News Column

Internet Sales Tax Bill Faces Hostile House

June 20, 2013
online shopping

In Washington, the drive to collect Internet sales taxes is heating up, as a bill that would raise the cost of shopping online nears a showdown in the House.

The Marketplace Fairness Act, which passed the Senate last month with bipartisan support, would require online merchants to collect sales tax from customers. The bill would level the playing field for traditional retailers, whose products appear more expensive, supporters say. It would also help fill the coffers of state governments that are strapped for money.

But opponents say it would also put many small online retailers out of business because they cannot keep up with the compliance costs of collecting sales taxes from nearly 10,000 different jurisdictions.

Both sides have been rallying their forces this week.

The National Governors Association, which is pushing the Marketplace Fairness Act, held a news conference Wednesday to discuss the importance of the bill.

Rep. Jackie Speier, California Democrat, said the current system is unfair to brick-and-mortar stores, which often serve as a "virtual showroom" for customers who want to see the products in person before they go online to buy.

"We need to stop making them the suckers of the Internet," she said.

The Internet sales tax bill is one of the few issues in Washington that is not split down party lines. There are Republicans and Democrats on both sides of the debate.

House Speaker John A. Boehner, Ohio Republican, has not said whether or when he intends to take up the bill, but he is expected to require a majority of the GOP to support the measure before calling for a vote. Some analysts believe the bill will get a vote by the end of the year.

But opponents of the bill organized their own news conference Tuesday, arguing it would be unconstitutional to make online merchants collect sales taxes for other states, as the bill would require them to collect from out-of-state customers.

Rep. Ron DeSantis, Florida Republican, called it a "21st century version of taxation without representation," warning it raises the prospect of taxing online retailers in jurisdictions where the owners of those businesses cannot vote.

Much of the debate centers around whether the Marketplace Fairness Act should be considered a new tax. Technically, it's not, because online shoppers are supposed to pay sales tax directly to the government, even though many shoppers do not comply. The only thing that would change is how that money gets collected.

"It's no more a new tax than if you hadn't been paying your property taxes, then suddenly you're on the rolls and you start paying your property taxes," said Dan Crippen, executive director of the National Governors Association.

But anti-tax activist Grover Norquist, president of Americans for Tax Reform, strongly challenged the notion that the bill does not represent a tax hike.

"If you change the law and the government raises more money, it's a tax increase," Mr. Norquist said Tuesday. "It seems to me that it would be hard for a congressman to look you in the eye and say it's not a tax increase."

But Rep. Steve Womack, the Arkansas Republican who has been pushing a sister Internet tax bill in the House, criticized this argument.

"You have to wonder, 'Is avoiding or ignoring the law the leg on which you want to base your argument?'" he said Wednesday at the news conference.

Mr. Norquist said the bill's worst injustice is that it would allow state governments to tax people outside their borders who cannot vote against them.

"They just want other people's money," he argued.

Internet retailers have also challenged the argument that the bill would level the playing field with traditional retailers. While brick-and-mortar stores only have to collect the local tax rates where they are located, online stores would have to deal with nearly 10,000 different taxing jurisdictions, which each have different rates.

The compliance costs would be "next to impossible" to keep up with, said Rep. Steve Daines of Montana, one of the House's leading GOP voices against the bill.

"There's nothing fair about the so-called Marketplace Fairness Act," Mr. Daines said.

But supporters of the bill Wednesday demonstrated a technology system that would make it easy for online retailers to collect sales taxes from all of those jurisdictions.

At Simms Fishing Products in Montana, the company started using this type of technology when it launched its new website in February. Andrew DeMoss, senior accountant, simply went online and created a virtual inventory of all of his company's products. The website did the rest, determining the tax rates and how each product should be categorized in each jurisdiction around the country.

"If we can do it, anyone can do it," he said Wednesday. "Sure, it was a learning experience, but a manageable one."

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(c)2013 The Washington Times (Washington, DC)

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