Online Sales Tax: House Committee Releases 7 Principles to Guide Legislation

Today the House Judiciary Committee announced 7 basic principles related to Internet sales tax meant to “. . . guide discussion on this issue and spark creative solutions.”

While the principles will not have an immediate effect on your remote sales, businesses would do well to pay attention, since these principles will likely influence the fate of current proposals to give states authority to tax remote sales. 

What’s on the table – the Marketplace Fairness Act

The Marketplace Fairness Act of 2013 (MFA), which passed the Senate, now awaits debate in the House Judiciary Committee. As it is currently written, the bill would give states the right to require out-of-state businesses to collect sales tax. In exchange, states must implement certain simplifications to their tax codes.

Granted, many businesses already collect sales tax in states where they aren’t headquartered. However, a state doesn’t have the right to make businesses with no physical presence in that state collect sales tax. [Read more about how states are pushing the boundaries of this rule.] As a result, a huge number of Internet businesses don’t currently collect sales tax in many states where they make sales.

Proponents of MFA argue it isn’t fair that brick-and-mortar businesses must collect sales tax, while in many cases online businesses can sell tax-free.

The 7 principles

Congressman Bob Goodlatte (R-VA) heads up the House Judiciary Committee and has expressed disapproval of the way MFA is currently written.

In his words, the principles released by his committee are a first step towards “. . . hearing fresh approaches to the issue and continuing the discussion.”

Here are the 7 principles as they appear in the Committee press release:

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.

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.

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.

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.

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.

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.

Privacy Rights – Sensitive customer data must be protected.

What this means for your business

The 7 principles have been lauded by opponents and proponents of MFA alike.

While no one can predict the fate of MFA in the house, the principles do signal that there may be further discussion regarding online sales tax this year: it’s not dead yet, but neither is it a done deal by any stretch.

Check back with this blog for more up-to-date information about MFA and other major pieces of sales tax policy that could impact your business.

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