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Federal Internet Sales Tax Legislation Gets Its Day In Committee


Federal Legislation with State Impact:  Today, August 1, 2012, the U.S. Senate Committee on Commerce, Science and Transportation held a hearing to discuss The Marketplace Fairness Act, S. 1832.  This proposal was the third bill introduced by the 112th Congress that would seek to grant States the authority to require out-of-state ("remote") retailers to collect sales tax on sales to in-state customers regardless of whether the remote retailer has nexus to the state. This third and last of three proposals, was introduced on November 9, 2011 by Senators by Mike Enzi (R-WY), Lamar Alexander (R-TN), Dick Durbin (D-IL). (See my 11/28/11 post, Congress Introduces a Hybrid Solution: The Marketplace Fairness Act, for more on this proposal.)

On July 24th, the U.S. House Committee on the Judiciary held a similar hearing to discuss, The Marketplace Equity Act, H.R. 3179, the second proposal introduced by the 112th Congress which also seeks to grant States remote seller collection authority regardless of nexus. The Marketplace Equity Act was introduced on October 12, 2011 by Representatives Jackie Speier (D-CA) and Steve Womack (R-AR).  (See my 10/31/11 post,  The Marketplace Equity Act - Congress Introduces a Second Remote Seller Collection Billfor more on this proposal) 

To say this is a "hot" issue is an understatement!  Never before has the issue of whether States should be granted this "collection authority" received this level of attention.  There are certainly valid arguments on both sides of the debate. Small brick-and-mortar retailers have a valid argument that their stores serve as "showrooms" for customers who come in for advice and then go home and make their purchase over the internet simply because these purchasers believe their internet purchases are “tax-free”.  States have a valid argument that without "remote seller collection" authority a significant amount of revenue is lost to uncollected sales taxes/unremitted use taxes. And on-line retailers have a valid argument that requiring them to serve as "sales tax collectors" in every state in which their customers are located, even if they do not have nexus to that state, creates an unfair administrative burden on them. Much of the discussion during both hearings centered on these competing arguments; arguments eloquently presented by high-profile witnesses.

Now the mere fact that these two proposals reached the committee hearing stage is remarkable, as the great majority of bills that are introduced during a U.S. Congressional session never become law.  According to OpenCongress.com, a non-profit, non-partisan public resource organization that tracks legislation, only about 4% of the thousands of pieces of legislation introduced by Congress each session become law.  GovTrack.us, another bill tracking transparency organization reports that there have been 11,553 bills and resolutions introduced by the current 112th Congress, and only about 5% will become law. As a recent OpenCongress.com blog stated, “The vast majority of bills are essentially dead upon arrival.”

If you watched the Judiciary Committee hearing on the Marketplace Equity Act (H.R. 3179), or the Commerce Committee hearing on the the Marketplace Fairness Act (S. 1832), you’re familiar with the hearing structure and probably agree that these hearings can actually be amusing at times.  For those of you less familiar with the hearing process, the Committee invites selected witnesses, such as high profile executives with organizations that have a stake in the future of the legislation, officials from various “think-tank” policy organizations, representatives from organizations that represent trade or industry groups impacted by the legislation, or other selected individuals, to give their expert testimony at the hearing.  Also testifying are the key sponsors of the legislation under discussion.

The general format is that Committee Chair opens the hearing with his statement and each of the witnesses present their testimony which is generally geared towards their argument for or against the proposed legislation.  The committee members are then “recognized” and allowed to bring up issues, concerns and pose questions to specific witnesses or to the entire panel.  (To view the two committee hearings, see the list of witnesses and read their prepared statements, click here for the July 24th Judiciary Committee Hearing on the Marketplace Equity Act and here for the August 1st Senate Commerce Committee hearing on the Marketplace Fairness Act)

While the general consensus of the Judiciary Committee hearing observers was that the Marketplace Equity Act hearing was relatively congenial and focused on what the “right” small seller exception threshold should be, the Senate Committee hearing on the Marketplace Fairness Act was not as friendly.

