IT Value

Chaffetz Internet Sales Tax Bill Is Too Costly and Complex

Sales tax collection shouldn't favor big box stores over small businesses, says Steve DelBianco, executive director of NetChoice.
Steve DelBiancoJuly 22, 2015

Congress is looking for a sensible solution to the dilemma over how to collect Internet Sales Tax in a fair and reasonable way.  But the fatally flawed Remote Transactions Parity Act (RTPA) introduced in June by Rep. Jason Chaffetz, a Utah Republican, is exactly the wrong way to do it.

Steve DelBianco

Steve DelBianco Steve DelBianco

This legislation would impose large costs on America’s small businesses, is amazingly complex to administer, and creates uncertainty and fear of intrusive government audits from 46 different state tax departments across the nation.  Congress should find a better way – one that doesn’t favor big box retailers at the expense of small businesses in any corner of the country. Here’s why:

First, the costs are significant.  It is estimated that  the “free” software needed to manage the complex web of 10,000 tax jurisdictions would cost between $80,000 to $290,000 in initial setup and integration fees for each retailer, with another $48,000 to $160,000 in annual upkeep. That’s a huge burden for mom-and-pop stores and other small and medium sized businesses.

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Second, RTPA would be a nightmare to administer.  The legislation does nothing to untangle the thicket of competing definitions about what is taxable and what is not.  It doesn’t solve the problem of what a remote seller should do when a customer submits either too much or too little sales tax.  And most importantly, it does nothing to eliminate the very real risk of audit from 46 states.  The legislation doesn’t simplify the rules over Internet sales tax; in fact, it makes them far more complex.

And third, the legislation, as introduced, eliminates a provision in earlier versions that would have provided federal preemption over state law.  At the very least, this would have given businesses some comfort that only Congress can make laws governing taxes on interstate commerce.  Furthermore, the legislation also abandons a second measure that would have given federal courts jurisdiction when the inevitable legal issues arise.  Taken together, that will mean an avalanche of litigation in state courts that are friendly to state tax departments.

Clearly, the RTPA is deeply flawed.  The good news is that there is a much better approach. House Judiciary Committee Chairman Bob Goodlatte, a Virginia Republican, is developing a proposal that would ensure that tax is collected based on the seller’s location, rather than where the customer is based.  This is a much more sensible approach, one which dramatically simplifies how to comply with the law, creates a uniform standard, and eliminates the daunting risks of facing 46 state tax auditors.

As Congress considers how to address this important issue, I hope that it will keep in mind the real challenges that RTPA would impose on businesses trying to do their best to comply with the law.  Chaffetz’s bill would be a terrible mistake that would lead to huge costs, endless litigation, and intrusive audits. By contrast, Mr. Goodlatte’s approach is far simpler and easier, and should be adopted.

Steve DelBianco is executive director of NetChoice, a trade association of e-commerce businesses and online consumers.