PublishedMarch 14, 2014

House Judiciary Committee Explores Internet Sales Tax Alternatives

On March 12, the House Judiciary Committee held a hearing titled “Exploring Alternative Solutions on the Internet Sales Tax Issue.”  CCIA had welcomed the announcement of this hearing as a first step in a much-needed, detailed discussion that would help clear up the misleading use of such rhetoric as “fairness” and “leveling the playing field.”

In his opening statement, Chairman Bob Goodlatte (R-VA) characterized the Senate’s Marketplace Fairness Act (MFA) as suffering from such “fundamental defects” as compliance not being sufficiently simple, compliance cost estimates varying wildly, the existence of over 9,600 taxing jurisdictions, and remote sellers being exposed to multiple audits in jurisdictions in which they have no voice.  CCIA has consistently opposed the MFA precisely because of such defects and we have supported the 7 Principles on Internet Sales Tax released in September by the Committee.  The hearing featured a panel of six witnesses sharing their critiques of the MFA and explaining their ideas for an alternative to it.

Mr. Stephen P. Krantz expressed his concern that without Congressional action to establish a framework for remote sales tax collection, states would continue to pursue their own efforts, resulting in a confusing and contradictory patchwork system.  Mr. William E. Moschella, representing the Simon Property Group, expressed support for the MFA but also proposed prohibiting the shipment of goods in violation of the sales tax laws of the destination state.  Mr. James H. Sutton Jr. proposed enabling self-reporting of use taxes by requiring remote sellers to provide sales information to the states and to purchasers.  Mr. Joseph R. Crosby proposed an Alternative Framework applying only to remote sellers and sales based on substantive tax simplifications, provision of software and its costs, and single state audits.  Mr. Andrew Moylan of the R Street Institute called for an origin sourcing system, requiring tax collection based on the physical location of the business rather than the purchaser.  And former Congressman Chris Cox, representing NetChoice, proposed “Home Rule and Revenue Return,” an origin sourcing system that would also distribute the taxes received from out-of-state purchasers to their home states.

Even while offering different alternative ideas, three of the witnesses weighed in with statements highly critical of the MFA.  Mr. Sutton stated that the MFA would “cripple our interstate commerce economy.”  Mr. Moylan said that the MFA “would undermine basic principles of sound tax policy, impose unequal collection burdens on businesses and constitute a substantial burden on interstate commerce.”  Former Congressman Cox called the MFA’s approach “fundamentally costly, discriminatory, and potentially unconstitutional.”

CCIA’s concerns with an MFA-type approach have centered on Chairman Goodlatte’s principles of Tech Neutrality and Simplicity.  The MFA clearly fails the test on Tech Neutrality by seeking to address a perceived “imbalance” in tax treatment between physical stores and remote sellers by overcompensating into a new imbalance by placing a much larger compliance burden on remote sellers.  And on Simplicity, Mr. Moylan commented that, “the sad fact is that state sales taxes today are more complex than ever,” while Congressman Cox declared that, “the actual simplifications achieved by the SSTP (Streamlined Sales Tax Project) are few – and not nearly sufficient to justify Congress abandoning its role in protecting interstate commerce.”  So the MFA would keep things simple for its supporters by saddling remote sellers with the onerous compliance requirements arising from an unsimplified system of 9,600 tax jurisdictions.  That is surely not what Chairman Goodlatte had in mind.

This hearing was informative in that it highlighted the differences in opinion, not just on HOW to address the problem, but also on WHAT the problem is.  MFA supporters seem to see the problem only as remote sellers not collecting sales taxes, and the goal as forcing them to collect regardless of any adverse consequences to interstate commerce and innovation.  Technology has enabled online retailers to expand their customer base into new markets.  The benefits of innovation should not be negated in pursuit of a myopic and incomplete view of “fairness.” We have long argued that a more substantive debate than was conducted during the MFA’s rushed passage in the Senate was needed in the House.  Such a debate must broadly address the issue of how to craft a tax system that appropriately deals with new business models rather than forcing them to conform to the old.  CCIA appreciates Chairman Goodlatte’s leadership in kicking off that debate with this hearing.


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