The debate over Internet taxes has resumed in Congress, and it’s as messy as ever.
Rep. Jason Chaffetz, who chairs the House Oversight Committee, is preparing to introduce online sales tax legislation Monday that would expand the power of states to collect taxes from purchases made from out-of-state Internet vendors such as eBay.
The legislation builds on a long-stalled Senate measure that has failed to gain traction in the House — and it’s being touted by some of its retail supporters as a “thread-the-needle compromise” that could address lingering concerns raised by tax-phobic conservatives.
Drafts of Chaffetz’s bill, dubbed the Remote Transaction Parity Act, have been circulating for months.
But it’s not clear that Chaffetz’s proposal will be acceptable to House Judiciary Committee Chairman Bob Goodlatte, a key player in Congress’s enduring fight over Internet taxes. The Virginia Republican instead has favored more limited online sales tax legislation, expressing concern about the complexity of a bill that could force Internet vendors to comply with the tax codes of several states and localities.
Goodlatte earned leverage in the online sales tax debate Tuesday, as the House passed by voice vote his bill that would make an expiring ban on federal, state, and local taxes on Internet access permanent. In addition to barring governments from extracting those taxes, the bill would prohibit levying discriminatory Internet-specific taxes on things such as email or bandwidth.
A ban on Internet access taxes is noncontroversial among most lawmakers in both parties, and has been around since 1998, when it was enacted to protect businesses that relied on the then-nascent World Wide Web.
But by having the House approve a permanent ban, as it did last year, Goodlatte is short-circuiting efforts by a handful of bipartisan senators to combine the access-tax moratorium with more controversial and complicated online sales tax legislation.
Those senators, including Minority Whip Dick Durbin and Republican Sen. Michael Enzi, view the access tax moratorium as a vehicle to adopt their long-stalled Marketplace Fairness Act, which would empower states to tax purchases made from out-of-state online retailers with annual sales over $1 million. Boosters of the legislation say it would close an unfair loophole that favors online behemoths over brick-and-mortar retailers, and supply states with additional tax revenue. Its anti-tax opponents say it could kill jobs and stifle Internet freedom.
Efforts to pair the online-sales and access tax together failed last year, but senators supporting the Marketplace Fairness Act intend to try again.
“The Marketplace Fairness Act that would level the playing field for small businesses passed overwhelmingly in the Senate last Congress,” Durbin said in a statement. “I support extending the moratorium on Internet access taxes, but at the same time we should give states the ability to collect sales and use taxes already owed on all sales — both internet and brick and mortar sales.”
Though the measure passed the Senate 69-27 in 2013, House leadership balked, as many of the chamber’s tea-party conservatives are squeamish about supporting anything that sounds like a tax hike.
The impasse forced Speaker John Boehner to promise to revisit the online sales tax this year in order to corral support for a one-year access tax extension passed in December. But the punt doesn’t appear to have changed Boehner’s calculus, and Tuesday’s passage of another permanent access tax ban has set the two chambers on a déjÃ vu collision course with little room for compromise. Still, despite having renewed it four times, Congress has failed to agree to a permanent moratorium, and the current ban will lift Oct. 1.
Some in the House, however, think this year might be different. “The fact that the Senate is run by Republicans now makes us more optimistic that they can do something with our bill,” a House GOP aide said. And Chaffetz’s bill appears to signify that the strategy is shifting for backers of online sales tax legislation from piggybacking on the ban to building consensus on a measure outright.
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