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Republicans May Allow States to Tax Consumers for Internet Purchases


The House is expected to vote on an omnibus spending bill next week. There are several riders that could be attached to the bill that will frustrate those of us who believe in limited government. The ObamaCare bailout is one piece that could be added, thanks to Senate HELP Committee Chairman Lamar Alexander (R-Tenn.), Ranking Member Patty Murray (D-Wash.), and House Energy and Commerce Committee Chairman Greg Walden (R-Ore.). But another rider that could be added is the Internet sales tax, which conservatives have successfully killed in the past.

Rep. Kristi Noem (R-S.D.), who is running for governor of her state, is pushing House Republican leadership to move the Remote Transaction Parity Act, H.R. 2193, this year. In January, Rep. Noem told the Rapid City Journal that Republican leaders agreed to oblige. “They all committed to me that we were going to get my bill passed in ’18 here,” she said.

The upcoming omnibus spending bill is a provides an easy vehicle for the inclusion of the Remote Transaction Parity Act. The bill is a “must-pass” piece of legislation. The continuing resolution that was passed as part of the Bipartisan Budget Act (Subdivision 3 of the bill) runs through Friday, March 23.

If Congress doesn’t pass a spending bill by midnight on March 23, the federal government would shut down. Because Congress isn’t likely to do much of anything in an election year, an omnibus makes the inclusion of controversial legislation that may not otherwise pass or face strong opposition somewhat easier to get passed into law.

House Republican leadership is seriously considering the inclusion of the Remote Transaction Parity Act to get ahead of the Supreme Court, which is scheduled to hear South Dakota v. Wayfair, Inc. on April 17. The case involves a law passed by the South Dakota Legislature that was basically designed for a legal challenge to the Supreme Court’s decision in Quill v. North Dakota (1992), in which the court ruled that a state couldn’t impose a use tax on a business that doesn’t have a physical presence in the state.

Others aren’t convinced that the Supreme Court will overturn the precedent set in Quill and could uphold the 1992 decision. The principle through the precedent would be allowed to stand is known as stare decisis.

The Remote Transactions Parity Act would undo the Supreme Court’s decision in Quill and allow a state to collect sales tax for online purchases from businesses that don’t have a physical presence inside its borders. With some 12,000 taxing jurisdictions inside the United States, with each having different requirements and sales tax rates, this exposes online retailers, especially smaller ones, to a compliance nightmare.

Although supporters of the Remote Transactions Parity Act argue that there are protections in place for smaller online retailers, these protections are phased out. In the first year, there is an exemption for businesses with less than $10 million in gross annual receipts. The exemption is reduced to $5 million in the second year and $1 million in the third year. In the fourth year and onward, there is no exemption, negatively impacting smaller online retailers.

The Internet has grown into such a powerful tool, one that virtually everyone utilizes on a daily basis because it has been largely left alone, at least until recent years. Unfortunately, traditional brick-and-mortar stores like Walmart and even some larger online retailers like Amazon, which can easily absorb compliance costs, are pushing for the passage of an Internet sales tax, including the Remote Transactions Parity Act.

Additionally, the National Governors Association has urged Congress to pass an Internet sales tax, which will provide governors and state legislatures with another revenue stream to spend more money. The Trump administration has also filed a brief on the wrong side of the Wayfair case, backing the position of South Dakota to collect online sales taxes.

Polling indicates that misguided politicians doing the bidding of rent-seeking businesses and states governments wanting more revenue for big government programs aren’t listening to Americans, who reject this scheme. As Andrew Moylan of the National Taxpayers Union recently explained, “A September 2017 poll by Rasmussen found that Americans oppose Internet sales tax legislation by a 45-point margin, and earlier polling of Republican voters found that they preferred candidates that oppose such laws by a 54-point margin.”

If the Remote Transaction Parity Act or any other Internet sales tax measure is included in the upcoming omnibus spending bill, those who believe in limited government have no choice but to oppose it.