A new GOP proposal to tackle the online sales tax question

It’s been a while since we talked about the Marketplace Fairness Act and the general debate over online sales tax proposals. That’s understandable given the rather, er… volatile nature of the general election season, but it’s a question which is still waiting on the back burner when the new Congress convenes. Given the questions which remain about any proposed implementation of MFA, particularly among conservatives who are rightly suspicious when the federal government brings up The T Word, a new approach may be called for if any action is to be taken.

Enter Congressman Bob Goodlatte of of Virginia. Compromises never make anyone entirely happy (which is by design) but he’s come up with a middle ground approach to the question which is at least worth a look. (Wall Street Journal)

A top House Republican will release a new proposal in coming days that attempts to resolve the long-running dispute among retailers, state governments and online retailers over how to tax purchases made across state lines.

The discussion draft from House Judiciary Committee Chairman Bob Goodlatte (R., Va.) would introduce a new legal framework for cross-border sales, largely replacing the current system that relies on whether a seller has a physical presence in a state.

Instead, sales would be taxed according to the tax base of the retailer and a single tax rate chosen by the consumer’s state, a Judiciary Committee aide said.

So, for example, an Ohio company shipping a pair of pants to Maryland would use Ohio’s rules for taxing clothing and Maryland’s tax rate.

Currently, that seller only collects taxes on the sale if it has a presence in Maryland.

While imperfect and certain to tick off many shoppers, this approach at least addresses one of the primary points of contention in the MFA debate. If you’re coming from a position of insisting that nobody should be collecting any sales tax on any product sold over the internet regardless of the wishes of the elected representatives in 45 of the 50 states then none of this will be of interest to you. But the original idea of a moratorium on e-commerce was only intended to help the nascent technology get on its feet and ride out a period of consumer distrust in web based shopping. Those goals have been accomplished and we’re at the point where all online retailers should be able to stand on their own two feet in the competitive market of capitalism just like any brick and mortar establishment.

But who collects a state-based tax on transactions which zoom around the country (and the world) via the internet? That’s been gumming up the discussion from the beginning. Goodlatte is proposing a system where a “physical presence” in a state isn’t required. That was an unpopular and not terribly fair standard to begin with because the nature of internet commerce is specifically intended to minimize physical assets and their associated costs. But who collects? In traditional stores it really didn’t matter because the store and the vast majority of its customers were probably from the same state. But it’s the customer who actually pays the tax, not the seller. Under this plan, the seller’s home state rules would determine if a sales tax is charged on a given transaction, but the tax rate (if any) of the state where the customer was purchasing it would be collected in that state.

I’m still not sure I’m on board with this because it removes some of the benefit of shopping online. But the consumer still has a lot more options than just what they can find within convenient driving distance, so there’s still some advantage for the online retailer. As to the taxes themselves, hey… nobody likes them. But if the sale is taking place in a state where the voters have allowed a sales tax then I suppose the state government needs to be able to collect it.


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