Senate Passes Internet Sales Tax Bill

May 6, 2013. The Senate amended and passed S 743 [LOC | WW], a bill to authorize states to compel out of state retailers to collect sales taxes on internet and other remote sales, by a vote of 69-27. See, Roll Call No. 113.

The Senate first approved an amendment by a vote of 70-24. See, Roll Call No. 112.

This bill, titled the "Marketplace Fairness Act", has not been passed by the House.

Rep. Steve Womack (R-AR) introduced the House version of this bill, HR 684 [LOC | WW], on February 14, 2013. Leading co-sponsors include Rep. Jackie Speier (D-CA), Rep. John Conyers (D-MI), and Rep. Peter Welch (D-VT).

Rep. Speier stated in a release that she is "grateful for the Senate’s leadership on and dedication to this issue. Now, it’s up to the House to act". She said that there is "momentum". Rep. Welch stated in a release that there is "strong bipartisan support".

Sen. Ron Wyden said that this bill is backed by "some of the biggest businesses in the country", which have "physical presence" in taxing states, to impose "new regulations onto the startups, onto the small businesses".

The House Judiciary Committee (HJC) has jurisdiction over this bill. Rep. Conyers, the ranking Democrat, praised the Senate's action in a release. He said that "This bipartisan legislation is a common-sense approach to leveling the playing field by removing a legal tax loophole which has unfairly advantaged out-of-state retailers for years. It does so without burdening small businesses or raising taxes of any kind. As the Senate has finished their work, I urge the House to promptly consider this much-needed legislation to help out our local retailers."

The House bill has 66 sponsors. However, Rep. Bob Goodlatte (R-VA), the Chairman of the HJC, is not a sponsor. He stated in a release that "It is disappointing that the latest version of the Marketplace Fairness Act did not follow regular order in the Senate, but instead bypassed the Senate committee having the subject matter expertise. Consideration in the House will be more thoughtful."

Rep. Goodlatte continued that "I do not believe 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 create due process type concerns regarding the ability for affected businesses to sufficiently petition for relief from aggressive state actions and 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.  The Committee will also look at alternatives that could enable states to collect sales tax revenues without opening the door to aggressive state action against out-of-state companies."

The other members of the HJC who are sponsors of the bill are Democrats Rep. Suzan DelBene (D-WA), Rep. Bobby Scott (D-VA), Rep. Judy Chu (D-CA), and Rep. Theodore Deutsch (D-FL), and Republicans Rep. Mark Amodei (R-NV), Rep. Spencer Bachus (R-AL), and Rep. Ted Poe (R-TX).

During Senate debate on the bill Sen. Ron Wyden (D-OR) argued that "What this bill does is it precipitously overturns the law of the land, the law of the land upheld by the Supreme Court. It would, in unprecedented fashion, stipulate that State and local governments have taxing authorities over businesses that are located thousands and thousands of miles away. The sponsors are quick to point out that the Court allowed that Congress could enact this sort of extraterritorial taxation. But as the Senate has seen again and again, just because government can doesn't mean government should."

This is a reference to the Supreme Court's 1992 ruling in Quill v. North Dakota, 504 U.S. 298. The Supreme Court held that state and local taxing authorities are barred under the Commerce Clause from requiring remote sellers without a substantial nexus to the taxing jurisdiction to collect sales taxes for sales to persons within the jurisdiction.

However, the Supreme Court added that Congress may extend such authority. It wrote that "Congress is now free to decide whether, when, and to what extent the States may burden interstate mail order concerns with a duty to collect use taxes." (At 504 U.S. 318.)

Sen. Wyden continued that "I think this steers the Internet toward a dangerous path. It would, in effect, endorse the notion that Internet entities should be required to enforce laws outside their home jurisdiction. Foreign countries have long pressed that notion. Foreign countries have specifically pushed that notion, that the Internet ought to cede to their control. As it is already, many countries are seeking to put the United Nations in charge of the Internet's regulator-in-chief, and essentially, if we look at the philosophical foundation of this proposal, it endorses that world view."

Sen. Wyden also said that this bill "gives a leg up to foreign retailers".

Sen. Richard Durbin (D-IL) responded that Sen. Wyden "is from the State of Oregon. Oregon is one of five States in the Nation with no State sales tax. For the record, they are Alaska, Oregon, Montana, New Hampshire, and Delaware. Of those five States, four of those States -- all eight of those Senators -- are actively opposing this bill."

He argued that since the bill exempts sellers with "less than $1 million in Internet sales" per year from the mandate of the bill, "this bill will affect the big boys, such as Amazon and eBay", and not "the small Internet retailers".

Grover Norquist, head of the Americans for Tax Reform, sent a letter to the sponsor of the Senate bill, Sen. Mike Enzi (R-WY), with numerous questions. For example, he asked, "What measures protect businesses from tax audits, court proceedings and penalties like tax liens imposed on a business by state departments of revenue where the business has no physical presence? How will businessmen and women be protected over time from politicians in a different state that they cannot vote for or against? Is there a danger of establishing taxation without representation?"

See also, story titled "Senate Invokes Cloture on Internet Sales Tax Bill" in TLJ Daily E-Mail Alert No. 2,552, April 22, 2013, and story titled "Senate Adjourns Until May 6 Without Passing Internet Sales Tax Bill" in TLJ Daily E-Mail Alert No. 2,554, April 24, 2013.

(Published in TLJ Daily E-Mail Alert No. 2,557, May 6, 2013.)