Actually this one seemed destined for controversy even before the hearing started when the day before the hearing, the Wall Street Journal published an Opinion piece by South Carolina Senator, Jim DeMint, who argued that enacting the Marketplace Fairness Act was the equivalent of creating “taxation without representation”. (See WSJ Opinion – Jim DeMint: No Internet Taxation Without Representation, Wall Street Journal, July 31, 2012)  It wasn’t surprising to see the Retail Industry Leaders Association (RILA) quickly counter with a press release in which they addressed (or should I say, shot down) Senator DeMint’s OpEd. (See RetailersDebunk DeMint WSJ Op Ed, Retail Industry Leaders Association (RILA) Press Release)
More controversy followed when it was discovered during the hearing’s discussion, that an Austin, Texas based bookseller, whose CEO and Co-owner was one of the panel witnesses, was likely incorrectly charging the Austin, Texas sales tax rate on internet sales to shipments outside of Texas. (The media had a field day with that one.)

More feathers were ruffled after the Tax Foundation reported that an official from the Streamlined Sales Tax Governing Board stated during the hearing that the right type of “software” (to manage the thousands of sales tax rates) wasn’t yet available.  (Note, I’m not certain this official really meant that software to calculate sales tax for all the application jurisdiction is not yet available, as this software is available.)  (See  U.S. Senate Online Sales Tax Hearing Derails as Witnesses Show Collecting is Not Easy, 8/1/12; and Streamlined Sales Tax Executive Denies Saying Reliable Products Aren’t Available, 8/6/12 – both posts published on the Tax Foundation Tax Policy Blog)

There’s certainly been no shortage of media coverage on both hearings, many passionately presenting both sides of the debate. (Also seeNot Taxing Internet Retailers Harms Local Economies, US News Debate Club, 8/8/12, and Will U.S. Online Sales Tax Mandate Hurt Small Business?, Practical e-Commerce, 8/1/12)

But has there been enough coverage on what really could happen if either the Marketplace Equity Act or the Marketplace Fairness Act passes?  Or should I say, what might not happen even if one of the two proposals is passed? Is federal legislation that offers a national solution really the panacea for States fiscal woes?  Is either proposal the “right” solution?

Recently, I stumbled on an interesting poll I found on eBay’s site, which asked “Which aspect of the Internet sales tax debate do you think is being most overlooked by the media?”  The response choices included the following; that many goods sold online in secondary markets have already been taxed, that expecting a small business to navigate 9,000 tax jurisdictions and 45 different tax filing procedures is unfair, that big retailers have the real advantage over “mom and pop” stores because they can negotiate better shipping rates, lower cost of goods and tax breaks by local and state governments, and that it’s not taxes, but rather selection, pricing and availability that generally create a competitive advantages for online businesses. 

The poll got me to thinking about a few things.  One, is that I’m convinced people shop on-line for reasons other than their perceived belief that their purchases are “tax-free”.  (But there’s certainly been no shortage of articles screaming that the days of “internet tax free shopping” are almost gone.)

But what if federal legislation passes and states don’t get the revenue their hoping for.  What if the real Main Street retailers (and by this I mean, I mean the small mom and pop shops, not the big box chains) don’t see customers returning in droves?  Then what?

What’s certain is that is a interesting time to be witnessing these developments. Will federal legislation pass this year? (An election year, mind you!) I’m not sure, but as I’ve said before, I do think the wheels have been set in motion.  What about you, what are your thoughts? Post a comment and let me know.  In the meantime, I’ll keep readers posted on developments!

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Want to revisit the provisions in the Marketplace Equity Act and the Marketplace Fairness Act? See my prior posts here on The State and Local Tax "Buzz" and on SalesTaxSupport.com.

For more on S. 1832, the Marketplace Fairness Act, see the following posts:
For more on H.R. 3179, the Marketplace Equity Act, see the following posts: 
For more on both proposals, including a discussion of the small-seller exceptions, see:

And finally, here are some interesting articles and commentaries that hit the new wires in the last few days (some of these have been incorporated into the above post):



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