Tax Analysts Blog

Goodlatte’s Idea Is No Good

Posted on Feb 18, 2015

From the start, I have believed that Quill should be overturned, either by the Supreme Court or by Congress. Requiring remote sellers to collect and remit sales tax imposes no burdens on interstate commerce. But the proposal from Rep. Bob Goodlatte, R-Va., to adopt an origin-based collection system is not the way to address the problem of remote sales.

Goodlatte’s proposal, known as the Online Sales Simplification Act of 2015, would base the taxation of online and mail-order purchases on the location of the seller, not the buyer. So if you live in Virginia and buy something from an online seller in Maryland, the seller would collect Maryland sales tax from you and Maryland would get the money and give it to a federally created clearinghouse, which would then send the tax dollars to Virginia. But if Virginia is not a member of the clearinghouse, Maryland would keep the money.

As my colleague Billy Hamilton pointed out in State Tax Notes recently, this is a departure from the Marketplace Fairness Act, which would require the Maryland vendor to remit the tax to Virginia. It is also exactly why Goodlatte’s proposal is no good. The sales tax is a consumption tax. It is imposed by the state on the consumption of its citizens. I live in Virginia. It is Virginia that should be taxing my consumption, not California or anywhere else. Yet under Goodlatte’s plan, the state of the seller decides the base and rate of taxation. It is the destination state that should make that determination. Under no rationale of taxation does another state have a legitimate claim to my money – and that includes the issues of what is taxed and the level of taxation.

I realize that there are origin and destination distinctions among the states, and that there is a 50-year debate over who gets to tax services. But the traditional – and in my opinion, correct – view is that sales tax on tangible personal property should be levied where the consumption takes place.

Under Goodlatte’s plan, a vendor in a no-tax state like New Hampshire would either collect tax at a minimum rate and forward it to the clearinghouse or forward details regarding sales to nonresidents to the clearinghouse, which in turn would forward it to the destination state and take steps to collect. Again, New Hampshire decides not to tax sales, but the Goodlatte plan would require its vendors to collect tax for other states. Under Goodlatte’s plan, the vendor’s state would determine whether and how much to tax the transaction. That tax would fall on consumers in other states. I know that exporting tax burdens is a favorite pastime of politicians, but the out-of-state consumer will pay without having any say in the matter politically, and may not get the benefits of paying his taxes. Sounds like a raw deal for shoppers.

The National Conference of State Legislators has strongly criticized Goodlatte’s proposal. The Council On State Taxation, the Streamlined Sales Tax Governing Board, the Tax Foundation, and the Multistate Tax Commission have all come out in opposition to it. Those groups cite a variety of shortcomings with Goodlatte’s idea -- and they are all correct. But for me, I just can’t get my head around why this is a better plan than the Marketplace Fairness Act.

Read Comments (4)

emsig beobachterFeb 17, 2015

Because it can be avoided by shipping products from a state with no sales tax.

edmund dantesFeb 17, 2015

"Requiring remote sellers to collect and remit sales tax imposes no burdens on
interstate commerce. "

You wouldn't say that if you ever actually had to do it. Do you know how many
different sales tax jurisdictions there are? How many different tax rates?
Our small firm used to pay sales taxes in a dozen or so states because we had a
roving salesman making calls in those states, sufficient to create a nexus.
The reporting and payment was a major pain in the neck, and trying to get
custom computer software to handle the chore was no walk in the park either. I
believe that Quill was properly decided and should not be reversed.

Goodlatte's idea is terrible, I agree. Maximum bureaucracy and confusion for a
minimum return.

I have no sympathy for the badly named "Marketplace Fairness Act." There is
nothing unfair about consumers seeking out the very best after-tax prices for
their purchases. We call it the free market. Brick and mortar stores are the
wave of the past, and there is no point in screwing around with tax systems to
try to save them. It won't work anyway.

david brunoriFeb 17, 2015

Edmund, I almost always agree with you. But not today. I firmly believe that
with modern technology, determining the sales tax in the 45 states and those
thousands of localities is straightforward. Plus there are software programs
available to figure this out. I see no burden on commerce. I just think that if
you are going to tax consumption, you should tax it.

emsig beobachterFeb 18, 2015

Edmund, there is also no reason to make electronic commerce tax favored vis a
vis brick and mortar commerce. A good tax system should be as neutral as
possible regarding modes of production and commerce.

Under the MFA, small and medium sized firms can use Certified Service Providers
to handle all thee paperwork; and, bear all of the audit risk.Also, there is a
small business exemption -- either less than $1,000,000 or $5,000,000 in sales.

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