What to expect in the Lame Duck? Internet Sales Taxes

The National Internet Sales Tax Moratorium is the type of issue that Congress loves to push off until the lame duck. After all, why vote on an issue that puts grassroots liberty activists against powerful special interests before a controversial election when you can put it off until November?

A Senate vote on internet sales taxes in the lame duck is all but assured since Senate Majority Leader Mitch McConnell promised Seantor Democratic leader Dick Durbin a vote on the bill in exchange for Durbin’s dropping his efforts to block passage of legislation making passage of the Internet Tax Moratorium (which prevents state and local governments from making going online a taxable action) unless the moratorium was combined with the National Internet Sales Tax Moratorium.

This may have been another case of Republicans snatching defeat from the jaws of victory. Prior to McConnell’s striking this deal, word on the hill was that, thanks to the efforts of Campaign for Liberty members who where letting Congress know they opposed the efforts by supporters of the National Internet Sales Tax Mandate to hold the Internet Access Tax Moratorium hostage, Durbin was going to end his effort to tie the Internet Sales Tax Mandate to the Internet Sales Tax Moratorium.

The last time the Senate voted on internet sales taxes, it passed by a strong majority. However, the margin was not as big as some had predicted, thanks in large part to Campaign for Liberty’s anti-tax activists.

Since that vote, Campaign for Liberty supporters have successfully kept the bill off the House floor.

However, there may be an attempt to pass an Internet Sales Tax bill during the lame duck. House Judiciary Committee Chair Robert Goodlatte (VA-06) has introduced a so-called compromised bill that he claims addresses many of the concerns raised by opponents to the Senate version.

Under Goodlatte’s proposals, online businesses would be required to collect sales taxes from out-of-state consumers. The business would apply the laws of their home state, but would use the rate of their customer’s state.

So if you buy something that was exempt from sales taxes in your state from an online retailer in a state that taxes that item, you would be subject to the internet sales tax. So this bill does violate the principle of “no taxation without representation.”

Businesses are required to send the revenue collected under this tax to the State Attorney Generals, who remitted this amount to other states according to a pre-determined formula. The bill also forces states without sales taxes to adopt a formula by which internet retailers in those states collect sales taxes.

The bill claims to be pro-federalism, but in fact it undermines one of the benefits of federalism by discouraging tax competition. Forcing state attorney generals to collect taxes for other states with a high sales tax takes away an incentive for politicians in states with low sales taxes to keep their sales taxes low.

The provisions forcing non-sales tax states to participate in the collection of sales taxes for other states obviously violates the principles of federalism as well as providing a perverse incentive for statist politicians in those states to adopt a sales tax.

Like other versions of the internet sales tax, this proposal will impose new regulations and compliance costs on small businesses. Any business selling products online will need to be aware of the sales tax laws in other states and have to figure out how to match those tax rates with the laws of their state. This may seem easy in theory but is likely going to prove complex in practice.

Yet, Goodlatte’s proposal does not provide any exemption for small businesses. In this respect, it is worse than the competing internet sales tax proposals.

In addition, businesses will be subjected to additional audits to ensure they are collecting the correct amount of out-of-state sales taxes. The only difference between this approach and the Senate’s is that the audits will be done by the business’s home state government.

Deputizing state attorney generals to not just collect, but also enforce other state tax laws, provides an incentive for states to increase tax laws.

Even worse, there is a possibility that Goodlatte will cut a deal with House supporters of the National Internet Sales Tax Mandate like Steve Womack (AR-03) and Jason Chaffetz (UT-03)  that would make the bill even worse.

The best course of action for Congress to take on this issue is nothing. Therefore Campaign for Liberty members should call their Senators and Representatives and tell them NO INTERNET SALES TAXES IN THE LAME DUCK!