Online Sales Tax with a Twist—Origin Sourcing

Federal internet sales tax legislation has thus far failed to make it past the gatekeepers of the House Judiciary Committee, in spite of being approved by the Senate in May 2013. Committee Chairman Bob Goodlatte (R-VA) has issued principles to guide the discussion of online sales tax and held hearings on the topic, and yet 2014 closed without the enactment of the Marketplace Fairness Act or similar legislation. With the new year comes a renewed effort to get something done.

Chairman Goodlatte and Representative Anna Eshoo (D-CA) are currently circulating a discussion draft of an online sales tax bill with a twist—origin sourcing. The Online Sales Simplification Act “would create a multi-state agreement for states that want to collect sales tax from residents’ online purchases.” Instead of collecting and remitting sales tax at the rate of the location of the buyer (destination sourcing), online sellers in participating states “would remit sales taxes to that state—regardless of where the customer is located—and the state would be responsible for turning over the sales tax income to the customer’s state” (Politico).

Sourcing is a critical component of the internet sales tax discussion. During the Committee’s March 2014 online sales tax hearing, arguments were made for and against both destination and origin sourcing. Mr. Andrew Moyland of the R Street Institute expressed concerns that destination sourcing would enable businesses to be taxed without representation. On the other hand, Rep. Chaffetz (R-UT) said, “If you agree with parity, I don’t see how you can ever get to an origin based system, ever.” And attorney and tax expert Stephen Kranz called origin sourcing of internet sales tax “dead on arrival.”

For years, online sales tax legislation has centered on destination sourcing. Discussions of internet sales tax legislation in 2015 have a new twist: origin sourcing. Whether action will follow words remains to be seen.

Initial reaction is mixed. EBay and NetChoice, which both opposed the Marketplace Fairness Act of 2013, were supportive. Steve DelBianco of NetChoice said the measure offered a compromise with "elegant simplicity." Amanda Miller of eBay said it "better protects small businesses using the Internet." Yet Representative Jason Chaffetz (R-UT), who is also reworking online sales tax legislation, had this to say about the Goodlatte draft: "Don't like it, don't like it."

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