[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
CONSTITUTIONAL LIMITATIONS ON STATES'
AUTHORITY TO COLLECT SALES TAXES
IN E-COMMERCE
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
NOVEMBER 30, 2011
__________
Serial No. 112-89
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TIM GRIFFIN, Arkansas LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania [Vacant]
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
MARK AMODEI, Nevada
Sean McLaughlin, Majority Chief of Staff and General Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
C O N T E N T S
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NOVEMBER 30, 2011
Page
OPENING STATEMENTS
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Chairman, Committee on the Judiciary....... 1
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 33
WITNESSES
Dan Marshall, Marshall Music Company, on behalf of himself and
the Michigan Retailers Association
Oral Testimony................................................. 36
Prepared Statement............................................. 39
Patrick M. Byrne, Chairman & CEO, Overstock.com, Inc.
Oral Testimony................................................. 52
Prepared Statement............................................. 54
The Honorable John Otto, Texas State House of Representatives
Oral Testimony................................................. 58
Prepared Statement............................................. 61
Tod Cohen, Vice President and Deputy General Counsel, Global
Government Relations, Intellectual Property, Regulatory and
Asset Protection, eBay Inc.
Oral Testimony................................................. 65
Prepared Statement............................................. 67
The Honorable Luke Kenley, Indiana State Senate, on behalf of
Streamlined Sales Tax Governing Board, Inc.
Oral Testimony................................................. 76
Prepared Statement............................................. 78
Paul Misener, Vice President of World-Wide Public Policy,
Amazon.Com, Inc.
Oral Testimony................................................. 79
Prepared Statement............................................. 82
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Material submitted by the Honorable Daniel E. Lungren, a
Representative in Congress, from the State of California, and
Member, Committee on the Judiciary............................. 4
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of Jeffrey A. Eisenach, and Robert E. Litan,
Empiris LLC.................................................... 124
Letter of opposition to S. 1452/H.R. 2701........................ 161
Letter from Steven Bercu, President, Austin Independent Business
Alliance (AIBA)................................................ 163
Material submitted by the Hudson Institute....................... 164
Prepared Statement of David French, Senior Vice President,
Government Relations, National Retail Federation............... 181
Prepared Statement of the National Governors Association (NGA)... 187
Prepared Statement of the Federation of Tax Administrators (FTA). 192
Letter from the National Association of Counties, the National
League of Cities, the United States Conference of Mayors, and
the Government Finance Officers Association.................... 199
Letter from Toby Lenk, President, Gap Inc. Direct................ 201
Prepared Statement of the International Council of Shopping
Centers........................................................ 203
Prepared Statement of R. David L. Campbell, Chief Executive
Officer, the Federal Tax Authority, LLC........................ 208
Prepared Statement of Joseph Henchman, Vice President, Legal &
State Projects, Tax Foundation................................. 211
Prepared Statement of Rebecca Madigan, Executive Director,
Performance Marketing Association, Inc. (PMA).................. 221
Letter of support from labor unions.............................. 224
CONSTITUTIONAL LIMITATIONS ON STATES' AUTHORITY TO COLLECT SALES TAXES
IN E-COMMERCE
----------
WEDNESDAY, NOVEMBER 30, 2011
House of Representatives,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 10:09 a.m., in
room 2141, Rayburn House Office Building, the Honorable Lamar
Smith (Chairman of the Committee) presiding.
Present: Representatives Smith, Sensenbrenner, Coble,
Goodlatte, Lungren, Chabot, Issa, Pence, Forbes, King, Franks,
Gohmert, Jordan, Poe, Chaffetz, Griffin, Ross, Adams, Quayle,
Amodei, Conyers, Scott, Lofgren, Jackson Lee, Johnson, Quigley,
Chu, Deutch, and Sanchez.
Staff present: (Majority) Travis Norton, Counsel; Ashley
Lewis, Clerk; and (Minority) Norberto Salinas, Counsel.
Mr. Smith. The Judiciary Committee will come to order.
Without objection, the Chair is authorized to declare
recesses of the Committee at any time.
We welcome everyone here. We knew this subject was going to
have and be of great interest and that is clearly reflected in
the audience that we have here too. I will recognize myself an
opening statement, then the Ranking Member. Then I will
introduce the witnesses and then we will proceed to questions.
