Inside Washington: Time to fix internet sales tax

Online-only retailers put rural hometown businesses at disadvantage, groups say.

Now is the time for Congress to move legislation that would provide clarity, uniformity and parity to U.S. merchants by allowing states to collect existing sales and use taxes on remote purchases, the American Farm Bureau Federation and 25 other organizations told House Judiciary Committee chairman Robert Goodlatte (R., Va.) in a recent letter.

Businesses in small and rural towns provide essential goods and services to the local farmers and ranchers, but hometown businesses are at a disadvantage when they compete with online-only retailers, which don't have to collect sales taxes. When this disadvantage causes a "Main Street" business to close or scale back, already struggling rural towns are particularly hurt.

It's not only local merchants that feel the pinch of internet sales. Online-only sales deprive state and local governments of the tax revenue they need to provide essential services. Since local governments and schools rely heavily on property taxes for funding, when sales tax revenues decline, property taxes are often increased to make up the difference, which is very burdensome for land-based businesses like farms and ranches.

According to Farm Bureau and the other organizations, the House Judiciary Committee should consider two approaches to this critical issue: the Remote Transactions Parity Act (H.R. 2775), or the similar, soon-to-be-introduced Online Sales & Simplification Act.

"We believe Congress should exercise its right and responsibility to oversee matters of interstate commerce. As you are aware, because Congress has not passed remote sales tax legislation, numerous states have enacted or are considering varied approaches to collecting these current tax obligations," the groups wrote.

In the absence of congressional action, states feel compelled to seek disjointed and confusing remedies, which could very well result in the internet sales tax issue being decided by the courts. "Further, this state-by-state approach prevents businesses from benefitting from simplification measures such as uniform definitions or free tax software that could be achieved by federal legislation," the groups pointed out.

In addition to the current and soon-to-be-introduced measures in the House, the Marketplace Fairness Act (S. 698) is pending in the Senate. The bill would enable states to apply sales tax laws across the board. It allows states to enforce their existing sales tax laws but does not create new taxes or increase existing ones.

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