Enacting the Marketplace Fairness Act: now or never.
The swift Senate passage of the Marketplace Fairness Act stoked state and local government hopes for a similarly expedited path for the bill in the House. However, House leaders have deferred decisions on the fate of the measure to House Judiciary Committee Chairman Bob Goodlatte (R-Va.). Citing concerns raised by some House members over how the bill would affect small businesses and whether or not the bill authorizes states and local governments to collect a new tax, Goodlatte has pledged to take a slower approach to House consideration of the bill. Many of the concerns being presented to the Chairman largely spring from a misinformation campaign that is being waged by opponents of the bill and a general lack of awareness about the decade-plus effort by state and local governments, supportive retailers, and some federal champions to compel remote sellers to collect online sales taxes.
THE QUILL DECISION
For example, the argument that the Marketplace Fairness Act would permit new taxing authority to state and local governments distorts the facts with respect to current state laws and federal law as established under the Supreme Court's decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). That decision holds that a state may not require a seller that does not have a physical presence in the state to collect tax on sales into the state. In states that impose a sales tax, however, online buyers are required to pay a use tax for items upon which no sales tax has been paid--although sellers often do not apply this tax and most buyers are not aware of their obligation to remit it. This negligent tax compliance arrangement has imposed increasingly negative fiscal consequences on state and local governments as a greater number of consumers have begun to shop online. According to the Department of Commerce, e-commerce sales in 2005 were $87 billion, and that number grew by nearly 40 percent to $225.5 billion in 2012. The National Conference of State Legislatures revealed last year that these sales produced approximately $23 billion in unpaid sales and use taxes in 2012.
And while the Quill decision allowed remote retailers to continue to circumvent state tax laws, it also emphasized that Congress, through its power to regulate interstate commerce, is the appropriate branch of government to update e-commerce laws. This is precisely what the Marketplace Fairness Act aims to do. Under the bill, states interested in collecting taxes from online retailers could either: 1) Join the Streamlined Sales and Use Tax Agreement, a compact between 24 states to use simplified state-level administration of sales and use taxes and uniformity in state and local tax bases and definitions, or 2) Agree to implement minimum tax simplification requirements as outlined in the bill.
SUPPORTING THE LEGISLATION
This legislation has considerable support. Groups ranging from state and local advocacy organizations such as the National Governors Association and National League of Cities to the large retailers like Amazon.com and retail associations such as the National Retail Federation continue to express their support for the act and urge the House to move quickly to pass the bill. The GFOA is working closely with these groups, as well as Goodlatte's office and the office of the bill's House sponsor, Congressman Steve Womack, to modify the bill to address the concerns that have been raised about the legislation. The GFOA is also working with its local government stakeholder partners to oppose efforts to attach harmful and non-germane legislation to the Marketplace Fairness Act as it makes its way through the House.
For example, some have discussed attaching legislation such as the Wireless Tax Fairness Act (H.R. 2309/S. 1235) or the Digital Goods and Services Tax Fairness Act (currently unnumbered) to the bill during committee-level or even House floor consideration. The Wireless Tax Fairness Act would ban new state and local taxes on wireless communications services and the providers of those services for a period of five years. This legislation is similar to legislation introduced in previous congressional sessions, and which the GFOA has vigorously opposed. The GFOA, along with several other associations representing local government interests, sent a letter in July 2013 to both the House and Senate expressing its concerns with the legislation's potential impact on state and local revenues, and urging members to oppose the bill. The Digital Goods and Services Tax Fairness Act has not been formally reintroduced since the 2011-2012 congressional session, but a modified version was floated as a potential amendment during Senate floor consideration of the Marketplace Fairness Act in May 2013. Though this legislation is intended to prevent "multiple and discriminatory taxation" of digital goods and services, the language in the proposed measure would bar state and local governments from imposing sales tax on the full retail price of both physical and digital goods and services sold by online intermediaries. The GFOA also continues to vigorously oppose this legislation and advise lawmakers against packaging it with the Marketplace Fairness Act.
Congress' historically restrained appetite for considering tax-related legislation in election years makes it unlikely that the Marketplace Fairness Act will be passed in 2014, and the next four months are critical for efforts to spur House action on the bill. Members of Congress are currently home in their districts for the month of August 2013 and will face a full legislative schedule for the final few months of the year when they return to Washington in September. The Marketplace Fairness Act, which still must gain House Judiciary Committee approval, will compete for space on a short calendar with efforts to increase the debt ceiling; approve the 12 fiscal 2014 appropriations bills before the October 1, 2013, start of the new federal fiscal year; and finalize a deal on an overhaul of the nation's immigration laws. The GFOA and its state and local government partners will be fully engaged in advocating for House consideration of the bill during this time, and we highly encourage GFOA members to join the fight.
How can you help? With Congress home for the entire month of August, our members and their local elected leaders have four weeks' worth of opportunities to sit down and discuss the urgent need to pass this important measure. To assist you, the GFOA's Federal Liaison Center has prepared a suite of advocacy materials for our members to use as they engage on this legislation. These include talking points, a factsheet discussing the inaccuracies of many of the arguments being used against Marketplace, draft letters of support, and op-ed pieces. These materials are available on the GFOA website. It is unclear when we will ever have another opportunity such as this one to work with Congress toward finalizing action on this bill, and finally enabling state and local governments to compel remote sellers to collect and remit billions of dollars in sales taxes that are owed to our governments.
DUSTIN MCDONALD is director of the GFOA's Federal Liaison Center in Washington, D.C.
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|Title Annotation:||Federal Focus|
|Publication:||Government Finance Review|
|Date:||Aug 1, 2013|
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