The Internet Sales Tax Is Back—Without Small Business Exemptions

Goodlatte at a town hall meeting

Douglas Graham/CQ Roll Call via Getty Images

Goodlatte at a town hall meeting

When the Senate passed the Marketplace Fairness Act in May, a major point of contention was language exempting some small businesses from collecting sales tax on out-of-state transactions. The law said businesses with more than $1 million in annual revenue would have to collect tax for online transactions. EBay (EBAY), a vocal opponent of the bill, suggested raising the exemption to $10 million. (The company later offered a more nuanced view.)

Now the House of Representative is getting ready to take up its own Internet sales tax legislation, only here’s the rub: The small seller exemption is likely to disappear entirely, and EBay, to name one opponent of the Senate bill, seems O.K. with it.

Yesterday, House Judiciary Committee Chairman Bob Goodlatte, a Virginia Republican, set forth seven principles to guide his committee’s discussion of an Internet sales tax. These two stand out:

“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.”

“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.”

“Tech Neutrality” is straightforward, and was music to the ears of the National Retail Federation, which has argued that a loophole allowing online sellers to avoid collecting sales tax put brick-and-mortar vendors at a disadvantage.

“Simplicity” is a bit more complicated. Goodlatte voiced uneasiness with a small seller exemption as far back as 2012, expressing concern that such a rule would make businesses owners reluctant to grow past a certain point. Opponents of the Internet sales tax, meanwhile, like to argue that it would place an undue burden on companies that have to comply with an unwieldy mess of tax codes. Supporters point to a provision in the Senate bill requiring states to provide free tax compliance software.

“We’ve been on the record for years that we believe the small seller exemption is a relic from when the software was extremely expensive,” says FedTax Chief Executive Officer David Campbell, whose company provides business owners free tax compliance software by charging a commission to states on tax it collects. “We’ll support whatever exception Congress thinks is O.K., but we vehemently disagree that compliance has to be complex or expensive.”

EBay is also on board. The company “is very encouraged that the remote sales tax principles released today by Chairman Goodlatte address concerns that we have raised on behalf of our small business community,” says Brian Bieron, a public policy executive for the company, in a statement. (The company didn’t answer when asked whether it was possible to create a compliance framework so simple that it doesn’t require a small seller exemption.)

That doesn’t mean small business owners should count on collecting Internet sales tax, for which proposed legislation has been kicking around for at least a decade. “Just because Chairman Goodlatte released principles, doesn’t mean that it’s an endorsement of the Marketplace Fairness Act or remote sales tax collection, as some would have you believe,” says Katie McAuliffe, an executive at Grover Norquist’s Americans for Tax Reform, in a blog post.

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