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Yesterday, Rep. Jason Chaffetz (R-UT) introduced the Remote Transactions Parity Act, which would clarify how states can require out-of-state retailers to collect sales tax on online purchases. The measure is modeled on a bill sponsored by Mike Enzi (R-WY) and others that overwhelmingly passed the Senate last year.
Chaffetz set off a predictable firestorm of criticism with his bill, mostly from anti-tax conservatives who normally like the reliably-conservative lawmaker. The National Taxpayers Union expressed “tremendous disappointment and concern.” The measure, it said, would require “consumers to pay hundreds of billions of dollars in additional sales tax while imposing unprecedented compliance burdens on small, online merchants.” One Tea Party blog asked, “Why does Jason Chaffetz hate the Internet so much?”
While Chaffetz has 15 cosponsors, including Democrats such as Michigan’s John Conyers, the bill faces an uphill battle. House Judiciary Committee Chairman Bob Goodlatte (R-VA) is an implacable foe of any legislation granting states authority to require online sellers to collect taxes. And so far at least, House Speaker John Boehner has let Goodlatte have his way.
But the political ground is shifting rapidly beneath the sales tax critics. Increasingly, big online sellers back federal legislation. Since 2013, when the Supreme Court opened the door to state collection requirements for many remote sellers, big e-tailers have come to prefer a single set of simplified rules rather than a morass of conflicting state and local requirements. Plus both Chaffetz and Enzi would give small on-line sellers time to address any compliance burdens generated by the new collections requirement.
Amazon, which had been the biggest critic of federal legislation, was on board with Enzi’s bill and backs this one. Even Overstock.com, one of the last big holdouts, is now a supporter.
A further complication for supporters of the status-quo: The other day, House Republicans passed a separate bill that would bar states from taxing Internet access (not sales, but access). That measure has the backing of the big phone and cable companies, as well as other Internet service providers. But they know it is going nowhere in the Senate unless it is tied to an online sales tax bill. They are anxious to make that trade, putting even more pressure on the anti-sales tax crowd.
But the critics’ weakest ground is the economics. When they claim, as the NTU does, that requiring online retailers to collect sales taxes is a massive tax increase, they are just wrong.
To start, in most states, consumers already owe use tax on these purchases. If the sellers don’t collect, the buyers must still pay. It is true that few states enforce their use tax, but that doesn’t mean consumers don’t owe the levy.
More fundamentally, though, there is no reason why a state that broadens its tax base by including online sales couldn’t offset that choice by lowering its sales tax rate (or by cutting other taxes). Presumably, that’s exactly what conservative lawmakers in many states would choose to do. Thus, notwithstanding the NTU’s hysterical claims, consumers as a group would not necessarily have to pay another dime in taxes.
The only difference: local Main Street retailers would be on an even-footing with their out-of-state online competitors. Can anyone think of a good reason why I should pay tax if a buy a toaster at my local kitchen store but not if I buy the same toaster online? The current arrangement violates all rules of tax equity.
The oddest thing about the criticism of bills like Chaffetz’s and Enzi’s is that many of their opponents claim to favor federal income tax reform that broadens the tax base (by eliminating deductions and credits) and lowers rates. Chaffetz and Enzi would open the door to exactly the same tax reform choice. It is curious that the critics don’t see that.
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