Friday, November 15, 2013

MFA Update: Rep. Goodlatte’s Seven Principles and an Interview with George Isaacson

Although the Marketplace Fairness Act (S. 743) ("MFA") has not yet progressed out of a House committee since its Senate passage last spring, it continues to make headlines. In late September, the House Judiciary Committee, chaired by Rep. Bob Goodlatte (R-Va.), released seven “Principles on Internet Sales Tax.” Brann & Isaacson senior partner George Isaacson was recently profiled by State Tax Notes discussing both the MFA and Goodlatte’s Seven Principles.

The Seven Principles outlined by Representative Goodlatte provide for:
  1. Tax Relief – “no new or discriminatory taxes not faced in the offline world”
  2. Tech Neutrality – brick and mortar and online businesses “should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less…than that on similarly situated offline businesses”
  3. No Regulation Without Representation – taxpayers “should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement”
  4. Simplicity – no “onerous compliance requirements,” “laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary”
  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-à-vis their foreign competitors”
  6. States’ Rights – “States should be sovereign” and “the federal government should not mandate that States impose any sales tax compliance burdens” and
  7. Privacy Rights – “Sensitive customer data must be protected.”

As Isaacson notes, “The keystone and common thread of these principles is the need for true simplification of the existing sales and use tax system and an assurance of fair treatment of remote sellers when compared with in-state retailers.” Isaacson goes on to describe several steps that could be taken to simplify sales tax collection, including setting a single rate (combined state and local) for remote sales into a state, creating uniform tax menus or bases, and establishing uniform sourcing rules for remote sellers.

Isaacson also calls for providing access to federal courts to address violations of remote sellers’ rights. As the MFA now stands, remote sellers must protest tax assessments made in violation of federal statutory or constitutional law through appeals before state administrative agencies and state courts that may, as Isaacson points out, “tilt in favor or state revenue departments.” Providing for federal court jurisdiction “is the only meaningful way to protect those companies’ constitutional rights and enforce statutory limitations on the scope of state taxing power.” To that end, Isaacson argues for repeal or limitation of the Tax Injunction Act (“TIA”).

We will continue to keep our readers apprised of any developments regarding the Marketplace Fairness Act.

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