugal consumer, you've probably noticed that the benefits of online shopping aren't just limited to easily being able to compare prices: More often than not, online retailers don't charge sales tax. So even if something is the same price in a brick and mortar store, ordering it online can sometimes work out to be a better deal.

Under a 1992 Supreme Court decision, states can't force out-of-state retailers to collect sales taxes unless the retailer has physical presence within the state -- like a store or a warehouse. In most states with sales taxes, consumers are supposed to keep track of online purchases and pay out sales tax in the form of a "Use Tax" when they do their annual filing. But consumers frequently ignore that requirement.

The Senate passed a measure known as the Marketplace Fairness Act in May that would let states collect out-of-state online sales tax provided they created free software and a state entity to do so. The measure also exempted online out of state retailers with receipts under $1 million per year. But it passed primarily with Democratic support, and hasn't gained much traction in the Republican-controlled House.

Today, the House Judiciary Committee released principles that will guide its creation of a proposal for U.S. Internet sales tax. They are:

1.      Tax Relief – Using the Internet should not create new or discriminatory taxes not faced in the offline world.  Nor should any fresh precedent be created for other areas of interstate taxation by States.

2.      Tech Neutrality – Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing.  The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses.

3.      No Regulation Without Representation – Those who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement.

4.      Simplicity – Governments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary.

5.      Tax Competition – Governments should be encouraged to compete with one another to keep tax rates low and American businesses should not be disadvantaged vis-a-vis their foreign competitors.

6.      States’ Rights – States should be sovereign within their physical boundaries.  In addition, the federal government should not mandate that States impose any sales tax compliance burdens.

7.      Privacy Rights – Sensitive customer data must be protected.

Chairman Bob Goodlatte (R-Va.) released a statement along with the principles saying, “Americans across the country are affected by the issue of Internet sales tax whether they are consumers or business owners" and adding he looked forward to "continuing the discussion" about the issue.

Many brick-and-mortar stores are behind the implementation of an online sales tax system for obvious reasons, as are big box retailers like Target who already have to pay sales tax on most online transactions because they have physical locations in many states. States are also keen on a fix because they're losing out on an estimated $23 billion in sales tax revenue per year.

E-commerce giant Amazon went from opposing to supporting online sales tax proposals recently, most likely because it will help the company stay competitive with other online retailers as it expands its physical operations into more states to support same-day delivery.

Online marketplace eBay, on the other hand, was a major opponent of the Senate bill, arguing it would be a burden on small online businesses.

Andrea Peterson covers technology policy for The Washington Post, with an emphasis on cybersecurity, consumer privacy, transparency, surveillance and open government.
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