Black Friday marks the unofficial beginning of the holiday
shopping season. But over the past few years many Americans
have begun to wait until the Monday after Thanksgiving to shop.
On Cyber Monday, online merchants offer deals similar to
the promotions shoppers find in Brick and Mortar stores on
Black Friday with one exception. Online merchants usually do
not collect a sales tax.
The Constitution grants Congress the exclusive power to
regulate interstate commerce. By negative inference, a state
may not unduly burden interstate commerce, a constitutional
principle commonly referred to as the dormant Commerce Clause.
As applied to state tax policy, the dormant Commerce Clause
prohibits a state from taxing a person with whom it lacks a
substantial nexus. In tax terminology, nexus refers to the
relationship between the taxing authority and the taxpayer.
In its 1992 decision in Quill Corporation v. North Dakota
19 years ago, the Supreme Court held that at least for purposes
of collecting sales tax a state lacks substantial nexus over a
taxpayer that has no physical presence in the state.
The Quill court thus established a bright-line physical
presence rule for sales tax nexus. In the Quill decision, the
Supreme Court was concerned with burdens to America's small
businesses.
It reasoned that without a bright-line physical presence
rule for nexus, thousands of state and local taxing
jurisdictions across America, each with their own unique tax
bases and rates, would use vague concepts like economic nexus
to impose sales tax collection requirements on businesses.
In the court's view, uncertainty about what jurisdiction
has power to tax as well as compliance with numerous and
difficult tax policies would place an undue burden on
interstate commerce.
Today, we will hear testimony from online retailers, Brick
and Mortar retailers and state governments about the impact of
Quill on their operations.
This hearing will explore two issues--first, whether
Congress should exercise its Commerce Clause power to enact
sales tax reform legislation, and second, if Congress should
act, how we can do so in a manner that does not increase
administrative and compliance burdens on America's small
businesses.
Some in the online retail community believe that physical
presence is a fine rule for sales tax nexus. Online retailers
typically maintain physical presence in only a handful of
states and rely on common carriers to transport purchased goods
to customers.
Most states, therefore, cannot require those online
retailers to collect and remit sales tax.
Some argue that shielding businesses from the complex
patchwork of sales tax laws was precisely the benefit of Quill
and that Congress should take no action. But it is precisely
this reality that frustrates Brick and Mortar retailers who
claim to suffer a competitive disadvantage compared to their
online counterparts.
State revenues are also affected by the Quill rule. Forty-
five states and the District of Columbia have a sales tax.
Those jurisdictions also have a use tax equal to the sales
tax rate which residents must pay for the usage, consumption or
storage of goods purchased in a non-resident state and brought
into the resident state.
For example, a shopper in Austin, Texas, who buys goods
online from a retailer that lacks a physical presence in Texas
is responsible to pay Texas use tax even though he or she pays
no sales tax on his--on his transaction.
But states rely on taxpayers to self-report their purchases
in other states, and states lack the resources and means to
effectively police use tax avoidance. So online purchases
usually escape taxation altogether.
Some believe that Congress should not come to the states'
assistance. If a state chooses to impose a use tax it should
also find a way to enforce it. Others would like to see
Congress help states collect sales taxes on all transactions,
thereby eliminating the need for use taxes.
I am aware of three legislative proposals that could give
states nexus over online and other remote sellers. Ranking
Member Conyers has reintroduced the Main Street Fairness Act
this Congress.
Representative Steve Womack and Jackie Speier have
introduced the Marketplace Equity Act, and most recently,
Senators Enzi and Durbin introduced the Marketplace Fairness
Act.
Although this is an oversight hearing, I invite our
witnesses to comment on any of these three bills and I look
forward to hearing from our distinguished panel of witnesses
today and thank them in advance for their testimony.
Before I recognize the Ranking Member with his agreement, I
would like to recognize a Member of the Committee for a
unanimous consent request and the gentleman from California,
Mr. Lungren, is recognized for that purpose.
Mr. Lungren. Thank you, Mr. Chairman. I am sorry I have to
go to a hearing on the House Administration to decide how much
we are going to cut every Committee and I can't miss that.
[Laughter.]
Mr. Smith. Maybe we don't--maybe we don't want you to go.
