The Independent View: Congress Looking at On-Line Sales Tax Again

Republican supporters of online sales tax legislation are taking a harder line as they try to convince conservatives and their own leadership that Congress needs to act. Conservative opponents had derided online sales tax supporters as belonging to the old guard of the GOP.

And now Republicans have a younger, television-friendly face to help sell the legislation, House Oversight Committee Chairman Jason Chaffetz (R-Utah).

On Monday, Chaffetz made the case that his new online sales tax measure, billed as an improvement of the legislation that passed the Senate in 2013, has fully united brick-and-mortar retail advocates and online giants like Amazon and Overstock.

But even as he plugged the broad coalition behind his bill, Chaffetz also called out the grassroots conservative groups that have loudly labeled his proposal a de facto tax increase.

“It gets demonized as taxing the Internet, but nothing could be further from the truth,” Chaffetz told reporters. “That’s an absolute insincere and inaccurate way to term this bill.” “When members look beyond the bumper sticker politics, and understand the protections for consumers, they’ll understand why this is a good bill.”

The issue for lawmakers is a 1992 Supreme Court decision that found that states can only collect sales taxes on online purchases if the seller has a physical location within the state’s border.

I was part of that case and that "physical location" included: Retail Store, Warehouse, Sales Office, and Sales Reps. It never contemplated online affiliated sales or the placing of hosted server farms anywhere in the world. At the time, I indicated our agreeing at collecting and submitting the sales tax if we keep a portion of the collected tax as a management fee. The bigger problem is the different state tax for the same product and the fact that some stated have no sales tax. Today the cost to implement this is smaller as companies like Amazon and third-parties are offering managed solutions as a product or a service.

Advocates for a legislative fix say that gives online sellers an unfair advantage over brick-and-mortar stores, and deprives state and local governments of much needed revenue. Governors from across the ideological spectrum have called on Congress to act as they seek more flexibility for their fiscal policy.

While Chaffetz’s bill has given those supporters new hope, they acknowledge they don’t hold the upper hand.

In the Senate, Majority Leader Mitch McConnell (R-Ky.) is an outspoken opponent of the measure. The chamber’s previous leader, current Minority Leader Harry Reid (D-Nev.), was a strong champion of online sales tax legislation.

Speaker John Boehner (R-Ohio) has made it clear that he opposed previous sales tax measures. And while GOP backers say the Speaker told them last year that he wanted to work out an online sales tax solution, Republican leaders are also deferring to House Judiciary Chairman Bob Goodlatte (R-Va.).

Goodlatte and Chaffetz, a member of the Judiciary panel, are split on sales tax issues, driving home the point that Republicans are more divided on the issue than Democrats.

Most notably, Chaffetz and other online sales tax advocates say that the sales tax rate on out-of-state purchases should be based on the customer’s location; Goodlatte wants to use the seller’s location.

Those dynamics have left groups like Heritage Action confident that Chaffetz’s bill won’t gain any traction. “I don’t get the sense there’s any movement on their side on advancing the issue,” Dan Holler, a spokesman for Heritage Action, told The Hill. “The truth is that any time Republicans want to work with Democrats to advance bad legislation, they can. But that’s not good politics. Doing things that demoralize or outrage your base — it’s not in the interest of the party.”

Heritage Action, Americans for Prosperity and other conservative groups have made the case that the online sales tax legislation favors large corporate retailers over start-ups. And they say that Chaffetz’s bill would give state governments too much power beyond their own borders.

Supporters of the Oversight chairman’s bill are still holding out hope that the online sales tax bill will get attached to a measure permanently barring taxes on Internet access.

But even Senate supporters of the online sales tax bill say the real battleground right now is in the House and they need to see some proof that Chaffetz’s bill can get some momentum.

“What the traffic can bear in the House is going to largely determine, ultimately, how far this can make it through the process,” said Sen. John Thune (R-S.D.).

Chaffetz’s bill would give online sellers more audit protection, and phase out an exemption for smaller Internet retailers, both changes aimed at winning over either Goodlatte or conservative groups.

Reps. Kristi Noem (R-S.D.) and Steve Stivers (R-Ohio), both members of the GOP whip team and relatively younger lawmakers, have signed on to the bill.

But the relatively minor changes in Chaffetz’s updated bill also illustrate the challenges backers have faced in getting their message across. “I think we feel pretty strongly that we’re right on the policy,” said Jennifer Platt of the International Council of Shopping Centers, who bashed conservative groups as peddling “these red herrings, these slight misstatements of truths.”

That’s left some lawmakers and outside advocates to increasingly raise the specter of Supreme Court action. Justice Anthony Kennedy, nominated by former President Reagan, wrote this year that the court should reexamine its position on the online sales tax. They’re also increasingly making the case that the Supreme Court, which last weighed in on the matter more than two decades ago, will step in if Congress remains gridlocked.

Online sales tax supporters say winning the battle in the courts is far from the best option, because a judicial opinion wouldn’t offer the same national template for revenue collection and audit protection.