The Independent View: Marketplace Fairness Act Update

Supporters of online sales tax legislation have been promised a vote in the Senate this year, but the timing is vague and House consideration is uncertain.

To secure considerations of the online sales tax bill known as the Marketplace Fairness Act, advocates traded away one of their major bargaining chips by allowing a separate long-term ban on local Internet access taxes from going forward.

There is no guarantee the tactic will pay off amid a condensed election-year schedule, but advocates are bullish, nonetheless. And they are putting pressure on the House to deliver. Retail and state and local government groups want action as soon as possible.

Senate Majority Leader Mitch McConnell (R-Ky.), who opposes the bill, told reporters that he too believes Speaker Paul Ryan (R-Wis.) told House colleagues that they would get an opportunity to vote on the legislation. But McConnell added, “the Speaker can speak for himself.”

Ryan’s office, however, said the Speaker had made no commitment nor had he set a timeline. In the past, the real roadblocks to passage have been grounded in the House, and Ryan’s office has simply “encouraged” committee work on the issue.

The bill would give states more authority to tax purchases made online, even when someone in their state buys the online item from a retailer with no physical location in the state. States and retail groups have long called for a fix, arguing that physical stores are being outmatched by online stores because of the tax advantage.

Most state and local taxes on the monthly service bills customers pay for Internet access have been outlawed since 1998 under the Internet Tax Freedom Act (ITFA), but the ban has constantly needed renewal. The proposal passed this week removes the sunset date on the ban and makes sure it remains on the books for good.

Supporters of the Marketplace Fairness Act have for years tried to tie their preferred online sales tax bill to the periodic extensions of the ITFA. Those yearly cliffs McConnell derided were seen by others as leverage, which is now gone because the Internet access tax ban would no longer need to be renewed.

Splitting the two proposals up, according to Reid, was a move to protect vulnerable senators up for reelection, like New Hampshire Sen. Kelly Ayotte (R), whose state does not have any kind of online sales tax.

The Senate passed the Marketplace Fairness Act in 2013 with 69 votes, and most of the lawmakers who voted for it are still in the chamber. But some lawmakers like Ayotte have vowed to fight tooth-and-nail against it.

Steve DelBianco, Executive Director of NetChoice, a trade association of eCommerce businesses and online consumers that opposes the Marketplace Fairness Act, suggested that there could still be opportunities for alternatives to be proposed in the Senate.

The real heavy lifting will be in the House, however, where passage is less certain. Dueling proposals have been floated.

Rep. Jason Chaffetz (R-Utah) has introduced legislation called the Remote Transactions Parity Act that is similar to the Marketplace Fairness Act. The bill has more than 60 co-sponsors. But House Judiciary Committee Chairman Bob Goodlatte (R-Va.), whose committee has jurisdiction over the issue, circulated a discussion draft last year that would tax online purchases at the rate of the retailer’s state rather than the rate of the customer’s state.

Goodlatte and groups like NetChoice support taxing purchases at the rate of the retailer’s state because doing so would prevent businesses from having to file taxes and face audits in every state where their customers reside, DelBianco said. But supporters of the Marketplace Fairness Act view Goodlatte’s approach as unworkable.

Ryan has been a big proponent of “regular order,” and his preference would be for the committee to take action. However, supporters of the Marketplace Fairness Act and Chaffetz’s bill suggest that Ryan may be willing to hold a floor vote on a Senate passed bill if Goodlatte continues to stall. Such a vote could also be considered regular order, they said.

David French, Senior Vice President of government relations for the National Retail Federation, said if Congress does not end up passing online sales tax legislation, states will try to act on their own and the issue could be resolved by the Supreme Court upholding states’ laws. However, retailers would have to deal with a more complexity if each state enacted their own set of rules.

I was part of the Quill case, as a member of another Mail Order company. One new issue is the Affiliation business, a website that allows you to link to another site, buy a product, and get a commission for the sale. This was not available when the case was decided. Another issue was the collecting and reporting of the sales tax. My suggestion at the time, was paying the vendor with a credit for managing this process, by a percent of the total tax collected.