In Search of a Solution to the Internet Sales Tax Puzzle

“The Marketplace Fairness Act is a well-considered, bipartisan proposal which enjoys the support of a wide coalition, including Governors, brick-and-mortar retailers, and Internet-based retailers,” Moschella, who served as a U.S. assistant attorney general during the George W. Bush administration, said in his testimony.

Chris Cox, a partner in Bingham McCutchen's Costa Mesa, CA, office who represents e-commerce group NetChoice, said the Marketplace Fairness Act wouldn't level the playing field. He recommended that Congress take an approach he called “home rule and revenue return,” which would allow online businesses and their brick-and-mortar counterparts to follow only the sales tax rules of the states in which they are physically based.

“If [the Marketplace Fairness Act] were the only option, NetChoice would strongly prefer today's system,” said Cox, who is a former U.S. Securities and Exchange Commission chairman and Republican congressman from California.

Florida tax lawyer James Sutton Jr. of Moffa, Gainor & Sutton had concerns with the Marketplace Fairness Act, too. He advocated for “consumer private reporting,” which would require sellers to report their sales to states but not actually collect the taxes.

“If the Marketplace Fairness Act were to pass, my law practice would explode from clients all over the country,” Sutton said. “So, when I say to you today that the Marketplace Fairness Act is a bad idea, it's because I truly believe it'll cripple thousands of businesses and hurt our economy overall.”

The House Judiciary Committee is looking to create legislation that would support Internet sales tax principles it released in September 2013. See, http://1.usa.gov/1qVE7iL. The panel said a potential tax should treat Internet sellers the same as their offline counterparts and shouldn't have burdensome compliance requirements, among other features.

Rep. Bob Goodlatte (R-VA), chairman of the House Judiciary Committee, said “complications abound” in the Marketplace Fairness Act, which he said has onerous compliance requests, among other problems.

The panel “is serious about searching for a solution that the various parties can accept,” Goodlatte said. “The issue is just far more complex than it seems at first glance.”

Andrew Ramonas is a Reporter for Corporate Counsel, an ALM sibling of e-Commerce Law & Strategy.

Tax experts and lawyers for both online and brick-and-mortar retailers last month urged Congress to pass Internet sales tax legislation ' but they couldn't agree on what the bill should look like.

Testifying before the House Judiciary Committee, representatives of an e-commerce group, shopping malls and other organizations offered different proposals that would aim to make it easier for states to collect taxes from online retailers. Only one of them, however, identified the Senate's Marketplace Fairness Act (S. 743) as a viable solution.

William Moschella, a Washington-based Brownstein Hyatt Farber Schreck shareholder who represents mall owner Simon Property Group, said his client supports the existing Senate bill, elaborating in his written testimony that the legislation would put all retailers on a level playing field. See, http://1.usa.gov/1g1hm8N. The measure, which the Senate passed in May 2013, would force online retailers to collect sales taxes for every state in which they have customers.

“The Marketplace Fairness Act is a well-considered, bipartisan proposal which enjoys the support of a wide coalition, including Governors, brick-and-mortar retailers, and Internet-based retailers,” Moschella, who served as a U.S. assistant attorney general during the George W. Bush administration, said in his testimony.

Chris Cox, a partner in Bingham McCutchen's Costa Mesa, CA, office who represents e-commerce group NetChoice, said the Marketplace Fairness Act wouldn't level the playing field. He recommended that Congress take an approach he called “home rule and revenue return,” which would allow online businesses and their brick-and-mortar counterparts to follow only the sales tax rules of the states in which they are physically based.

“If [the Marketplace Fairness Act] were the only option, NetChoice would strongly prefer today's system,” said Cox, who is a former U.S. Securities and Exchange Commission chairman and Republican congressman from California.

Florida tax lawyer James Sutton Jr. of Moffa, Gainor & Sutton had concerns with the Marketplace Fairness Act, too. He advocated for “consumer private reporting,” which would require sellers to report their sales to states but not actually collect the taxes.

“If the Marketplace Fairness Act were to pass, my law practice would explode from clients all over the country,” Sutton said. “So, when I say to you today that the Marketplace Fairness Act is a bad idea, it's because I truly believe it'll cripple thousands of businesses and hurt our economy overall.”

The House Judiciary Committee is looking to create legislation that would support Internet sales tax principles it released in September 2013. See, http://1.usa.gov/1qVE7iL. The panel said a potential tax should treat Internet sellers the same as their offline counterparts and shouldn't have burdensome compliance requirements, among other features.

Rep. Bob Goodlatte (R-VA), chairman of the House Judiciary Committee, said “complications abound” in the Marketplace Fairness Act, which he said has onerous compliance requests, among other problems.

The panel “is serious about searching for a solution that the various parties can accept,” Goodlatte said. “The issue is just far more complex than it seems at first glance.”

Andrew Ramonas is a Reporter for Corporate Counsel, an ALM sibling of e-Commerce Law & Strategy.