[Laughter.]
Mr. Lungren. Well, if the gentleman won't allow me to go.
No, what I asked unanimous consent that a constitutional
analysis by Paul Clement on the proposed Streamlined Sales Tax
legislation be made a part of the record.
Mr. Smith. Without objection, so ordered.
[The information referred to follows:]
__________
Mr. Smith. Thank you, Mr. Lungren.
The gentleman from Michigan, the Ranking Member of the
Judiciary Committee, Mr. Conyers, is recognized for an opening
statement.
Mr. Conyers. Thank you, Chairman Smith, and Members of the
Committee and the distinguished witnesses here.
I want to associate myself with the Chairman's opening
statement and description of why we are here this morning and I
am glad that he mentioned my bill.
The only thing I regretted was that he is not a co-sponsor
of it yet. So we will see how this hearing proceeds and whether
we can enjoy the benefit of his support.
Now, we all know about the Quill decision. But since the
Quill decision there has been a tremendous growth in online
commerce.
The number and diversity of goods purchased from large
online retailers with little physical presence in the buyer's
state has dramatically increased. What is it, up to 36 percent
now, 38 percent over the weekend--38 percent is now online.
The result, of course, is that online retailers have, let's
face it, an unfair advantage over local and small businesses
who are required to collect sales taxes and so what we are
doing today is exploring the need for legislation to level the
playing field between small businesses and online retailers.
Main Street retailers, local mom-and-pop stores in many
instances, and even some of the big-box retailers suffer when
they have to collect a sales tax but online retailers don't,
and fewer purchases at local retailers means less local jobs.
And I might suggest to you that that 38 percent retail
number is going up. The number of people purchasing over the
Internet is going up and it is at 38 percent already. Lower
sales at local retailers means lower revenue for local and
state governments as sales taxes constitute a significant
revenue source in each and every state.
With ever increasing online sales, the state and local
governments anticipate larger and larger revenue losses as a
result of uncollected sales and use taxes. Michigan, my state,
for example, estimates that it has lost around $368 million
each fiscal year and that it will lose more than $450 million
in the fiscal year 2013.
The impact of such lost revenue is reflected in reduced
school programs, extracurricular activities at the public--in
the public school systems across the state, bridges and roads
in need of critical repairs are neglected and reduced services
even for police and firefighter protection sometimes occurs.
And so H.R. 2701, the Main Street Fairness Act, would grant
the consent of Congress to the Streamlined Sales and Use Tax
agreement drafted by local and state governments and then
business community to simplify sales tax rules and
administrative requirements, making it easier for businesses to
collect sales taxes across state lines.
Already, 24 states have changed their laws to comply with
this agreement and I await your consideration of your--the
great witnesses we have, Mr. Chairman, and we urge that we
consider the relative merits of all the bills that are before
this Committee and I thank you.
Mr. Smith. Thank you, Mr. Conyers.
I would also like to recognize Congressman Steve Womack
sitting in the front row over here. He is the author of the
Marketplace Equity Act. We appreciate your introducing that,
Steve. Thank you.
We will now go to the introduction of our witnesses and
actually the Ranking Member, Mr. Conyers, will introduce going
from left to right, our first witness.
Mr. Conyers. Thank you.
I am happy to introduce our first witness at this hearing
because he is a small-business owner from Lansing, Michigan,
Dan Marshall, the second-generation operator of a family-owned
chain of music stores called Marshall Music with seven stores
located throughout Michigan.
As a failed musician himself, I should visit you as often
as I can when we have the time in this busy Congress.
But his parents founded the store in 1948 and it has grown
and is doing well and he has got now 300 full-time and part-
time employees, music instruments and offers performance space
and lessons to shoppers and musicians. I am doing quite a bit
of advertising for you today, sir. [Laughter.]
But I am glad that you are here to tell your story on
behalf of many of the small-business owners in the country.
Thank you, Mr. Chairman.
Mr. Smith. Thank you, Mr. Conyers.
Our next witness is Dr. Patrick Byrne. Dr. Byrne is the
chairman and CEO of Overstock.com, a Utah-based Internet
retailer that has been publicly traded since 2002. Like many
so-called e-tailers, Overstock takes orders over the Internet
from customers and relies on common carriers to deliver
purchased merchandise.
