Will The House Be Convinced That An Online Sales Tax Bill Hurts Small Businesses?

    May 11, 2013

The Marketplace Fairness Act – a bill that forces online businesses to collect sales tax from all 50 states – is fairly controversial. Some fear that it will put an undue burden on small businesses. It’s a legitimate concern, but opponents may not have to worry as the bill is about to face its toughest hurdle yet – the House of Representatives.

Do you think the Marketplace Fairness Act will pass the House? Does it have a chance of being signed into law? Let us know in the comments.

On Monday evening, the Senate voted in favor of the Marketplace Fairness Act by quite a wide margin (69-27). The bill enjoyed bi-partisan support and the National Retail Federation applauded its passing with a statement saying that it expects the bill to pass in the House as well:

“This bill and its companion in the House will level the playing field for all retailers – both online and off – while safeguarding states’ rights. And the bill does it all without raising taxes, new government mandates or adding to the deficit. NRF and our broad cross-section of members will work closely with our bipartisan sponsors in the House, Reps. Womack and Speier, and Chairman Goodlatte to ensure that efairness is debated honestly and on its merits. When brought to a vote, we believe the House will pass the bill and it will be signed into law.”

Despite the NRF’s enthusiasm, the Marketplace Fairness Act will probably not get the same treatment in the House as it did in the Senate. For starters, the Senate completely bypassed the committee process thus ensuring that the bill was approved with its original text. Most would say that was a mistake, and the House fully intends to correct that mistake by putting its version of the bill through the House Judiciary Committee.

This is where things get tricky. The House Judiciary Committee chairman is Robert Goodlatte, a representative of Virginia and one of the few Republicans in the House that has voted in favor of tax increases. Despite his willingness to raises taxes, Goodlatte may be opposed to the Marketplace Fairness Act if it isn’t simplified enough. He said just as much in an email to The Roanoke Star:

“I do not believe legislation like the Marketplace Fairness Act is sufficiently simplified yet. While it attempts to make tax collection simpler, it still has a long way to go. There is still not uniformity on definitions and tax rates, so businesses would still be forced to wade through potentially hundreds of tax rates and a host of different tax codes and definitions. There is also concern that despite disclaimers the bill could open the door for states to tax or even regulate beyond their borders. I am open to considering legislation concerning this topic but these issues, along with others, would certainly have to be addressed.”

Goodlatte shares the concern that many others in and outside the House share about an online sales tax bill. Many think it may go too far. It also doesn’t do anything to help simplify tax collection for these online businesses as they would have to submit themselves to whatever inane sales tax code each state employs.

Still, Goodlatte may let the House’s online sales tax bill through his committee. It could be just a little or very different from the bill the Senate passed, but it would still face some stiff opposition before hittting the House floor for a vote.

That stiff opposition is the large number of organizations and businesses that have come out swinging against the bill. For starters, the Financial Services Roundtable has said that it will oppose the bill as long as the bill’s wording is vague enough to allow a tax on financial services transactions:

“A transaction tax on financial services products will hurt retail investors, retired Americans, and small businesses, effectively making it more expensive for them to invest and plan for the long-term. Without hearings, these implications and others will not be properly addressed.”

What is arguably the most influential outside voice in the House on tax issues – Americans for Tax Reform – has also come out swinging against the bill. The group says its main concern is making small online businesses collect sales tax for other states, but it says the bill has a number of other problems as well:

  • Threatens Privacy – Business and state revenue boards with a track record of losing private information will have more chances to do so.
  • Slippery Slope – Opens the door for further government intervention in the internet and for states to reach across their borders for other taxes.
  • Too Confusing – Small businesses would be forced to accommodate over 9,000 highly variable state and local tax codes and be required to settle disputes with out of state revenue boards in out of state courts.
  • Discourages Tax Competition – Rather than competing to lower taxes and attract businesses, states will compete to raise taxes on residents of other states
  • Expands State Tax Authority – State Governments will be able to tax across their borders despite clear legal and judicial precedentarguing otherwise
  • Do you agree with the arguments against the online sales tax bill? Or do you think it’s still a good idea? Let us know in the comments.

    If all of the above fails to move the House against the bill, there may be one final obstacle standing in its way – House Speaker John Boehner. He holds considerable power within the House, and he has already said that he opposed the bill. Speaking on Bloomberg Television, he said that the bill would make “it much more difficult for online retailers to be able to comply” with state sales tax regulations. He also said that the bill would put “a big burden on some very small businesses.”

    The Senate passed the Marketplace Fairness Act with little debate, but it’s looking like we’re going to get plenty of heated arguments in the House. The opposition is fired up, and there’s plenty of powerful congressmen opposed to the bill. It may not be enough to stop the bill in its tracks, but we’re at least going to get some interesting debate on the Internet and online taxation out of it.

    Will the Marketplace Fairness Act survive in its current form? Or will the House spruce it up to make it more palpable to online businesses? Let us know in the comments.