What You Should Know About Sensenbrenner's Online Sales Tax Bill

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WASHINGTON – A Republican lawmaker has introduced legislation in the House that would prohibit states from taxing customers making Internet and catalog purchases outside of their borders, marking the latest chapter in the ongoing debate over online sales tax.

Rep. Jim Sensenbrenner, R-Wis. this month introduced the No Regulation Without Representation Act of 2016 (H.R. 5893), which would not require merchants to collect sales tax or report sales unless the person or company is "physically present in that state" during the tax period, the bill reads.

In a news release, Sensenbrenner said his legislation would combat what he called states' "never ending quest for new revenues."

"States should not have the ability to tax non-citizens, plain and simple," Sensenbrenner said. "This legislation would help reduce burdensome overregulation, keep government overreaches in check, and ensure that only residents of a state are subjected to tax obligations."

The bill defines physical presence if the person or company owns or leases property, has in-state employees soliciting or receiving orders from customers in that state, or maintains an in-state office with three or more employees for any purpose.

States are increasingly looking to shift tax burdens onto customers living in other states where elected officials are unaccountable, the Wisconsin congressman said before offering the measure.

The bill was introduced in the House on July 14 and referred to the House Judiciary Committee, which has jurisdiction over remote sales tax collection because of the interstate commerce implications. The legislation would become effective on Jan. 1 if enacted into law and would be enforced by U.S. district courts.

If and how Internet sales should be taxed has become a hot button issue among lawmakers in the current Congress, and Sensenbrenner's legislation follows several other internet sales tax bills that have been introduced.

The bill is a stark contrast to the Remote Transactions Parity Act (H.R. 2775) introduced by Rep. Jason Chaffetz, R-Utah, last June, which would allow states to collect sales tax on purchases from Internet retailers outside their borders.

Under Chafettz's bill, which is supported by state and local government groups, remote sellers with annual gross receipts of less than $5 million cannot be audited by a state unless there is reasonable suspicion of intentional misrepresentation or fraud.

The bill is before the House Judiciary Committee's regulatory reform, commercial and antitrust law subcommittee.

The Marketplace Fairness Act (S. 698), re-introduced in the Senate by Sen. Mike Enzi, R-Wyo., in March 2015, would require sellers to collect sales tax based on customer location. It is pending before the Senate Finance Committee. The Permanent Internet Tax Freedom Act (H.R. 235), introduced by Rep. Bob Goodlatte, R-Va., and approved by the House in June 2015, would create a permanent ban on state and local taxation on Internet sales. It passed the House and is now also sits before the Senate Finance Committee.

Senate Majority Leader Mitch McConnell, R-Ky., said in February that a vote on Internet sales tax legislation would happen sometime this year, though it has yet to be held. The standstill over the past few years has led five states to adopt their own remote seller tax laws, causing privacy concerns among groups like the U.S. Chamber of Commerce.

Earlier this month, South Dakota approved a law requiring certain businesses with no physical presence in the state to collect sales taxes from customers that are state residents.

Several Senate Democrats representing states without sales taxes have opposed a federal Internet sales tax, which they said could stunt the growth of small businesses located in their borders.

Proponents of a federal Internet sales tax want the additional revenue it could provide, while opponents have complained about the additional burdens it could place on smaller businesses that would have to collect sales taxes from additional jurisdictions. The U.S. currently has no federal sales tax.

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