WASHINGTON — The National Governors Association sent a letter to the Senate Finance Committee Tuesday strongly urging passage of the online sales tax bill before the end of this year.
“Never before has the need for legislation to grant states the authority to collect sales taxes on remote sales been greater,” the group wrote to Sens. Max Baucus, D-Mont., and Orrin Hatch, R-Utah. “The continued disparity between online retailers and Main Street businesses is shuttering stores and undermining state budgets. Failure to act now will only exacerbate state losses and harm local businesses that are losing sales to online sellers.”
The NGA along with a handful of state and local groups have been aggressive in keeping the Marketplace Fairness Act at the forefront of conversations with lawmakers over the past few months.
The MFA was originally introduced in November 2011 and referred to the Senate Finance Committee. Three senators tried unsuccessfully to include the bill as an amendment to the Defense Authorization Act of 2013 several weeks ago.
It’s estimated that states are unable to collect more than $23 billion in sales taxes owed annually from sales made through catalogs over the Internet. The NGA said the bill would serve as “the equivalent of a $23 billion stimulus to state and local governments.”
The letter comes as House Republican leaders and the White House exchanged a new round of proposals Wednesday on how to resolve the so-called “fiscal cliff”— a set of more than $600 billion in tax hikes and $1 trillion in across-the-board spending cuts slated to go into effect Jan. 1.
Congress also has to tackle raising the debt ceiling in the coming weeks. Last week the federal government was about $67 billion away from the $16.39 trillion limit. While lawmakers juggle a handful of legislative items over the next two weeks, some are concerned that an online sales tax will be pushed into a comprehensive tax reform package next year.
A long term proponent of the bill, who asked not to be identified, is concerned that if Congress takes up comprehensive tax reform and tax expenditures are on the table, online sales taxes might be viewed as an offset for lost revenues to state and local governments.
“It’s within the realm of the possible,” the source said, adding that online sales taxes would be a potential trade off for a cap on tax exemption.
Another tax lobbyist said, “it’s certainly the first thing that comes to mind. It’s a zero sum game. The people drafting these bills in the context of tax reform, they have said everyone has got to give.”
But not everyone is convinced that such a trade off will take place. “The Marketplace Fairness Act has no revenue implications for the federal government,” said Susan Gaffney, federal liaison director for the Government Finance Officers Association. “It is not a federal tax issue and should not be commingled with the other policy discussions related to tax reform where federal tax policy directly affects states and local governments.”
When asked about a trade off for an online sales tax, Sen. Dick Durbin, D-Ill., co-sponsor of the MFA told The Bond Buyer, “we aren’t at that point in the negotiations.”
“I’m open to suggestions,” Durbin said. “I think we are very close to a measure that has been written and rewritten and would command a majority in the Senate.”
Last week Durbin said it was highly unlikely that the MFA would be passed before the end of the year but was assured by the Senate Finance Committee it would be brought to the Senate floor in early 2013.
While state and local groups vow to continue to their efforts for an online sales tax bill, they have discussed the possibility of circumventing Congress and and challenging the 1992 Supreme Court ruling in, Quill Corp. v. North Dakota, which said states can only require an out-of-state seller to collect taxes on residents if the seller has a physical presence in the state.