E-Fairness legislation may soon become law

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Jewelers of America’s (JA) fight for E-Fairness legislation seems like it has been going on as long as the internet has been around. During that time, the association has produced a number of tools – including JAPAC, Jewelers of America’s Political Action Committee. After a decade-long effort, the PAC dedicated to representing pivotal issues for retail jewelers may see one of its top-three missions (the other two are protection of LIFO – last in, first out – and a retroactive extension of 15-year depreciation of leasehold improvements) signed into law during this fall’s projected lame-duck session or in early 2015.

On July 15, 2014, key lawmakers in a bipartisan effort introduced MITFA (Marketplace and Internet Tax Fairness Act) in the Senate. Weeks prior to MITFA’s introduction in the Senate, Jeff Corey, CEO of Day’s Jewelers based in Waterville, Maine, was part of the group of retail jewelers, JA management staff, and officials from Haake & Associates (JA’s Washington counsel) that made the summer pilgrimage to Capitol Hill to speak to lawmakers. The group’s June visit to D.C. was the fourth fly-in meeting of its kind with lawmakers on key industry issues. 

Jeff and others in the JA/JAPAC fly-in group saw the issue getting real traction last year with the introduction of the Marketplace Fairness Act (MFA). Jeff’s Senator, Susan Collins (R-ME), has been a key supporter of e-fairness legislation. “She played a significant role in getting this bill to the Senate floor last May,” says Jeff. “It [MFA] passed almost overwhelmingly.” The Marketplace Fairness Act was introduced during the 113th Congress on April 16, 2013 and passed the Senate on May 6, 2013.

Other longtime supporters of e-fairness legislation include Senators Mike Enzi (R-WY), Dick Durbin (D-IL), Lamar Alexander (R-TN), Heidi Heitkamp (D-ND), and Mark Pryor (D-AR). They cosponsored MITFA – the latest Senate version of an e-fairness bill – which combines the Marketplace Fairness Act and the Internet Tax Freedom Act. The latter bill was signed into law by President Clinton on October 21, 1998.  It includes provisions that bar state and local governments from taxing internet access and from imposing discriminatory internet-only taxes (bit taxes, bandwidth taxes, and e-mail taxes). The law also bars multiple taxes on e-commerce.

Still, the law did not exempt sales made on the internet from taxation, as these may be taxed at the same state and local sales tax rate as non-internet sales (i.e. mail order sales). Since the Internet Tax Freedom Act became law, it has been extended three times with the most recent extension signed into law by George W. Bush on November 1, 2007. Titled the Internet Tax Freedom Act Amendment Act of 2007, the moratorium ends on November 1, 2014.   

With the moratorium ending this fall, Jeff and other retail jewelers, JA and JAPAC members sensed the added pressure to step up their efforts in gaining e-fairness support from key lawmakers, including those holding important Committee positions. 

Last year was a pivotal period for e-fairness legislation. Four months after the Senate passage of the Marketplace Fairness Act, the House Judiciary Committee, chaired by Rep. Bob Goodlatte (R-VA 6th), released a set of basic principles for remote sales tax. (The Committee essentially is tasked with a wide variety of subjects relating to civil and criminal law including commercial law.)   

Key points underscored within the principles included: Tax relief (Using the internet should not create new or discriminatory taxes not faced in the offline world); Tech neutrality (sales tax compliance burden on online internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses); and States’ Rights (Those who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement). 

E-fairness has bipartisan support, but the House is moving slower on the legislation than did the Senate. “Although e-fairness has Republican and Democrat support, for some Republicans there’s the concern that this is perceived as a new tax – but it really isn’t,” says Susan Thea Posnock, JA’s director of public affairs and education. “The revenue is already ‘out there’ and simply needs a framework of legislation passed and revenue collection technology. Software has already been developed by many companies to collect these tax revenues in the least burdensome way possible for internet sales exceeding $1 million.” 

Chris Fetzer, vice president and general counsel of Haake & Associates, is optimistic e-fairness legislation in some form will be passed by Congress and sent to the Oval Office to be signed into law during the lame-duck session this fall or in early 2015. 

“The form the final e-fairness bill will take will most likely be a reconciliation of the Marketplace Fairness Act as passed by the Senate in May 2013 and the new e-fairness legislation that is being drafted in the House,” says Chris. “Given the momentum that has been steadily building in favor of passage of e-fairness legislation, with key lawmakers on both sides of the aisle now strongly in support of it, final passage of an e-fairness bill is not a matter of if, but when the two chambers are able to hash out their differences on e-fairness.” 

JA’s position was stated in a July 17, 2014, announcement: “If passed by both chambers of Congress and enacted into law, the measure [MITFA] would give states the option to require the collection of these [sales] taxes by out-of-state sellers if the state simplifies their sales and use tax systems. MITFA would also extend for 10 years the Internet Tax Freedom Act, which prohibits state and local taxation of internet access and multiple or discriminatory taxes on electronic commerce.”

E-fairness is perhaps the most critical issue for JAPAC and its jewelry retail members and supporters, but other important issues, including the protection of LIFO and depreciation of leasehold improvements, were once again brought to the attention of lawmakers during the June 2014 JAPAC trip.

With the federal government deep in debt and deficit spending, LIFO (the accounting method allowing business owners to record the sale of their newest inventory first to reduce tax liabilities) has been a repeal target for several years. “LIFO keeps coming up,” says Jeff Corey. “Many in D.C. see its repeal as a way to raise much-needed revenue.

“When JAPAC made its first trip to Capitol Hill on behalf of retail jewelers in June 2011, LIFO’s repeal was estimated to bring in $72 million in potential revenue over a 10-year period. Retail jewelers rely on LIFO to value their inventory,” says Jeff. “JAPAC continues to work with lawmakers to fight against its repeal.”

JAPAC’s June 2014 visit also addressed depreciation of leasehold improvements. This is another seesaw issue affecting retail jewelers and other industries. The standard rate of depreciation for leasehold improvements for tax deduction purposes is 39 years, but several times over the past decade-plus, JA and Haake & Associates have worked to have that depreciation period modified to 15 years.

Because 15-year leasehold improvements depreciation expired at the end of 2013, at present the cost of leasehold improvements must be depreciated over 39 years. “By year’s end we’re looking for a permanent solution,” says Jeff. “But, some believe a permanent solution might not happen until there is a complete overhaul to tax reform. That remains to be seen.”

However, Chris Fetzer of Haake & Associates anticipates that Congress will pass a retroactive two-year extension of 15-year leasehold improvements depreciation during this fall’s lame-duck session.

To learn more about Jewelers of America’s Political Action Committee, please visit www.jewelers.org/japac/.