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House Republican Tries To Sort Out E-Commerce Tax Debate With New Proposal

eBay Inc. NASDAQ:EBAY, Etsy Inc. NASDAQ:ETSY - House Republican Tries To Sort Out E-Commerce Tax Debate With New Proposal

House Judiciary Committee Chairman Bob Goodlatte (R-Va.) will make an attempt at solving the long-standing tax quarrel between online retailers, traditional retailers and state governments: How should purchases be taxed across states?

This is the problem that the top House Republican will try to address in his new proposal, which will be released in the next few days, the Wall Street Journal reported. The idea is to eliminate the need of physical presence in a state, introducing a new legal framework for online transactions taxation, which would tax sales in accordance to the tax base of the seller “and a single tax rate chosen by the consumer’s state,” a judiciary committee aide explicated.

So, what this basically means is that if a person in New York bought a shirt from a retailer based out of Ohio, the product would be subject to Ohio’s taxing rules, but to New York’s tax rate. The current system stipulates this transaction would only be taxed if the seller had presence in New York.

But, implementing this project would not be as simple as it might sound, as there are several states (Alaska, Delaware, Montana, New Hampshire and Oregon) that do not collect sales taxes. On the flip side, the new proposal (as opposed to one passed by the Senate in 2013) would not have state governments auditing businesses outside their jurisdictions.

Why eBay Is Not Happy

Of course, Goodlatte’s proposal would take a large dent on online retailers’ profits. As explained by Richard Rubin’s article, retailers like eBay Inc EBAY 0.1% and Etsy Inc ETSY 0.96% “would rather let states tax out-of-state sellers who ship goods into their states.” However, if the new proposal was approved, New York could require the Ohio seller to charge New York sales taxes to the buyer.

Also predictably, brick-and-mortar retailers like Wal-Mart Stores, Inc. WMT 0.11% favor Goodlatte’s initiative. But, more surprisingly, the leader of online retail, Amazon.com, Inc. AMZN 1.29% also supports a uniform system — as it already pays taxes in most states.

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Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.

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