Hybrid online sales tax measure proposed

Sen. Bob Goodlatte, R.-Va., proposes a way to impose tax on goods purchased online, but not everyone is on board with the details. Drew Angerer/Getty Images

It’s September so you know what that means. Christmas decorations will be going up in stores soon.

OK, your favorite retailer probably will wait until October to put up the Santa displays.

But holiday shopping is important, not only to gift givers and recipients, but also for brick and mortar stores that depend on the seasonal sales and are looking for ways to get shoppers off their electronic devices and into real stores.

Internet vs. Main Street sales tax battle

Real store retailers have long argued that one way to do that is to make online sellers collect sales tax from internet buyers.

Federal legislation has been introduced repeatedly over the years that generally allows states to demand taxes from out-of-state sellers who ship goods into their states. The latest version of this tax, the Marketplace Fairness Act, actually got full Senate approval in 2013, but that bill languished in the House.

And now one of the opponents of that earlier online (and catalog and email) taxation measure has introduced his own remote sellers’ sales tax bill.

Rep. Bob Goodlatte’s Online Sales Simplification Act of 2016 proposes a hybrid remote sales tax collection method.

Removing nexus issues

Currently, states operate under the Supreme Court’s 1992 ruling in Quill Corp. v. North Dakota that defined the parameters of sales tax collection in interstate sales.

Under Quill’s standard, a state can only collect sales tax on an item if the out-of-state seller also has a physical presence, known as nexus, in the state were the buyer lives. Many states have been broadening the definition of nexus, with those tax collection expansions again being challenged in courts.

Mixing state tax laws, rates

Goodlatte, the Virginia Republican who chairs the House Judiciary Committee and has held up prior online sales tax bills, wants to tax cyber purchases based on what the seller’s state says is a taxable good at the rate set by the buyer’s state — where the product is shipped.

Let’s say, for example, a Texan wants to buy a bottle of barbecue sauce from a seller of that spicy condiment in Missouri. Grocery items generally aren’t taxed in Texas, but they are in Missouri. So my Lone Star State neighbor would owe sales tax on his purchase, which serves him right since there are plenty of great BBQ sauces here!

And what would that rate be? Texas officials would decide, even though they typically don’t tax grocery-sold food.

All sales-tax collecting states would make their online tax rates available in a clearinghouse that, per Goodlatte’s bill, would be established by the participating states. The clearinghouse rates would be updated and published each July 1.

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Fair or more complicated?

Theoretically, Goodlatte’s proposal would give online companies more input in the taxes on their products.

Realistically, it looks to be a more complicated process that’s likely to further confuse and irritate online shoppers.

Real-store retailers might be happy if shoppers get ticked off by online sales tax mechanisms and decide to actually walk into businesses to buy. But those consumers likely will still be grumpy when they get there, and cranky customers, online or in real life, are never good.

Some business support

Still, Goodlatte’s idea is getting some positive feedback. 107 businesses and organizations have signed a letter supporting the draft bill.

The signatories represent catalog, online and other remote retail outlets who sell everything from sporting goods and gardening supplies to early childhood educational materials and clothing.

In addition, several industry associations, such as the American Catalog Mailers Association, the Direct Marketing Association, the Electronic Retailing Association and NetChoice, signed the letter.

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And some legislative opposition

But the proposal also has some opposition, notably within the Senate chamber.

Sen. Ron Wyden is the senior senator from Oregon, one of 5 states without a state-wide sales tax.

The Democratic senator, who is the ranking member of the tax-writing Senate Finance Committee, said he is “shocked Republicans would propose an internet sales tax,” according to the Wall Street Journal. “This proposal would create a logistical nightmare for states like Oregon that don’t have or want sales taxes. I will continue to oppose any efforts to impose a national sales tax scheme on Oregonians.”

The good news for consumers now and as the holiday shopping season nears is that action on this or other online sales tax measures isn’t likely to happen this year.

Keep up with federal and state tax news, as well as find filing tips, calculators and more at Bankrate’s Tax Center.

And be sure to follow me on Twitter: @taxtweet.

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