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Online Tax Bill Passes Senate; House Still Has Issues

5/19/2013 08:00:00 PM Eastern

WASHINGTON — While the U.S. Senate passed the Marketplace Fairness Act earlier this month and backers of the mandatory online sales tax collection legislation see progress, the bill still has to be reviewed, possibly revised, and voted upon by the House of Representatives.

The bill, which was approved by a vote of 69-27 in favor with bipartisan support from the Senate and endorsement by President Obama, would compel retailers to collect and remit state and local sales tax on all online transactions, putting an estimated $23 billion into government coffers. Only online businesses with out-of-state sales of $1 million or less would be exempt.

According to CCIM.com, the commercial real estate group, “This legislation is not a new tax. It paves the way for states to enforce collection of a tax that they are already owed. States that do not collect a sales and use tax (Alaska, Delaware, Montana, New Hampshire and Oregon) will not experience any tax policy changes with this legislation.”

While the Senate fast-tracked the bill by avoiding hearings and limiting debate, the House’s companion legislation faces a stiffer challenge. Despite its more than 60 co-sponsors, some representatives view it as an unfair burden on small businesses or a new tax levy, even though it merely empowers governments to collect taxes that by law are already due.

In addition, Rep. Bob Goodlatte (R-Va.), the Chairman of the House Judiciary Committee, which is expected to hold hearings on the measure, believes its tax collection apparatus is still too complex, while House Speaker John Boehner (R-Ohio) remains uncommitted.

According to Veronica O’Connell, congressional affairs VP of the Consumer Electronics Association (CEA), which backs the legislation, explained that the Chairman of the House Judiciary Committee “wants to write his own bill … which is not unusual. He doesn’t want to use the House or Senate bill.”

The legislation will then “go before the committee for a vote, then go to regular order for markup, amendments and then a floor vote,” she noted. “Then, if approved, it will go to [a House and Senate] conference,” to come up with one, unified bill. As O’Connell said, the Senate passage is important, but final approval is “still a long process,” and CEA hopes it is approved “sooner rather than later.”

O’Connell said that Chairman Goodlatte is concerned about “the complexity of the [tax] rate, that it is not one rate per state, [its] impact on small businesses — different products are being taxed, while others aren’t.”

CEA’s rebuttal is that “there is technology out there to handle that. There is language [in the pending legislation] for states to provide software for vendors” to calculate the taxes owed.

O’Connell also noted that eBay is “opposed and concerned about the impact on small sellers,” but she noted that the Senate bill “makes an exception for businesses with [annual sales] of $1 million or less” and that CEA is open to a larger exception.

In fact, eBay issued a terse statement from global public policy senior director Brian Bieron. “The contentious debate in the Senate shows that a lot more work needs to be done to get the Internet sales tax issue right,” he wrote, “including ensuring that small businesses using the Internet are protected from new burdens that harm their ability to compete and grow.”

Not surprisingly, brick-and-mortar retailers lauded the Senate action. Matthew R. Shay, president/CEO of the National Retail Federation (NRF), called it “a significant step for sales tax fairness … This bill and its companion in the House will level the playing field for all retailers — both online and off — while safeguarding states’ rights.”

Best Buy issued a statement saying it is “encouraged by the passage of the Marketplace Fairness Act,” adding that the legislation “does not represent a new tax, rather it simply helps to ensure fair competition that ultimately benefits consumers and our communities. The current laws were put in place before the Internet or e-commerce even existed. Just as retail has evolved over the years, the tax code needs to evolve to reflect modern patterns in how consumers shop not by creating a new tax but by enforcing the laws already on the books.”

Gary Yacoubian, SVS president and managing partner, a former chairman of CEA, and former president of Myer Emco CE chain, which operated in the Maryland area, told TWICE, “While this legislation will hurt our business since we sell our products directly to consumers online … this is a fairness issue.”

He said that when he was with Myer Emco, he felt the current situation “put a built-in advantage to [retailers] who are not in our state, at the expense of companies that provide jobs and pay taxes.”

Yacoubian added that the issue of complexity of figuring out taxes on different categories for individual states is “overblown.” He feels that the current legislation will “level the playing field.”