Online Sales Tax Proponents Ask Congress to Leave States Alone

The Supreme Court in June reversed precedent set by the Constitution’s Commerce Clause that said states can't force sales tax collection from remote sellers with no physical presence in the taxing state. House Judiciary Committee Chairman Bob Goodlatte, R-Va.; Reps. Jim Sensenbrenner, R-Wis., Anna Eshoo, D-Calif.; and Steve Chabot, R-Ohio; and Sens. Ron Wyden, D-Ore., and Mike Lee, R-Utah, had asked the high court to defer to Congress, allowing lawmakers to work toward an alternate solution. Goodlatte’s office didn't comment now.

“Wayfair has the potential to unleash chaos for consumers and remote sellers, particularly small business sellers,” said Goodlatte Tuesday, citing the more than 10,000 U.S. tax jurisdictions, the associated compliance costs and the threat of back tax collection. It’s “imperative” that Congress swiftly act to address Wayfair, he said.

Judiciary ranking member Jerry Nadler, D-N.Y., said the federal government shouldn't intrude on state tax policy. There are constitutional guardrails to prevent economic discrimination by states, he said, citing the Streamlined Sales Tax Agreement (24 states adopted measures from the agreement). He expressed confidence states will follow guidelines outlined by the Supreme Court.

States shouldn't collect taxes from individuals their elected officials don’t represent, said Americans for Tax Reform President Grover Norquist, who opposes “regulation without representation.” The hope is that Congress puts lines around “the damage” from Wayfair. Class-Tech-Cars owner Chad White may have to lay off some employees to make room for more accounting employees, he said. White, an eBay seller, has a part-time accountant who works about four hours a week. American Legislative Exchange Council General Counsel Bartlett Cleland said vendors’ compliance and liability costs should be covered by the government. “States do not adequately, much less completely, compensate merchants for their conscripted service,” said Cleland, opposing taxation without representation. Mayer Brown's Andrew Pincus said small entrepreneurs have been subject to “unfair tax burdens.”

Customers often come into brick and mortar stores, learn about the products and buy the items online, sometimes in front of a salesman, said BrandsMart Executive Vice President Lary Sinewitz, on behalf of the National Retail Federation. BrandsMart looks forward to competing in a post-Wayfair market, he said. “When we compete on price and good customer service, without having to overcome a discriminatory tax burden, we will be far more successful.”

Sinewitz feels confident that “for a modest fee, BrandsMart can quickly come into compliance with whatever collection requirements may be imposed, and that this will give us the ability to also compete and expand our internet sales.” The retailer is finalizing a contract with a software vendor to provide sales tax services, he said. Sinewitz also sees a positive impact on consumers. “When there are major tax compliance loopholes, as there have been with sales tax collection, states have to raise the rate of sales taxes to meet the same revenue goals,” he said. Higher taxes hurt sales, “and it is unfair to charge higher taxes on those that are compliant,” he said. “Several states have already announced that they will use the revenue raised by bringing buyers into compliance to lower other taxes.”

Congress shouldn't act, because states can deal with tax collection effectively and deliberately, said former National Conference of State Legislatures President Curt Bramble (R). The Utah state senator cited brick and mortar shops’ inability to compete with online retailers. MultiState Associates Principal Joseph Crosby said there's no immediate problem for Congress to address, as the Supreme Court eliminated the problem and allowed states to address the issue responsibly.

National Taxpayers Union Foundation Executive Vice President Andrew Moylan suggested the moratorium on states responding. Otherwise, he said states could “go off the rails” with tax collection. Norquist cited retroactive tax collection attempts in Washington in 2015 and Michigan in 2016 as examples of states overstepping their bounds. Goodlatte said states reaching into other jurisdictions will be an ongoing issue in a country built on federalist values.