Online Sales Tax Effort Gains Momentum

House Republican and Democratic lawmakers begin the debate to work out legislation to permit states to force the collection of Internet sales taxes, which will ultimately affect the prices consumers see when they shop online.

By Kenneth Corbin
Wed, July 25, 2012

CIO

internet taxes
House lawmakers this week revisited the contentious issue of establishing new provisions for states to collect sales taxes on purchases residents make online from out-of-state retailers as they considered a legislative proposal that has drawn sharp divisions even within the ecommerce community.

At a hearing before the Judiciary Committee, many members on both sides of the aisle expressed support for the Marketplace Equity Act, a measure backed by Reps. Steve Womack (R-Ark.) and Jackie Speier (D-Calif.) that would authorize states to begin requiring Internet retailers to remit sales taxes on purchases shipped to their jurisdiction, provided that they take steps to simplify their tax codes.

Supporters of the measure claim that imposing the same requirements to pay sales taxes that brick-and-mortar retailers face on their online counterparts would level the competitive playing field, arguing that at present many shoppers prefer to make their purchases online simply to avoid paying the tax.

"I think the bottom line is simply this: Tax-free sales on the Internet may be coming to an end. And this could mean a very large boost in revenue. I think it would help the economy. And I suggest it would probably also help by creating more jobs," said John Conyers (D-Mich.), the ranking member on the panel. "Competitors should compete on things other than sales-tax policy. So for those arguing for more of a free market, they should support eliminating any competitive advantage based on sales-tax policy."

Conyers announced at Tuesday's hearing that he was throwing his support behind the Womack-Speier bill over an alternative measure that he had introduced to expand states' sales-tax collection authorities, and he urged co-sponsors of his legislation to do the same.

As of Tuesday, 48 co-sponsors had lined up behind the Marketplace Equity Act.

The issue of online sales taxes has been muddied to some extent by a confusion of terms. Opponents of legislation to impose the remittance obligation on ecommerce vendors have often characterized such efforts as establishing a new tax. But people who live in states with sales taxes are currently required to pay taxes on purchases that they make online when that tax is not collected at the time of purchase, but most shoppers either don't know about that requirement, known as use tax, or they ignore it. As a result, an estimated $20 billion of revenue goes uncollected by the states each year.

Only one witness at Tuesday's hearing, Steve DelBianco, the executive director of NetChoice, a coalition of businesses and trade groups opposing online sales-tax requirements, claimed that the bill under consideration would amount to a new tax.

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