WASHINGTON – Members of the House Judiciary Committee were advised on Tuesday to "do nothing" in response to the Supreme Court's ruling that eases the ability of states to collect sales tax from out-of-state online retailers.
Curt Bramble, past president of the National Conference of State Legislatures and a member of the Utah State Senate, said at a hearing held by the committee that the time for Congress to act was prior to the high court's June 21 decision in South Dakota v. Wayfair Inc.
“We were begging this committee to take action and this committee refused,’’ he said. “It left us no choice but to seek judicial redress.”
Bramble said the NCSL, the National Governors Association and other groups warned House Judiciary Committee Chairman Bob Goodlatte, R-Va., in early 2016 they would be seeking redress from Supreme Court to overturn the longstanding standard that exempted retailers from collecting sales tax if they didn’t have a physical presence in a jurisdiction.
“Now, post-Wayfair I believe that it is up to those 50 laboratories of democracy to determine what’s best for their states,” Bramble said.
Goodlatte, who is widely considered to have single-handedly blocked legislation that would have allowed the collection of sales tax from out-of-state online retailers, chaired the hearing to examine the impact of the last month’s Supreme Court ruling that circumvented his opposition.
Goodlatte blasted the 5-4 decision as having “the potential to unleash chaos for consumers and remote sellers, particularly small business sellers.”
“There are over 10,000 sales tax jurisdictions, each with different rates, rules, exemptions, product definitions, thresholds for liability and the power to audit,” Goodlatte said. “Compliance software is, as the dissent noted, ‘still in its infancy, and its capabilities and expense are subject to debate.’”
The hearing featured both anti-tax advocates who joined Goodlatte in criticizing the high court ruling and supporters of the ruling such as the NCSL and National Retail Federation.
“Untaxed transactions are eroding the sales tax base, making it difficult to fund public schools, libraries, fire departments, roads and public protection services,” said a staff memorandum to the committee’s Democrats for the hearing.
“Dr. Arthur Laffer, an economist in the Reagan administration, released a report in 2013 concluding that federal legislation would result in 1.5 million jobs and an additional $563 billion in [gross domestic product] growth over the next decade,” the memo said.
The one area of common agreement at the hearing was concern about the ruling’s impact on small business and the possibility that an undue burden would fall on online retailers by applying the ruling retroactively.
Rep. Zoe Lofgren, D-Calif., agreed. “We still have a lot of issues to work through,” including small businesses, whether they sell merchandise online or operate at a bricks-and-mortar location, she said.
Lofgren expressed concern as to when startups would be required to collect sales tax, such as a business that is using investors through the Kickstarter website.
Goodlatte did not announce any plans for legislation and the House is expected to begin a five-week summer recess at the end of this week.
Goodlatte has long opposed legislation to allow sales tax collection of from online retailers if states join the Streamlined Sales and Use Tax Agreement compact or agree to implement certain sales tax simplification measures.
That approach, contained in the Marketplace Fairness Act and the Remote Transactions Parity Act, has had bipartisan and bicameral majority support. The Senate, in fact, passed the Marketplace Fairness Act in 2013 but the House has never voted on either bill.
Goodlatte has prevented a committee vote on the legislation.
But the chairman appeared receptive Tuesday to getting advice on what to do in response to the Supreme Court.
“I think you should go after anything you can get but retroactivity is the immediate danger,” said Grover Norquist, president of Americans for Tax Reform.
Norquist acknowledged in response to a question from one of the panel's Democrats that about 95% of the Republicans in Congress have taken his organization’s pledge to not vote for any tax increase.
And Norquist was clear in his criticism of the Supreme Court ruling, saying that the elimination of a physical presence requirement also could be applied to personal or corporate income taxes.
"We fought the American Revolution in large part to oppose the very idea of taxation without representation,” Norquist said. “However, the Supreme Court decided that governments can now tax those outside their borders on those who have no political power, no vote, no voice.”