In 2010, Overstock reported approximately $1.2 billion in
revenue. Dr. Byrne received a Bachelor's degree in philosophy
and Asian studies from Dartmouth College, a Master's in
philosophy from Cambridge University as a Marshall Scholar and
a doctorate in philosophy from Stanford University.
He has taught at the university level and frequently guest
lectures on business, the Internet, leadership and ethics.
Our next witness will be introduced by the gentleman from
Indiana, Mr. Pence.
Voice. From Texas, Mr. Poe.
Mr. Smith. Oh, I am sorry. Jumping ahead. The next witness
will be introduced by the gentleman from Texas, Mr. Poe.
Mr. Poe. Thank you, Mr. Chairman.
Our next witness is my friend, John Otto, who is my state
representative in Texas. He was elected to the House of
Representatives in 2004. He is from small-town America, Dayton,
Texas.
Mr. Chairman, you may not know this but this is important.
Dayton, Texas has a population of about 5,000. They have a high
school football stadium that seats 7,000 and it is always full
on Friday night.
But by trade John Otto is a CPA. He has served on the Texas
House Appropriations Committee and he serves as Vice-Chairman
of the House Committee on Ways and Means. In 2008, he was
chosen to Chair the House Select Committee on property tax
relief and appraisal reform.
In 2005, he was named the Republican Freshman of the Year
in the Texas House of Representatives and Texas Monthly has
named him one of the ten best legislators in Texas.
He is a graduate of Texas A & M and a BBA from that
university.
John, in your Honor I have worn orange today to celebrate
last week's Thanksgiving Day game. [Laughter.]
Where Texas won.
I yield back, Mr. Chairman. Thank you. [Laughter.]
Mr. Smith. Thank you, Mr. Poe.
Our next witness is Tod Cohen. Mr. Cohen is the vice
president of government relations for eBay. Since 2000, Mr.
Cohen has been responsible for global public policy for eBay
including adding PayPal when it was acquired in 2002. 2006 he
became responsible for eBay's legal, regulatory and
intellectual property work as well as law enforcement affairs
and global investigation teams.
Mr. Cohen received his B.A. from the University of Utah in
1985 and his J.D. with highest honors from the George
Washington University Law School in 1992. Before law school,
Mr. Cohen worked as a congressional aide for 4 years.
Founded in 1995, eBay's website facilitates private
transactions between private buyers and sellers. It currently
boasts about 100 million users worldwide. Many are small
business owners who maintain a virtual storefront on the eBay
platform. 2010, the total value of goods sold on eBay was $62
billion, which is more than $2,000 every second.
The next witness will be introduced by the gentleman from
Indiana, Mr. Pence.
Mr. Pence. Thank you, Chairman. Thanks for the courtesy of
having a chance to introduce and welcome my friend and a fellow
Hoosier to testify before the Judiciary Committee today in
what, after a long and distinguished career of public service
in Indiana, I am pleased to say is his first opportunity to
testify before Congress and I am privileged to be here.
Senator Luke Kenley is from Noblesville, Indiana. He is a
five-term Indiana state senator.
He has provided exceptional leadership on fiscal
responsibility and pro-growth policies in Indiana throughout
his career.
He is Chairman of the Senate Committee on Appropriations at
the State House in Indianapolis and I hasten to add, since we
are doing a little bit of trash talk between states, Indiana
has found a way even in these difficult economic times to
balance our budgets without raising taxes and Senator Kenley
has been a driving force in making Indiana the fiscal envy of
the Nation.
His career spans several decades, involves several
different disciplines. After completing his undergraduate
degree at Miami University of Ohio and 2 years of law school at
Harvard University, he answered the call of his country,
enrolled in Officer Candidate School for the U.S. Army,
graduated first in his class, served as an Army lieutenant,
returned to Harvard to complete his law degree and then
returned to the Hoosier State to develop and operate Kenley
Supermarkets and serve as Nobleville's city judge.
Senator Kenley comes before us today though on behalf of
the Streamlined Sales Tax Governing Board in his capacity as
president of that organization. The Streamlined Sales Tax
Governing Board has been a leading advocate for fair and
effective collection of online sales taxes.
