When the Senate passed the Marketplace Fairness Act in May by a vote of 69 to 27, a major point of contention was language exempting some small businesses from collecting sales tax on out-of-state transactions. The legislation said businesses with more than $1 million in annual revenue would have to collect tax for online transactions. Now the House of Representative is getting ready to take up its own Internet sales tax legislation.
Last week, the House Judiciary Committee released Basic Principles on Remote Sales Tax outlining concerns and priorities for a bill that would allow online retailers to collect sales tax. The Committee received input from taxpayers, industry groups, and representatives of state and local governments to develop these seven basic principles. Chairman Bob Goodlatte (R-Va.) developed the principles to promote public debate on the issue with hopes that it will create innovative solutions.
The “Basic Principles on Remote Sales Tax” are:
1. Tax Relief – Using the Internet should not create new or discriminatory taxes not faced in the offline world. Nor should any fresh precedent be created for other areas of interstate taxation by States.
2. Tech Neutrality – Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses.
3. No Regulation Without Representation – Those who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement.
4. Simplicity – Governments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary.
5. Tax Competition – Governments should be encouraged to compete with one another to keep tax rates low and American businesses should not be disadvantaged vis-a-vis their foreign competitors.
6. States' Rights – States should be sovereign within their physical boundaries. In addition, the federal government should not mandate that States impose any sales tax compliance burdens.
7. Privacy Rights – Sensitive customer data must be protected.