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House of Representatives to Debate Internet Sales Tax Bill

Feb 27, 2014

After the Senate failed to follow legislative procedure last spring, House leadership placed the bill on hold. Now it's back, and the first hearing by Committee Chairman Robert Goodlatte (R-VA) on "The Marketplace Fairness Act" will be heard on March 4, 2014. eBay continues to be a strong supporter of small businesses during this debate. 

Chairman Goodlatte is very aware of the potential pitfalls of a national taxation on internet commerce, and in September he released the seven principles that any Internet sales tax proposal must meet before being passed by his committee. These principles are intended to guide debate in the House as Congress works towards addressing the issue without negatively affecting small online businesses.

The Seven Internet Sales Tax Principles

  • Tax Relief—"Using the Internet should not create new or discriminatory taxes not faced in the offline world. Nor should any fresh precedent be created for other areas of interstate taxation by States." 
  • Tech Neutrality—"Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses." 
  • No Regulation Without Representation—"Those who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement." 
  • Simplicity—"Governments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary." 
  • Tax Competition—"Governments should be encouraged to compete with one another to keep tax rates low and American businesses should not be disadvantaged vis-à-vis their foreign competitors." 
  • States’ Rights—"States should be sovereign within their physical boundaries. In addition, the federal government should not mandate that States impose any sales tax compliance burdens." 
  • Privacy Rights—"Sensitive customer data must be protected." 

The Marketplace Fairness Act, would force small businesses to collect taxes for as many as 9,600 jurisdictions, regardless of the business' affiliation (or lack thereof) with the state. This could make small businesses vulnerable to out-of-state audits and potential legal action. Further, the legislation could drive up technology costs, forcing many small online businesses to close their "virtual" doors.

While there is a "small seller exemption," it would only protect sellers with less than $1 million in total remote sells. According to economist John Orszag, this is an unfounded threshold. Other organizations, including American Institute of CPAs and National Association of Letter Carriers have raised concerns about the impact of this new small business definition in the Marketplace Fairness Act.

Does the new bill impact your business? What are your thoughts and concerns? Let us know in the comments below!