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Retailers Applaud Online Sales Tax Draft

Brick-and-mortar retailers have a new ally.

House Judiciary Committee Chairman Bob Goodlatte (R-Virginia) on Thursday proposed a new online sales tax in an effort to settle a years-long debate between retailers, state government and e-commerce companies over how to tax cross-border purchases made online.

Dubbed the Online Sales Tax Simplification Act of 2016, the legislation would allow states to take certain steps to require online sellers to collect sales tax.

“We hope this move will bring the attention needed to get Congress to move forward in treating purchases made online the same as those made in local stores when it comes to sales tax collection,” said David French, the National Retail Federation’s (NRF) senior vice president for government relations. “With online shopping increasing every day, it’s time for Congress to act. The price advantage held by online sellers when they don’t have to collect sales tax has resulted in the shuttering of bricks-and-mortar retail stores in almost every community across the nation over the last few years. That cannot be allowed to continue.”

Tom McGee, president and chief executive of the International Council of Shopping Centers (ICSC), seconded that sentiment.

“It is time to fix our country’s sales-tax system, which unfairly picks winners and losers and, more importantly, shortchanges communities on revenue that directly funds everything from schools to fire departments and infrastructure. The fact is that online retailing is a mature business and these retailers should compete with brick-and-mortar sellers on price, inventory and customer service, not on sales-tax treatment,” he said.

Currently, online sellers can only be required to collect sales tax in states where they have a physical presence, such as their headquarters, stores, offices or warehouses. Goodlatte’s proposal would have sales taxed according to the tax base of the retailer and the tax rate in the state to which they’re shipping goods.

So, for instance, a New York company shipping a dress to a buyer in Oregon would use New York’s rule to determine if the dress is taxable and Oregon’s tax rule to determine at what rate.

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While retailers have welcomed the draft legislation, others have argued that it could prove problematic and, while a step in the right direction, still needs work.

“It’s heartening to see the chairman taking the time to be thoughtful on this important issue and the results are marked progress in protecting remote sellers from out-of-state audits and lower compliance costs than the debilitating amount in the Marketplace Fairness Act and the Remote Transactions Parity Act,” said Jessica Melugin at the Competitive Enterprise Institute (CEI).

But according to Melugin, curtailing interstate tax competition is where the proposal falls short. She said a better option would be to tax at the origin of the sale, according to the base and rate of the seller’s primary place of business. This would place downward pressure on taxes and encourage economic growth.

She continued, “A pure origin approach would have all the advantages of the Goodlatte proposal and keep states competing against each other to the benefit of taxpayers.”