The House Judiciary Committee held a hearing Tuesday on legislation to force online retailers to charge sales taxes to customers, even as industry groups banded together to oppose the bill and others like it.

Lamar Smith

The hearing focused on the Marketplace Equity Act of 2011, co-sponsored by Rep.  Steve Womack, R-Ark., and Jackie Speier, D-Calif. The Senate has been considering the Marketplace Fairness Act, introduced by Sen. Lamar Alexander, R-Tenn., Dick Durbin, D-Ill., and Mike Enzi, R-Wyo. (see Senators Introduce Online Sales Tax Bill).

House Judiciary Committee Chairman Lamar Smith, R-Texas, opened the hearing by noting that the House bill had attracted bipartisan support from both members of the committee in addition to lawmakers outside the committee. He acknowledged that the Supreme Court’s 1992 decision in the case Quill v. North Dakota held that a state may not compel a retailer to collect and remit the state’s sales tax if the retailer lacks a physical presence in the state.

“In the Supreme Court’s view, to force a retailer to collect and remit taxes to more than 9,000 state, county and local taxing jurisdictions throughout the country places a serious burden on the retailer’s ability to sell in interstate commerce,” said Smith. “Quill’s bright-line ‘physical presence’ rule for tax collection makes sense for small businesses that cannot afford to track and comply with 9,000 different tax codes as a cost of doing business throughout the country.  The Constitution does not allow one state to reach into the pockets of another state’s retailers to exact taxation without representation. But brick-and-mortar retailers claim that the physical presence rule creates an unlevel playing field between them and their online retailer counterparts.”

Tennessee Governor Bill Haslam testified on behalf of the National Governors Association. “Let me be clear – I am a Republican governor that does not believe in increasing taxes,” he said. “Tennessee is a low-tax state to begin with, and we’ve been able to cut taxes over the past two years. This discussion isn’t about raising taxes or adding new taxes. This is about states having the flexibility and authority to collect taxes that are already owed by their own in-state residents. This discussion is also about leveling the playing field for local brick-and-mortar businesses in communities across Tennessee and across the country.”

Haslam noted that Senator Lamar Alexander, another Tennessee Republican who is co-sponsoring the Senate version of the bill, has talked about the Nashville Boot Company where the owner has said a customer came into the store, tried on a pair of boots, asked the employees questions about the boots and then went home and ordered them online to keep from paying state sales tax, which we need to remember that state law already says the customer owes. “When you buy something at the Nashville Boot Company, or any other local store, the tax you owe is calculated with your purchase, they add it to your bill, and then send the taxes owed to the state for you,” said Haslam. “This is an issue of fairness. Comparable businesses that sell the same things are not being treated the same. Most people I talk to understand that and agree that isn’t fair.”

Even some online retailers, such as Amazon.com, which has traditionally resisted online sales tax legislation, has come out in support of a nationwide system as it plans to establish more distribution centers around the country to provide same-day delivery to customers. But many online retailers remain opposed to such legislation. The Direct Marketing Association said Monday that it was creating the True Simplification of Taxation Coalition, or TruST Coalition, to fight attempts to pass Internet sales tax requirements in Congress. The DMA was joined in creating the coalition by the American Catalog Mailers Association, the Electronic Retailers Association, and NetChoice. 

“There are more than 9,600 taxing jurisdictions in the U.S. today,” said DMA senior vice president of government affairs Jerry Cerasale in a statement. “Requiring that any business—particularly a new one—be prepared to comply with the rules in all of those jurisdictions in order to do business across state lines is a precipitously high barrier and a very costly one.  It would throttle new businesses before they even get off the ground.”

eBay also voiced its opposition to the Marketplace Fairness Act. “Small business retailers using the Internet are entrepreneurs who are creating jobs, serving consumers and creating competition for established retail giants," said Brian Bieron, senior director of federal government Relations at eBay, in a statement. "They should be protected from any new Internet sales tax regime so that they continue to advance and grow, and regrettably the Speier-Womack Internet sales tax legislation falls far short of an acceptable small business retailer exemption.”