I am confident that his experience in this area and his
testimony today will be of great benefit to the Committee as we
work toward an equitable and common sense solution for all
parties concerned.
So thank you, Mr. Chairman, for the courtesy of allowing me
to introduce this esteemed fellow Hoosier, Senator Luke Kenley,
to the Committee's hearing today and I yield back.
Mr. Smith. Thank you, Mr. Pence.
Our final witness is Paul Misener. Mr. Misener is the vice
president of worldwide public policy for Amazon.com where he
has worked for over a decade. He holds an engineering degree
from Princeton and earned his law degree from George Mason.
At Amazon, he is responsible for formulating and
representing the company's public policy positions worldwide as
well as for managing policy specialists in Asia, Europe and
North America.
Jeff Bezos founded Amazon in 1995. According to Amazon's
website, during the first 30 days of business Amazon.com
fulfilled orders for customers in 50 states and 45 countries,
all shipped from Mr. Bezos' home garage near Seattle.
Today, Amazon is one of the largest e-tailers. It offers
customers the ability to purchase everything from books to
electronics and now even prepared gourmet foods over the
Internet.
We appreciate the witnesses who are here today and Mr.
Marshall, we will begin with you.
TESTIMONY OF DAN MARSHALL, MARSHALL MUSIC COMPANY, ON BEHALF OF
HIMSELF AND THE MICHIGAN RETAILERS ASSOCIATION
Mr. Marshall. Good morning, Chairman Smith and----
Mr. Smith. Make sure your mike is on there. If you will----
Mr. Marshall. I am sorry?
Mr. Smith. Is your mike on? Push the--there. There we go.
Mr. Marshall. Thank you.
Good morning, Chairman Smith, Ranking Member Congress--
Conyers and Members of the Committee.
My name is Dan Marshall. I represent Marshall Music
Company, a Michigan-based chain of retail music stores and I am
also here to speak on behalf of the Michigan Retailers
Association, an association of small-business entities totaling
roughly 4,800 individual businesses, and I am here to speak on
behalf of small-business Main Street retailers in connection
with what we see as an unlevel playing field relating to all of
us as retailers being required to collect sales tax and having
customers every day, every hour that we operate coming in and
price shopping and comparing our price with Internet retailers
that do not collect the Michigan sales tax.
Marshall Music was started in 1948 by my mother and father,
Bill and Mary Marshall. I am the second-generation family
leadership of the business. We have seven locations throughout
the state of Michigan.
We provide sales and service for musical instruments and
accessories, repair, lessons and, indeed, call on music
educators throughout the state of Michigan and rent and sell
band and orchestra instruments to beginning music participants.
I can't begin to tell you what challenges retailing in a
state like Michigan have presented to Marshall Music but myself
and other Main Street retailers have adjusted to the economic
realities that a fiercely competitive environment present and
we are perfectly comfortable with that.
In the absence of competition, I suppose we would all
become complacent. That is certainly not the case with Marshall
Music and my fellow retailers.
The size of small business I think is something that
somehow gets lost in the shuffle sometimes. Michigan retailers
of 4,800 individual members, a casual measurement, you know,
roughly 70 percent of those members are doing less than
$300,000 a year in business.
You know, in many cases it is a husband and a wife, maybe a
part-time employee. So, you know, Main Street retailing is not
a big numbers game but, you know, every strip mall and shopping
center and downtown shopping district is replete with retailers
just like my family who every day employ, you know, significant
numbers of people for services and support.
Illustrative of that would be today in Michigan we got
eight inches of snow overnight so there is snow removal, small-
business snow removal companies removing snow from all of our
parking lots and, you know, helping us get our doors open for
business today.
We have been selling on the Internet through eBay for some
time now and Internet retailing is just a wonderful opportunity
for small-business people.
You know, it allows us not necessarily to sell everything
that we have in inventory, you know, and in many cases we are
just not prepared or capable of providing the support and
fulfillment and having the computer systems to effectively
represent our entire product mix on the Internet.
But in virtually every instance there are some products or
some area of expertise, whether it is oddball, obsolete or used
merchandise that--to promote that, you know, on the World Wide
Web to a much larger market is very beneficial.
In our case, that is exactly what we do. A product that we
have had in inventory too long or is used or unique we will put
in on the Internet and find a buyer in a larger market than our
area markets.
