Online sales tax bill stalls in Congress

WASHINGTON – Many consumers have come to expect tax-free shopping as an online perk, but it’s costing state governments nationwide an estimated $23 billion in annual revenue, according to a 2009 University of Tennessee study. And brick-and-mortar retailers complain that it puts them at a competitive disadvantage to online-only businesses that don’t have to charge sales tax.

At issue are laws that allow states to collect taxes only from retailers with physical presences in the buyers’ states. A bill that would have closed this loophole by requiring businesses to collect state and local taxes from online shoppers sailed through the U.S. Senate two years ago this week with bipartisan support, 69-27. But the legislation, called the Marketplace Fairness Act, died in the U.S. House of Representatives.

An effort to revive it is stalled in Congress, hampered by the reluctance of many Republican lawmakers to prioritize anything that looks like a new tax.

For now, the issue is stuck in the House Judiciary Committee, which has jurisdiction over state taxation affecting interstate commerce. The main point of contention has been whether the sales tax charged should be based on the rate where the buyer lives, as advocates of the Marketplace Fairness Act prefer, or where the seller is, an alternative offered by House Judiciary Chairman Robert Goodlatte, R-Va.

Retailers are hinging their hopes on a bill being drafted by Rep. Jason Chaffetz, R-Utah, that would place limitations on states auditing businesses outside their borders.

Chaffetz’s bill isn’t a free pass for businesses, said David French, senior vice president of government relations for the National Retail Federation. “It just means you won’t have 500 jurisdictions coming and harassing you. … But the goal is to limit the amount of regulatory burdens that businesses have to deal with.”