Congress Poised to Renew Battle Over Online Sales Tax Legislation

Rep. Jason Chaffetz will introduce a bill Monday to expand states’ ability to levy taxes on online purchases.

National Journal
June 10, 2015, 4 p.m.

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 déjà 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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