Trump reopens fight on internet sales tax

President Trump’s recent tweet about Amazon is putting the issue of online sales taxes back in the spotlight.

In a tweet Wednesday criticizing the Washington Post, which is owned by Amazon founder Jeff Bezos, Trump called the publication “the guardian of Amazon not paying internet taxes (which they should).”

It’s unclear exactly what Trump meant by “internet taxes.”

Amazon in April started collecting sales taxes on purchases in every state that levies a sales tax. But Congress has also banned states from taxing consumer’s internet access.

{mosads}Asked about the tweet on Wednesday, White House spokeswoman Sarah Huckabee Sanders said she had not discussed it with Trump. The White House also did not respond to an email from The Hill Friday about the tweet or the broader online sales tax issue.

But lawmakers and others who want states to be able to force online retailers to collect sales tax were heartened by Trump’s comment.

“It’s encouraging to see President Trump engage on this issue and [I] am hopeful we’ll soon be able to level the playing field for Main Street businesses,” said Rep. Kristi Noem (R-S.D.).

Noem and Sen. Mike Enzi (R-Wyo.) introduced legislation earlier this year that would allow states to require out-of-state retailers to collect their sales taxes in exchange for states simplifying their sales tax laws. The bills have bipartisan support, and the Senate easily passed a version of Enzi’s bill in 2013.

But efforts to resolve the online tax issue have stalled in recent years, in part because a key House GOP chairman prefers a different solution. And it’s unclear when Congress will again consider legislation on the topic.

There’s a long history behind the debate.

The Supreme Court ruled in 1992 that states can only require retailers to collect their sales taxes if the businesses have a physical presence in the state. The ruling also said that Congress has the ultimate power to resolve the remote sales tax issue.

While taxpayers are supposed to pay taxes on online purchases even when the business doesn’t collect them at the time of purchase, few do and that requirement is rarely enforced.

State and local governments have pushed for congressional legislation on online sales taxes as they struggle to collect enough sales tax receipts to meet their revenue targets. Brick-and-mortar retailers who feel they’re at a disadvantage compared to online retailers have also backed Noem and Enzi’s bills. Amazon is also a supporter.

But House Judiciary Committee Chairman Bob Goodlatte (R-Va.), whose panel has jurisdiction over the issue, has expressed reservations about the bill that passed the Senate in 2013 and has his own ideas.

Goodlatte released a discussion draft last year that would tax remote sales using the tax base of the retailer’s state and the tax rate of the customer’s state. And he recently signed onto legislation introduced by Rep. Jim Sensenbrenner (R-Wis.) that would bar states from requiring retailers in other jurisdictions to collect their sales taxes.

Goodlatte says he wants to make sure that businesses are protected from regulations in states where they do not reside. He said that his draft bill also makes it easier for brick-and-mortar retailers to compete with online businesses.

“We will continue to discuss the draft legislation and the issue as a whole with lawmakers and stakeholders,” he said.

Goodlatte isn’t the only one with concerns over legislation like Noem and Enzi are offering. Other GOP lawmakers and fiscally conservative groups have also voiced concerns, and several Senate Dems in states without sales taxes voted against the 2013 bill.

Carl Szabo — senior policy counsel at NetChoice, which represents e-commerce businesses — said that he’s concerned that legislation like the 2013 bill would subject businesses to thousands of taxing jurisdictions and put them within the reach of multiple state tax auditors. That would be “enough to make it near-impossible for small businesses to compete online,” he said.

The competing approaches to the issue have led to little movement in Congress, frustrating those who want to help states collect online sales taxes.

Rep. Steve Womack (R-Ark.), a co-sponsor of Noem’s bill, said he’d “really like for leadership to ratchet up a little pressure on the authorizing committee to get something marked up.”

With no sign the House Judiciary Committee will act soon, though, Womack said he thinks the Senate should take the lead, including online sales tax legislation in a broader measure and sending it over to the House.

For now, the sponsors of Noem’s bill have deliberately “kept it underneath the noise” of higher-profile issues such as healthcare, tax reform and the budget, and are “trying to let some of the dust settle in Washington before we move further ahead,” Womack said.

While Congress has been slow to act, states have been taking action on their own to mandate collection of sales taxes on online purchases.

Some believe the issue may ultimately be resolved by the Supreme Court.

They note the flurry of activity in the states and the fact that Justice Anthony Kennedy in a 2015 opinion said he wanted the court to reexamine the issue.

The most closely watched case stems from a law South Dakota enacted last year, after Kennedy’s opinion, that requires certain out-of-state online retailers to collect its sales taxes. The case is currently before the South Dakota Supreme Court. And if that court rules against South Dakota, the state is likely to petition the case to the U.S. Supreme Court.

Max Behlke, director of budget and tax policy for the National Conference of State Legislatures, said that if the Supreme Court overturns its 1992 ruling, state and local governments will probably no longer want Congress to provide a solution. They’ll move to pass their own laws on collecting online sales taxes.

However, if the justices keep the 1992 ruling in place, states will have to find other sources of revenue besides sales taxes, he said.

Tags Bob Goodlatte Jim Sensenbrenner Mike Enzi Steve Womack
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