Online Sales Tax Could Run into Trouble in U.S. House

Measure is expected to win Senate approval today.

Demise of Online Advantage Seen Exaggerated With Congress: Taxes
Richard Rubin


The end of tax-free Internet shopping isn’t here yet.

Retailers and state governments are on the verge of winning U.S. Senate passage of a bill today that would let states tax out-of-state retailers, providing up to $23 billion a year in new revenue. They may lose momentum in the Republican-controlled House, where the issue won’t get a vote quickly.

Retailers don’t have an outspoken ally in House leadership as they did in the Senate, where Illinois’ Richard Durbin, the No. 2 Democrat, helped bypass a committee and take the bill straight to the floor. Instead, they’ll start in the Judiciary Committee, where Chairman Bob Goodlatte of Virginia has expressed concerns about the proposal.

“We’re working diligently in the House to build up sponsorships and momentum,” said David French, the chief lobbyist at the National Retail Federation. “The House is a different body. There’s going to be a process.”

Retailers, including Wal-Mart Stores Inc. and Best Buy Co., say the legislation would level the playing field between brick-and-mortar stores and their online competitors. The largest Internet-based retailer, Inc., also supports the legislation. It is expanding into more states to speed delivery, which means it will pay taxes anyway.

They are opposed by a coalition of direct marketers, online auction company EBay Inc., anti-tax groups and lawmakers from states without sales taxes. These groups say businesses may be subjected to multiple audits and higher compliance costs.

Advocates on both sides expect the Senate to pass the bill during a scheduled vote at 5:30 p.m. in Washington. Four separate procedural votes have attracted at least 63 supporters. A simple majority is needed today.

The issue has crossed typical partisan lines. On April 25, in the most recent Senate vote, 15 of the 40 Republicans who were present voted to advance the bill, along with 48 of the 53 Democratic caucus members.

In the House, the bill is sponsored by Wal-Mart’s hometown congressman, Republican Steve Womack of Arkansas. It has attracted 65 co-sponsors, including Republicans such as Joe Barton of Texas, Spencer Bachus of Alabama and Ander Crenshaw of Florida.

House Republicans don’t necessarily embrace bipartisan legislation from the Senate. A Senate-passed reauthorization of farm programs wasn’t brought up for a House vote. On other issues, such as aid for storm victims in New York and New Jersey, the House had to rely on Democratic support to pass bills following public pressure to hold votes.

Grover Norquist

Many Republicans will be wary of advancing the bill quickly. Grover Norquist, the anti-tax advocate, opposes it, and House leaders are reluctant to highlight issues that divide the party. House Speaker John Boehner of Ohio and Majority Leader Eric Cantor of Virginia haven’t commented publicly on the measure’s prospects in their chamber.

“They will try to do something,” said Dan Turrentine, vice president for government relations at Technet, an association of technology industry chief executives that opposes the bill. “I think, though, it’s going to be much more deliberative.”

Some version of the bill will probably get a vote in the House this year, said James Valvo, director of policy at Americans for Prosperity, a small-government group based in Arlington, Virginia, that opposes the bill.

“There’s a lot of pressure from the state-level governors and lawmakers and those sort of folks to push this thing through and sometimes that runs up the vote total higher than you might” see on a purely partisan issue, Valvo said.

In the meantime, House leaders have other priorities, including revising immigration laws, raising the federal debt ceiling and passing annual spending bills. Immigration bills also go through Goodlatte’s committee.

Goodlatte told reporters April 25 he was looking for alternatives to the Senate bill. At the same time, he said he wanted to address the issue and understood the retailers’ argument that allowing sales made over the Internet to remain untaxed was unfair.

Some opponents are looking to the House for changes they say would resolve concerns about the burdens on businesses.

Hamilton Davison, president and executive director of the American Catalog Mailers Association, said retailers who receive checks by mail are particularly worried about how to assess sales taxes properly.

Free Software

Even though the bill requires states to provide retailers with free software to calculate the correct sales tax, that isn’t easily integrated with retailers’ systems or employees, Davison said.

“You’re adding a fair bit of additional complexity for all the customer-facing personnel,” said Davison. He is a co-founder of True Simplification of Taxation, a group urging changes to the bill.

“If those were picked up and addressed in statute, this would be a tax change that we could support,” he said. “Not one that we’re happy about, but one we can support.”

French, the retailers’ lobbyist, said his group is ready to counter anti-tax sentiment that is likely to be more prevalent in the House.

“Anybody who looks at it rationally understands it’s not a tax increase,” he said. “Fairness trumps that irrational concern and I think over time, the lawmakers that we’ve talked to are very comfortable that they can articulate the benefits of a level playing field.”

The bills are S. 743 and H.R. 684.


Bloomberg News

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