The Senate passed the Marketplace Fairness Act in May, requiring websites with more than $1 million in remote sales to collect sales taxes from customers in states that have joined the Streamlined Sales and Use Tax Agreement (which of the greedy states would not sign on to get other states’ businesses taxes). However, the bill provoked opposition among many House Republican lawmakers and has stalled until now.
On September 18th, House Judiciary Committee chairman Bob Goodlatte, R. Va., released a set of basic principles (listed below) on the issue of Internet sales tax, supported by a key subcommittee chairman.
If they can hold to these principles, they will have effectively eliminated the burden of compliance that created the uproar.
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. If someone walks into a store in NYC and buys and ships to California, there is no NY Sales Tax and California does not have the authority to force collection. Why should a sale over the internet create discriminatory rules?
2. Tech Neutrality: Brick and mortar, exclusively online, and “brick and 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.
Howard Lipset, CPA
Progressive Management, Inc.