Goodlatte Online Sales Tax Proposal is an ‘Improvement’ but Still Needs Work

Today, House Judiciary Chairman Bob Goodlatte, R-Va., released a discussion draft of his plan to tackle remote online sales taxes.  A vast improvement over competing proposals in the House and Senate, the Online Sales Simplification Act still leaves room for improvement in fostering interstate tax competition.

“It’s heartening to see the Chairman taking the time to be thoughtful on this important issue and the results are marked progress in protecting remote sellers from out-of-state audits and lower compliance costs than the debilitating amount in the Marketplace Fairness Act and the Remote Transactions Parity Act,” said Competitive Enterprise Institute (CEI) Adjunct Fellow Jessica Melugin.

Goodlatte's plan would require sales be taxed in accordance with the base of the seller’s state and with the single rate of the buyer’s state. In practice, this means an Etsy seller shipping socks from California to a buyer in Virginia would use California’s rule to determine if the socks are taxable and Virginia’s tax rule to determine at what rate. The sock seller would then remit the tax to California authorities where those funds would be forwarded to a clearinghouse and distributed by formula back to Virginia.

According to CEI's Melugin, curtailing vital interstate tax competition is where the proposal falls short. Better to tax at the origin of the sale, according to the base and rate of the seller’s primary place of business, to place downward pressure on taxes and encourage economic growth. 

“A pure origin approach would have all the advantages of the Goodlatte proposal and keep states competing against each other to the benefit of taxpayers,” said Melugin. “Meanwhile, voters still oppose any form of expanded sales taxes on the Internet.”