WASHINGTON Legislation that the U.S. House of Representatives will soon take up on allowing states to tax online purchases will follow seven major principles, including keeping the system simple for small businesses and ensuring it will not lead to new taxes, sources present at talks on the matter said on Tuesday.
Chairman of the House Judiciary Committee Bob Goodlatte is expected to release the long-awaited principles on Wednesday, after committee staff briefed House members' staff in a special meeting.
Decades in the making, the taxing authority now looks close to becoming reality. Some say the legislation could be passed this year, although there is no word on when the committee will draft a bill. The Senate passed its version in May.
States led by both Republican and Democratic governors alike see taxing Web purchases as a way to collect revenue they are already owed and to raise funds without relying on federal aid. Fitch Ratings estimates that states currently lose out on $11 billion in revenues without the levy.
Meanwhile, "brick and mortar" retailers already collecting sales taxes contend the authority will allow them to compete fairly with sellers on the Web. Internet retailer Amazon.com Inc backs it as well.
A sticking point in the bill has been concern that collecting sales taxes will be costly and burdensome for smaller online retailers.
Goodlatte would like to create a system simple enough to eliminate that concern, according to the sources at the meeting.
The Senate bill addresses it by exempting sellers with less than $1 million in nationwide sales. Ebay Inc, an online retailer and auction site where many individuals sell used goods, would like the House bill to exempt businesses with under $10 million in out-of-state sales or businesses with fewer than 50 people.
NO NEW TAXES
Goodlatte is also seeking assurances that authority to collect online sales tax will not lead to new taxes, impinge on state sovereignty, jeopardize consumers' privacy, or prevent states from competing with each other on keeping taxes low. At the same time, he would like to ensure that states cannot conduct tax audits outside their borders.
Those guidelines should appeal to the Republicans who control the House and tend to favor free-market competition, states' rights and low taxes. They also address questions raised by anti-tax activist Grover Norquist and other conservatives on whether the authority will lead to new taxes.
The principles also include "tech neutrality" for all businesses, ostensibly putting all retailers on equal footing for software to collect the taxes, the sources said.
Support for the legislation spans the American political spectrum. President Barack Obama, a Democrat, said in April that he supports the taxing authority. Conservative economist Arthur Laffer, who served in President Ronald Reagan's administration, has said it will add billions of dollars to the country's gross domestic product and more than 900,000 jobs to the workforce.
A group representing a wide array of brick and mortar retailers, the Marketplace Fairness Coalition, called the release of the principles a "great first step." It added in a statement released on Tuesday after the meeting that it hoped the Judiciary Committee "will move forward quickly toward legislative text so that the House can build on the broad and bipartisan support this effort received in the Senate earlier this year."
At the beginning of the year, state leaders were confident the legislation would pass by December. Since then, though, other issues have pushed to the fore in Congress.
"The principles are a good step forward and we will continue to walk with the chairman on this journey. However, we shouldn't lose sight of the fact that certain sellers are continuing to suffer from as much as a 10 percent price disadvantage and they are looking for relief sooner rather than later," said Jennifer Platt, vice president for federal operations at the International Council of Shopping Centers.
Platt, who saw the principles, said they would protect privacy, close tax loopholes, encourage competition and create "a truly level playing field, both in terms of regulatory burden and true price competition."
(Additional reporting by Kim Dixon; Editing by Andrew Hay and Eric Walsh)