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By Max Behlke

The 113th Congress is expected to pass less legislation than any other Congress in history. However, someone forgot to tell that to the sponsors of the Marketplace Fairness Act.

computer mouse in shopping cartAfter overwhelmingly passing the Senate last year, the bipartisan bill was referred to the House Judiciary Committee for consideration, where committee Chairman Bob Goodlatte (R-Va.) and his staff have spent the last 10 months examining how to collect sales taxes on remote purchases. Last Wednesday, the committee took its first official step to solve the issue and held a hearing entitled “Exploring Alternative Solutions on the Internet Sales Tax Issue” to examine alternative proposals from the Senate passed legislation.

Last September, Goodlatte acknowledged that this was a tax compliance issue and not a new tax, but had concerns regarding the Senate-passed bill. As such, on Wednesday, rather than examining the Marketplace Fairness Act, the hearing featured five panelists who each offered alternative solutions that would allow states to collect the sales taxes that are already owed but unable to collect.

While the three-and-a-half hour hearing proved that the panelists and members of the committee disagree on aspects of how to solve the issue, they all agree to the most fundamental point—that this is not a new tax.

As recently as three years ago, this was not the case. The efforts by main street retailers and state and local government officials to educate Congress about the need to fix the online sales tax loophole has changed the debate to “How should we address the issue” rather than “Should we address it.” This was especially evident as nearly all of the 37 members of the Judiciary Committee who attended the hearing asked questions regarding details of the offered proposals, instead of making comments of how this would be creating a new tax.

Although the committee did not ultimately coalesce around any of the above mentioned proposals, the hearing did accomplish its goal of winnowing down unworkable proposals. Most notably, the committee fleshed out the flaws of the origin-sourcing proposals as it found that such proposals would actually raise taxes on certain constituencies, would encourage businesses to move to other states that have lower sales tax rates, and would impose other states’ sales tax laws on out of state consumers, leading to concerns about taxation without representation. U.S. Representative Jason Chaffetz (R-UT) ended his questions to the witnesses with the comment that “origin sourcing is dead on arrival.”

Chaffetz offered to lead the effort in the Judiciary Committee to craft legislation addressing some of the most pressing concerns discussed at the hearing, such as state audits on remote sellers and certification of the software to determine and collect the sales taxes. NCSL will continue to work with Chaffetz and the Judiciary Committee on this issue and to continue advocating for passage of legislation by the end of this year.

NCSL submitted a statement/testimony from state Senators Sharon Weston Broome (D-La.) and Deb Peters (R-S.D.), co-chairs of NCSL’s steering committee, urging passage of federal legislation in this Congress to allow states to collect sales taxes on remote sales. NCSL’s Testimony

Max Behlke is manager, State-Federal Relations, for the National Conference of State Legislatures D.C. office.

Posted in: NCSL, Public Policy
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This blog offers updates on the National Conference of State Legislatures' research and training, the latest on federalism and the state legislative institution, and posts about state legislators and legislative staff. The blog is edited by NCSL staff and written primarily by NCSL's experts on public policy and the state legislative institution.

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