I understand and accept that, you know, we have to be
competitive and we are. We price match every day. We price our
products, you know, according to what the marketplace dictates.
But to have that additional 6 percent sales tax
differential is something that just creates an unlevel playing
field and doesn't really make sense to me or other retailers
why a Michigan resident has to pay sales tax if they buy from a
local merchant or buy from an Internet site that has a presence
in Michigan whereas if they do business with somebody that is
not employing people or supporting the Michigan economy they
don't have to--that retailer doesn't have to collect sales tax.
As far as requiring us to collect sales tax from out-of-
state sales, I see that as an entirely doable endeavor. You
know, clearly, capitalism--people, you know, if they perceive a
need people are going to flock to fill that need and the
resources that are available today make the collection of that
sales tax possible and I am sure it will only get easier and
more streamlined if, in fact, you provide states like Michigan
enabling legislation to allow us to have all Internet retailers
collect tax.
[The prepared statement of Mr. Marshall follows:]
__________
Mr. Smith. Thank you, Mr. Marshall.
Mr. Marshall. Thank you.
Mr. Byrne?
TESTIMONY OF PATRICK M. BYRNE, CHAIRMAN & CEO, OVERSTOCK.com,
INC.
Mr. Byrne. Thank you. Good morning, Chairman Smith, Ranking
Member Conyers and Members of the Committee.
My name is Patrick Byrne. I am the chairman and CEO of
Overstock.com. Thanks for this opportunity to share my views on
the question of state authority to collect sales tax on e-
commerce.
My basic view is that Brick and Mortar has become 87
percent--I am sorry, big-box has become 87 percent of Brick and
Mortar and what is going on here is they are trying to pull up
the drawbridge after them. They are trying to get a law passed
that will suppress competition from small remote sellers and
just Internet sellers in general.
For that reason, Overstock supports the current law as
supported in the Supreme Court's Quill decision because it
facilitated the advent of vibrant innovative e-retailers like
Overstock, Newegg, eBay and Amazon.
We oppose the bills now pending in Congress that would
empower states to conscript remote retailers to become sales
tax collectors and believe that had such remote sales
obligations existed when we launched in 1999 we would not be
here today.
In 1999, we had 18 employees, carried 100 products and had
$1.8 million in revenue. If we had been required to administer
and collect sales tax on behalf of remote state governments
without meaningful simplification, indemnity and compensation,
our chances of becoming an employer of 1,500 American workers
that we are today would have been small.
Too high a hurdle would have been established by the cost
of compliance in 9,746 taxing jurisdictions--the
unavailability--the unavailability of affordable off-the-shelf
software solutions, the cost of employing people to implement
and manage the software, the Administration and resolution of
state audits and resulting assessments and the risk of
penalties and lawsuits by plaintiff or attorneys for software
errors and omissions.
The question the Committee must consider is whether this
innovation will continue if Congress alters current law by
allowing states to burden interstate commerce. In my opinion,
the pending bills allow states to shirk their responsibilities
to collect taxes that they impose on consumers; instead,
enforce that burden onto nonresident and nonvoting businesses.
Passage of such legislation would poison the Internet's fertile
ground for new innovative e-commerce firms.
More specifically, we oppose the pending bills because we
believe the taxing jurisdiction should be responsible for
collecting taxes from residents and should not unilaterally
outsource to retailers without compensation for the burden of
collecting taxes from residents of states where those retailers
have no presence.
The absence of any nexus threshold in the pending bills
makes remote sales tax collection a burden on innovation, entry
and commerce.
However, if a majority in Congress is determined to replace
current law, Overstock believes that a fair legislative
solution must include three essential elements.
First, because tax collection is really a function of
states and not retailers, the states should be required to
provide a truly plug-and-play software solution.
Supporters of the pending bill claim such solutions are
readily available in the marketplace but the fact is they are
not. For example, we have been considering opening a warehouse
in Kentucky. In preparation, we acquired what was described as
an affordable plug-and-play software package that would ensure
we were in compliance with the tax collection obligations for
sales to Kentucky residents.
The reality is that the so-called off-the-shelf software
required $300,000 of investment and months of man hours of our
developers to build.
