GOP governors bolster online sales tax push

Gov. Terry Branstad of Iowa this week became the latest in a string of top Republican state officials to back federal legislation giving states more freedom to collect online sales taxes.

Branstad’s letter of support, obtained exclusively by The Hill, comes not long after another prominent Republican governor, Chris Christie of New Jersey, also urged Congress to get moving on sales tax legislation.

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But despite the increasingly vocal push from Republican governors and retail groups for a federal solution, supporters of online sales tax legislation face a heavy lift in getting a measure through Congress this year. 

Christie and Branstad are among about a dozen GOP governors to back the push for online sales tax legislation. Other state leaders who are on board include Mitch Daniels of Indiana, Paul LePage of Maine and Rick Snyder of Michigan.

Branstad, who was Iowa governor in the 1980s and 90s and who won a fifth term in 2010, heads a swing state that plays a prominent role in nominating presidential candidates.

In a letter sent Thursday, Branstad encouraged his home-state senators to support a solution that he said would close a longstanding loophole.

“I understand that the coalition supporting this legislation is now very broad which gives me hope that, under your leadership, this legislation can be passed yet this year,” Branstad wrote to Sens. Chuck Grassley (R) and Tom Harkin (D).

“The Internet is now a robust, mature and dynamic marketplace that does not warrant special protections,” he added. “The application of sales taxes only to ‘brick-and-mortar’ retailers, many of which are small businesses, puts those very entities at a competitive disadvantage.”

That’s the same argument other GOP governors have made — that the legislation would level the playing field between online operations and brick-and-mortar shops while giving states more tools to balance budgets and enforce tax laws.

Retail groups, which are clamoring for congressional action, say the growing support from GOP governors is having an impact on the debate.

“I think it adds to the pressure for Congress to act,” said Jason Brewer, vice president of communications and advocacy for the Retail Industry Leaders Association. “It bodes well for us that more governors are encouraging their delegations to support the bill.”

Still, supporters face not only a ticking clock, but also stiff opposition from some conservatives.

Congress is not expected to do much legislating before November’s election, and the post-election lame-duck session will likely be crammed with big-ticket issues like the expiring Bush-era tax rates and looming automatic spending cuts.

The chairman of the House Judiciary Committee, Rep. Lamar Smith (R-Texas), has said his panel will hold a hearing on the issue next month, but the House GOP did not include online sales tax in a memo that spelled out their floor priorities for the summer.

Even if Congress did have the time, it’s not clear a sales tax measure could garner enough support to pass. Some Republicans say the online sales tax proposals offer them a difficult choice.

On the one hand, many Republicans are reluctant to back anything that would cause constituents to pay more in taxes and can be construed as a tax increase.

Prominent conservative lawmakers, including Sen. Jim DeMint (S.C.), and organizations, such as the Heritage Foundation, argue online sales tax proponents have the issue backwards.

“As a general proposition, states should focus on cutting their spending rather than seeking more money in taxes as the means to balance their budgets,” Heritage’s David Addington, a onetime top aide to former vice president Dick Cheney, wrote in April. “Especially in a weak economy, state governments should generally pursue pro-growth, job-creating tax policies rather than taking more money out of the private economy in sales tax collection.”

But some GOP lawmakers are sympathetic to the complaints of hometown retailers, and to the states-rights argument in favor of the legislation.

Because of a 1992 Supreme Court decision, states cannot require companies that don’t have a physical location within their borders to collect sales tax revenue.

Supporters of bipartisan bills in the House and Senate, which would allow states to collect from certain out-of-state sellers, say consumers already owe taxes on online purchases and that states themselves would be able to decide how, or if, to collect.

“For conservatives and Republicans, the biggest federal issue is states rights,” Sen. Lamar Alexander (R-Tenn.), a key sponsor of the Senate bill, told The Hill. “I don’t want Washington telling Tennessee it needs to have an income tax, or not to have a sales tax.”

Alexander has joined Senate Majority Whip Dick Durbin (D-Ill.) and Sen. Mike Enzi in pushing for the Marketplace Fairness Act. Reps. Steve Womack (R-Ark.) and Jackie Speier (D-Calif.) have sponsored the Marketplace Equity Act in the House.

As retailers and governors push for action, Democrats like Harkin have said they’re on board as well.

“It is simply unfair for some retailers to be responsible for proper local taxes and for others to avoid that responsibility, which would deny state and local governments their properly owed funds,” Harkin told The Hill in a statement. “I have long supported requiring remote sellers to collect sales taxes, and I am hopeful the bill will pass Congress this year.”