Bloomberg News

Republican Governor-Congress Fissure Seen With Online Bid: Taxes

May 08, 2013

Republican Governor-Congress Fissure Seen With Online Bid

A woman shops for wine on Amazon.com in Washington, DC. Photographer: Karen Bleier/AFP via Getty Images

Retailers that want the Republican-led U.S. House to pass legislation letting states collect sales taxes from out-of-state sellers have some skillful lobbyists on their side: Republican governors.

They also have some staunch opponents and doubters: Republican House members from those same states.

Chief executives including Rick Snyder of Michigan, Robert Bentley of Alabama and Bob McDonnell of Virginia are leaning on their home-state lawmakers to help fill budget gaps or reduce other taxes with revenue the measure would generate.

The governors’ advocacy conflicts with a strain of anti-tax Republican philosophy that equates the legislation to a tax increase, a burden on small businesses and a permission slip for states to audit businesses with no physical presence in their borders. House Speaker John Boehner of Ohio yesterday added his voice to Republican skepticism.

“I know that it’s important to the states,” said Representative Robert Aderholt, an Alabama Republican, who said in a brief interview yesterday that he hasn’t decided whether the bill is akin to a tax increase or would be perceived as one. “But certainly, anything that resembles a tax, we tread very lightly.”

Representative Fred Upton of Michigan said that support for the measure from his state’s governor, Snyder, doesn’t sway him.

“I think it’s taxation without representation,” Upton, a Republican, said in an interview yesterday.

‘Probably Not’

Whether the Republican divide can be resolved will determine whether the plan backed by Wal-Mart Stores Inc. (WMT:US), Best Buy Co. (BBY:US) and Amazon.com Inc. (AMZN:US) becomes law. Opponents include EBay Inc. (EBAY:US), direct marketers and anti-tax groups such as Americans for Prosperity and Americans for Tax Reform.

Boehner, in an interview yesterday on Bloomberg Television, when asked whether he could support the online sales tax measure, said, “Probably not.” When asked why, he cited the burden on small businesses, saying “Moving this bill where you’ve got 50 different sales tax codes, it’s a mess out there.”

Ohio’s Republican Governor John Kasich told reporters today in Columbus he’s waiting to see what the House does with the bill and that he’s “got enough things I’m trying to do here without having to tell Congress what to do.” Kasich served 18 years in Congress, ending in 2001.

Tax-Free Shopping

Boehner’s lack of support for the measure emphasizes the difficulty it will have winning passage, especially in its current form. It would end the era of tax-free Internet shopping and put as much as $23 billion a year into state coffers.

The Senate passed its bill May 6 on a 69-27 vote, though that wide margin obscures a partisan split. Among Republicans, 21 voted for the bill and 22 voted against it. The only five Democrats who voted against the measure were lawmakers from states without sales taxes, which have little to gain.

In the Republican-controlled House, a similar partisan breakdown would easily provide enough votes for passage. It also would require Republican leaders to rely on Democratic votes to pass the bill and expose fissures in their party.

In the House, Michigan, Alabama and Virginia are home to a combined 23 Republican members, and just three of those are co-sponsors of the House version of the online sales tax measure. That gives those states’ governors an opportunity to lobby their own representatives, and opponents of the bill say that may give its proponents political cover.

‘Serious Look’

“I certainly think it’s causing lawmakers to take a serious look at the bill,” said Dan Holler, communications director of Heritage Action for America, a small-government group in Washington.

House leaders have deferred to the Judiciary Committee, where Chairman Bob Goodlatte of Virginia has promised a “thoughtful” approach. In a statement issued after the Senate vote, he said he was “open to legislation” as long as it addressed complexity for businesses and retailers’ ability to contest states’ actions.

Representative Steve Womack, an Arkansas Republican and the lead sponsor of the House bill, said today on Bloomberg Television that he was open to changes.

State Revenue

States point to the revenue they could collect under the proposal. In Michigan, for example, the state is losing $872 million in 2012 and 2013. Collecting all of that would increase state sales tax for the state by about 6 percent and total state revenue by about 2 percent.

Representative Dan Benishek, a Michigan Republican, said the state’s concerns wouldn’t really affect his thinking. He said he is less supportive than he used to be, because of concerns that compliance would be a burden for retailers. Representative Bill Huizenga, another Michigan Republican, hasn’t discussed the issue with Snyder, Huizenga’s spokesman Brian Patrick said in an e-mail.

By 2017, Virginia would collect an additional $300 million a year, and the state has already earmarked more than half that money for transportation. Lawmakers would have to find replacement revenue if Congress doesn’t act.

Representative Randy Forbes, a Virginia Republican on the Judiciary Committee, said in a statement that any legislation must be done “in a way that does not burden small businesses or consumers.”

Shelby, Sessions

The governors have already exerted some of their influence in the Senate. Both Republican senators from Alabama, Richard Shelby and Jeff Sessions, voted in favor, and Sessions said he talked with Bentley several times about the bill.

“I felt their position was meritorious,” he said in an interview. “I don’t think it’s a partisan issue. I don’t think it’s a tax-and-spend issue. I do think it is a disadvantage to local business.”

Alabama will lose more than $1 billion over five years in sales and use tax revenue from online purchases, according to a study by the University of Alabama Birmingham issued in February 2012. The report said the state would lose from 3,500 to 4,000 jobs annually as a result.

Representative Mo Brooks, an Alabama Republican, said he probably wouldn’t make up his mind until the day of a vote. He said he was concerned about potential economic costs for fledgling online retailers.

Giving Weight

“I always give weight to the views of Alabama’s elected officials,” he said in an interview yesterday. “But ultimately, I have to decide based on what I believe is best for America.”

Holler said Republicans would come to see the bill as a burden on small businesses. The bill includes an exemption for retailers with less than $1 million in annual remote sales.

“If you’re a small-government Republican or a small-government conservative, that’s not the way you should operate,” Holler said. “I think there’s going to be a lot of hesitation when people get beyond this top line argument about fairness.”

David French, the chief lobbyist at the National Retail Federation in Washington, said Republican governors were crucial in the Senate campaign to pass the bill. He said they can provide “air cover” for House members by talking about how they wouldn’t necessarily make it a tax increase.

“A lot of the Republican governors have been using it in a revenue-neutral way to create a better business climate,” French said.

Supreme Court

The bill would in effect overturn a 1992 U.S. Supreme Court decision that prevented states from collecting taxes from retailers that lack a physical presence in their borders. That decision and the growth of Internet commerce gave a competitive advantage to online retailers.

Customers technically owe so-called use taxes on purchases from out-of-state retailers. Few taxpayers file use tax returns and states do little to enforce those laws.

Republicans who support the bill focus on that point to make the case for letting states require out-of-state retailers to collect the tax.

“I believe this is an issue of fairness,” said Representative Martha Roby, an Alabama Republican who said Bentley mentioned the issue as a priority during a meeting with the state’s congressional delegation in Washington. “It’s money that’s already owed to the state, so it’s not a tax increase.”

The bills are H.R. 684 and S. 743.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; Chris Christoff in Lansing at cchristoff@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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