Goodlatte’s Online Sales Tax Draft Flips Rules on Purchases

States could collect sales taxes on out-of-state purchases made over the Internet, in a draft proposal being circulated by a top U.S. House Republican.

The plan from Representative Bob Goodlatte of Virginia differs from one the Senate passed in 2013 with support of retailers including Inc. and Wal-Mart Stores Inc.

Goodlatte, chairman of the House Judiciary Committee, would base sales taxes on the location of the seller, not the buyer. The proposal is an attempt to resolve a decades-long dispute among states, online retailers and brick-and-mortar stores.

The issue splits Republicans, with some arguing against any attempt to make it easier for states to collect taxes and others saying states and local small businesses need Congress to set common rules.

“Don’t like it, don’t like it,” Representative Jason Chaffetz of Utah told Bloomberg BNA when asked about Goodlatte’s draft. Chaffetz, a Judiciary Committee member, is working on his own legislation on the issue with support from retailers and state governments.

The risk of emphasizing that political fracture gives Republican leaders little incentive to advance the issue.

The National Retail Federation is “skeptical” about Goodlatte’s approach, said Stephen Schatz, a spokesman for the Washington-based group, whose board of directors includes executives from Macy’s Inc. and Ethan Allen Interiors Inc. He said the group is talking with tax experts about whether it could be feasible.

Outside ‘Jurisdiction’

Goodlatte said his goal is to find a way so states can share revenue from taxing online sales.

“Citizens of the states are going to buy products from all over the country and all over the world and that definitely causes a loss of revenue,” he said at a breakfast today sponsored by the Christian Science Monitor. Still, he said, Congress should “not allow a state to reach out and regulate a business outside of its jurisdiction.”

Currently, online sellers and catalog companies typically don’t collect sales taxes on purchases made in states where they have no physical presence. That, retailers and states contend, creates a gap that costs governments revenue and shifts sales to online businesses.

In 2013, the Senate passed a bill that would let states impose taxes on out-of-state sellers, a measure applauded by retailers and governors of both parties. The proposal died in the House without a vote. Opponents included EBay Inc.

EBay’s Stance

“We want innovative small businesses to have room to grow and not be burdened by additional tax and compliance requirements when they operate online, which was one of Chairman Goodlatte’s fundamental principles that helped shape his work on this issue,” Amanda Miller, a spokeswoman for EBay, said in a statement.

Goodlatte’s bill, using what’s known as origin sourcing, is an attempt to narrow the number of tax rates and audits any seller would face by limiting the states retailers interact with.

Under the draft bill, a multi-state commission would handle distribution of taxes among the states based on the location of purchasers.

A Judiciary Committee aide, speaking on condition of anonymity to describe lawmakers’ strategy, said the document is designed to be a starting point for discussion on the issue.

A copy of the draft was obtained today by Bloomberg News. The Hill newspaper reported earlier on the draft.

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