House Judiciary Committee Chairman Bob Goodlatte, R-Va., released his long-awaited Basic Principles on Remote Sales Tax yesterday. In seven commendably brief points, Goodlatte lays out the most important considerations for his committee when addressing any legislation on taxation of remote sales. In the process, he makes clear that the House is going to do what the Senate refused to do: actually vet potential Internet sales tax legislation with a real and inquisitive process.

Let’s cover the principles themselves. Since they’re short, I’ll just post them with a bit of my commentary.

1. Tax Relief – Using the Internet should not create new or discriminatory taxes not faced in the offline world. Nor should any fresh precedent be created for other areas of interstate taxation by States.

This one is pretty simple: Internet sales tax legislation shouldn’t be used as a vehicle for government growth. Importantly, Goodlatte hints that this isn’t just about revenue numbers; it’s also about state power. Unfortunately, the Marketplace Fairness Act empowers states to expand their sales tax collection authority across their borders and establishes something of a precedent for state attempts to expand other tax powers as well. Goodlatte makes clear that this is a no-go.

2. Tech Neutrality – Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses.

Equally important is that any law regarding remote sales tax collection should be neutral between business models and technology. The law shouldn’t give special advantage to Internet retailers, for example, but nor should it disadvantage them. Despite all the claims that it would “level the playing field,” the Marketplace Fairness Act would actually do the exact opposite by setting up two different collection standards. Remote and Internet sales would be governed by a complicated collection system based on the customer’s location while brick-and-mortar sales would continue using the simple system they enjoy today where they collect tax based on the single physical location of their store.

3. No Regulation Without Representation – Those who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement.

This principle addresses a major concern with the Marketplace Fairness Act, which would empower states to force business outside their borders to collect and remit their sales tax under threat of audit and enforcement actions. Businesses without a physical presence in a state, and their owners and employees, should not have to answer to revenue authorities with which they have little connection or legal recourse.

4. Simplicity – Governments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary.

Simplicity is an important consideration in any law, of course, but particularly when it relates to something as vibrant and growing as retail sales on the Internet. Saddling those businesses with requirements that they comply with as many as 9,600 separate taxing jurisdictions nationwide is foolish. The goal should be a law that’s simple enough that you don’t need to draw an arbitrary line over which compliance is mandatory and under which it isn’t.

5. Tax Competition – Governments should be encouraged to compete with one another to keep tax rates low and American businesses should not be disadvantaged vis-a-vis their foreign competitors.

This is sort of a subtle dig at the Marketplace Fairness Act, a bill which enshrines the opposite of beneficial tax competition. States would be encouraged to ratchet their sales tax rates ever higher. At least for remote retail sales, it would be out-of-state businesses that would be required to do the work of collecting and remitting the taxes.

6. States’ Rights – States should be sovereign within their physical boundaries. In addition, the federal government should not mandate that States impose any sales tax compliance burdens.

This is very closely related to the third principle above. I mildly object to the term “states’ rights” (as I’ve written before, states have powers, not rights, that we grant them to achieve certain goals), but the implication here is clear: states have broad power to do as they please inside their own borders, but not beyond them.

7. Privacy Rights – Sensitive customer data must be protected.

Perhaps the most underreported aspect of the Marketplace Fairness Act is its troubling privacy problem. Because tax and audit information would need to be shared all across the country, huge amounts of sensitive private data would be changing hands with the worst privacy violator this country has ever known: government agencies. And not just any government agency, but state versions of the IRS! Goodlatte draws a bright line here that says any law must do a better job of ensuring that such data is secure.

Marketplace Fairness Act proponents are bizarrely claiming Goodlatte’s principles as a win for their cause. Despite my dislike for their position, most of them are actually pretty smart folks so they undoubtedly know better. A quick read through the document makes clear that the MFA just isn’t going to cut it. Thankfully for taxpayers, Goodlatte has put them on notice that his committee will take seriously the work of ensuring that any legislation meets these important standards.

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