A bill that would set federal guidelines for online sales tax collection is gaining momentum in Congress.
The House Judiciary Committee marked up the Digital Goods and Services Tax Fairness Act on Thursday. The bill, introduced by Texas Republican Rep. Lamar Smith and Tennessee Democratic Rep. Steve Cohen, would ostensibly protect consumers from “duplicative digital taxation” by promoting “neutrality, simplicity, and fairness in the taxation of digital goods and digital services.”
Online businesses and their customers often reside in different states. The bill would mandate that sales tax on a product purchased online could only be imposed by the state where the customer has a physical address.
Supporters of the measure view the bill as a way to standardize a currently confusing dynamic for businesses and states.
Opponents of the bill, including public sector unions, contend that the bill would restrict state and local tax authority and reduce state tax revenue.
A companion bill is pending in the Senate. As of June 27, between the House and the Senate, the effort has the bipartisan support of over 40 lawmakers.
The Download Fairness Coalition, a coalition of corporations and advocacy groups, applauded the momentum the bill is gaining in Congress. Amazon, Americans for Tax Reform, Comcast, CTIA-The Wireless Association, National Cable & Telecommunications Association, National Taxpayers Union, TechAmerica, T-Mobile, the U.S. Chamber of Commerce and Verizon are members of the coalition.
“The national framework created by this Act will provide much-needed parameters to states seeking to tax digital purchases by clearly identifying which jurisdiction has the right to implement the tax, and will clear the way for businesses to innovate thereby generating more products, more jobs, and more economic growth,” said Sam Whitehorn, executive director of the Download Fairness Coalition, urging House leadership to bring the bill to the floor as soon as possible.
Prior to the markup, various public sector unions — including the AFL-CIO, NEA and UAW — sent a letter to the committee opposing the bill, saying that it would allow “large profitable corporations to completely avoid paying sales taxes on their purchases of online services.”
The unions said the bill would encourage “millions of Internet vendors, selling via online marketplaces like Amazon, to continue evading existing sales taxes.”
The House Judiciary Committee has been exploring solutions to states’ concerns about losing tax revenue from sales that take place over the Internet. Brick and mortar businesses are also concerned that their physical stores have turned into mere showrooms for online retailers.
In a hearing before the committee in November, Overstock.com chairman and CEO Patrick Byrne expressed concern that such measures would turn online retailers into remote tax collectors, “without compensation,” for being mandated to collect taxes from “residents of states where those retailers have no physical presence nexus.”