We’ve written in the past about legislation that would require all businesses marketing goods or services to collect sales tax on behalf of each state into which the business sells products or services. Our main concern has always been the additional compliance burden this would place on all business, disproportionately affecting small businesses. Late last week, House Judiciary Committee (HJC) Chairman Rep. Bob Goodlatte (R-VA) set out his seven “Basic Principles on Remote Sales Tax.”
These principles now frame the House debate on the Marketplace Fairness Act (MFA) passed out of the Senate last May by a vote of 69 to 27. Passage of that legislation was accomplished by extraordinary parliamentary means, as U.S. Senate Majority Leader Harry Reid (D-NV) took the legislation to a vote on the Senate floor without it first being approved by the Senate Finance Committee (SFC). The MFA had been held up in committee as Senate Finance Committee Chairman Max Baucus (D-MT) opposed this legislation since it would require “Montana businesses to play tax collector for other states.”
Upon passage, the Senate bill was referred to the HJC, where it has awaited movement by Goodlatte, who does not support the approach taken in the MFA. However, with the release of his seven principles, he has indicated a desire to address the core issue: All business forms (brick-and-mortar, online and brick-and-click) should be treated equally.
Because our concerns have always revolved around the burden and cost this new compliance requirement would impose on small businesses, we are encouraged by Goodlattes’s fourth principle:
“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.”
Of course, it remains to be seen whether a system can be developed that would be so simple that the costs would be negligible to small businesses. For now, it seems to be a foregone conclusion that the burden for collection of sales taxes should be moved from individual taxpayers to the businesses from which these taxpayers purchase goods or services. Even so, we still fear that there will be unintended costs and compliance burdens that will disproportionately affect small businesses, especially those that provide services online across state borders.
