House committee examines bill to require online sales tax collection

170px-Seal_of_the_United_States_House_of_Representatives.svgThe House Judiciary Committee held a hearing last week to examine legislation that would require online and mobile merchants to collect state and local sales tax.

Under current law, online merchants cannot be forced to collect sales tax because they are required to have a physical presence in the states in which they do business—a clause intended to prevent compliance demands that would burden interstate commerce.

The legislation—the Marketplace Fairness Act, introduced in the House by Rep. Steve Womack (R-Ark.)—has the support of the National Retail Federation, which said in a recent letter to the committee that lawmakers need to address the “disadvantage” that was not created by the marketplace but by existing law.

A report released last July by economist Art Laffer, who served as a member of former President Ronald Reagan’s Economic Policy Advisory Board, found that passage of the legislation could result in more than $563 billion in state GDP growth and the creation of 1.5 million jobs nationwide by 2022.

“NRF has long supported Congress granting states remote collection authority with require simplifications to ensure all retailers are not unduly burdened by collecting and remitting sales taxes,” NRF Senior Vice President David French said. “We look forward to working with the committee on legislation to ensure effective and fair sales tax collection while relieving burdens placed on a growing sector of the economy.”

Committee Chairman Bob Goodlatte (R-Va.) said that while the committee is “sympathetic to the plight of traditional retailers,” the legislation exposes mobile merchants “to multiple audits in jurisdictions in which they have no voice.”

“If Congress is to act, it must do so deliberately and precisely to avoid a cacophony of 9,600 taxing jurisdictions fighting over what is required,” Goodlatte said.

Goodlatte’s concerns were echoed by Andrew Moylan, a witness at the hearing last week and a senior fellow and outreach director at R Street Institute.

“Passage of the MFA or similar legislation would enhance states’ audit and enforcement power such that it would no longer end at their borders,” Moylan said. “It would give states license to enforce tax rules on businesses outside their jurisdiction, resulting not just in damage to internet-based businesses but substantial compliance and interstate commerce burdens that could threaten to dent our fragile economic recovery.”

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