WASHINGTON (June 15, 2015) – The R Street Institute expressed deep disappointment at today’s introduction of new Internet sales tax legislation, the so-called “Remote Transactions Parity Act” sponsored by Rep. Jason Chaffetz, R-Utah.

Like the failed Marketplace Fairness Act before it, the RTPA would dismantle proper limits on state tax-collection authority and could potentially cause serious damage to electronic and interstate commerce.

“Current law dictates that a state can only require a business to collect sales tax if it is physically present in that state,” said R Street Executive Director Andrew Moylan. “That precedent is the result of a Supreme Court decision grounded in a bedrock foundational principle of federalism: states must not be allowed to extend their tax and regulatory authorities beyond their borders.”

The bill also creates an imbalanced playing field between brick-and-mortar and online sales. Under the RTPA, only remote retailers would be required to ascertain their customers’ place of residence, look up the appropriate rules in nearly 10,000 taxing jurisdictions and then collect and remit sales tax for a distant authority with which they may have no tangible connection.

“Imposing this unworkable collection standard on remote retail sales only, and subjecting online retailers to as many as 46 state tax audits in the process, would not only be unfair but would result in enormous complexity and damage to interstate commerce,” Moylan said.

Other problems with the legislation include more complicated auditing and compliance processes and an overreliance on “certified software providers,” which essentially serve as middlemen between tax agencies and sellers.

R Street has been a leader in identifying problems with “destination sourcing” legislation like the MFA and RTPA and has encouraged Congress to pursue a dramatically simpler approach based on “origin sourcing,” which would align remote sales tax collection rules with those governing brick-and-mortar sales. Moylan discussed this potential solution in testimony before a House Judiciary Committee hearing earlier this year.

“The RTPA ends up blessing a massive expansion in state tax-collection authority and dismantling a vital taxpayer protection upon which virtually all tax systems are based,” Moylan said. “Conservatives in Congress should oppose this unwise legislation. Instead, they should work to preserve geographical limits to tax authority and to encourage tax competition.”


Featured Publications