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House Introduces Internet Sales Tax Bill

American shoppers may soon have to pay sales tax on all online purchases.

Rep. Jason Chaffetz (R-UT) and Rep. Steve Womack (R-AR) on Monday introduced the Remote Transaction Parity Act (RTPA), a bill that would allow states to collect taxes on remote and online sales in 45 states and the District of Columbia, whether the retailers have a physical presence within their borders or not.

The bipartisan group of lawmakers says this would level the playing field between online-only sellers and local brick-and-mortar retailers.

Industry groups that have lobbied for more than a decade to pass an Internet sales tax have applauded the bill. Currently, states are barred from collecting sales taxes from out-of-state sellers due to a 1992 Supreme Court decision, and e-tailers have to collect taxes only in states where they have retail stores and warehouses. And while most states with sales tax have laws requiring shoppers to calculate their own online purchases and pay sales tax, it’s not actively enforced.

“Retailers should be free to compete for customers and sales without the federal government picking winners and losers in the marketplace,” declared David French, senior vice president for government relations at the National Retail Federation (NRF). “The bill will eliminate the online sales tax collection loophole, which distorts competition, the free market and unfairly favors online sellers at the disadvantage and expense of local communities, merchants and small business owners and their employees.”

Betsy Laird, senior vice president of global public policy for the International Council of Shopping Centers (ICSC), echoed that sentiment. “This bill is the product of a thorough and inclusive stakeholder process and enjoys broad support by the business community,” she said, adding, “It is now time for Congress to stand up for local retailers and pass this job-creating, bi-partisan, common sense bill.”

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Not everyone shared the same gung-ho enthusiasm, however. “Chaffetz’s new tax grab erodes healthy tax competition among states, puts consumers’ information at higher risk and ushers in a regime of taxation without representation,” claimed Jessica Melugin, adjunct analyst at Washington, D.C.-based think tank Competitive Enterprise Institute (CEI).

A bipartisan group of nine senators in March reintroduced the Marketplace Fairness Act (MFA), after a version approved by the Senate in May 2013 was shut down by Republicans. While the latest MFA didn’t impose any new taxes, critics said it would be difficult to comply with as online sellers would be burdened with 9,600 separate taxing jurisdictions, each with its own unique definitions, holidays and rates.

The RPTA has sparked similar criticism, despite presenting an exemption that excludes certain small sellers from the law as well as a phase-out option: Businesses with annual revenues of less than $10 million will be exempt from the law for the first year; in the second year it will be lowered to $5 million; and $1 million businesses will be exempt for three years. Notably, the bill also calls for states to pay for the software remote sellers need to collect and remit the taxes due.

“That’s like using an IRS agent to prepare your taxes,” Melugin quipped. “Just like the MFA, the Chaffetz RTPA is a tax grab by the states and political rent-seeking by big business. It would be much better to seek real fairness and preserve competitive, fiscally conservative principles through an origin-based solution in the remote sales tax debate.”