Implementation for the Nation's nearly 10,000 different
taxing jurisdictions would be extraordinarily costly for
companies like mine, not to mention companies with fewer
resources.
So if states want us to collect tax on our sales to their
residents when we have no presence there, they should supply
software that makes it possible to do so and I believe such
software today is vaporware, by the way. They tell you this
exists. It is vaporware.
Second, retailers should be liable to state or--should not
be liable to state or plaintiff lawsuits if errors arise from
use of such software like missing a tax holiday or a new tax
rate, the fact that one city in a state taxes the sale of a
product one way while another exempts it from taxation.
And third, taxing authorities should compensate all
retailers asked to implement state software and to collect
sales tax on their behalf. It is expensive to implement
software and expensive to collect and remit the tax to the
jurisdiction.
Just as I cannot force other parties to work for free,
states should not be permitted to compel companies to do their
work without reimbursement and without some degree of revenue
sharing.
I have attached to my written testimony a draft bill
incorporating these principles. I believe it will garner
support from the majority of e-commerce companies as well as
many Brick and Mortar and Brick and Click retailers,
particularly smaller and mid-sized Main Street retailers who
would otherwise be hurt by the pending bills.
Thank you for the opportunity to share my views and I look
forward to answering your questions.
[The prepared statement of Mr. Byrne follows:]
__________
Mr. Smith. Thank you, Mr. Byrnes.
Mr. Otto?
TESTIMONY OF THE HONORABLE JOHN OTTO,
TEXAS STATE HOUSE OF REPRESENTATIVES
Mr. Otto. Thank you, Chairman Smith and Ranking Member
Conyers and Members of the Committee.
Since 1992, the Quill decision has been the law of the land
and physical presence has been the measuring stick for whether
or not a retailer has to collect sales tax.
Over the last 19 years, technology has advanced in the
marketplace to the point that a physical presence can largely
be controlled and isolated to a few states while selling into
many states.
If you doubt that, you have two online retailers here would
be--I would be curious to know how many states they sell into
versus how many that are actually claiming a physical presence
and collecting tax in.
If action is not taken and Quill is allowed to remain the
law of the land, then are we not picking winners and losers
within the retail sector?
H.R. 3179, in my opinion, levels the playing field while
protecting states' rights, and that is very important here on
the protection of states' rights. Previous legislation that has
been introduced in Congress has contained the requirement that
a state join the Streamlined Sales Tax compact in order to
receive the benefits of that legislation.
While I fully support the rights of states to join the
compact, I do not believe a state should be forced into joining
the compact in order to receive the benefit of such
legislation. H.R. 3179 leaves it up to each state whether they
wish to join the compact or not.
Let me also point out that, in my opinion, the Streamlined
states will comply with the requirements of H.R. 3179 as soon
as they adopt a small-business exemption. So they are at a
distinct advantage in regards to how quickly they could
implement H.R. 3179.
Now, let me address briefly why I think H.R. 3179 best
serves the interest of states. It requires a small-business
exemption, it requires a uniform tax base rules within a state,
i.e., what is and is not taxable, it requires for centralized
filing and remitting within a state and it also offers options
on the tax rates.
It can be a state-only rate. If you cannot get your local
jurisdictions to comply with these other three requirements
then the state could implement a state-only rate.
It also has a blended rate possibility as well as an
address-based rate with software made available to the retail
sector. In my opinion, the requirement for a uniform tax base
within a state is desirable. It may cause delays in
implementing the provisions of H.R. 3179 in some states.
This is going to be the biggest issue if legislation is
passed is how can states implement this and over what time
period.
In Texas, we don't meet again until 2013. It will take
several legislative sessions in order to bring about the
changes to get to a uniform tax base if we wanted to go down to
collecting the local taxing jurisdictions as well.
So, therefore, I believe that the flexibility that is
provided in H.R. 3179 best serves the interest of the states in
allowing us to level this playing field.
You know, I don't fault anybody that is taking advantage of
Quill. They fall within the law.
The problem is the marketplace has changed in 19 years and
we have not. And if we are going to be fair, you know, what
encouragement am I offering to my local business in Dayton,
Texas, to build a storefront as opposed to strictly putting his
business online?
And those are the--those are the kinds of businesses that
support the local community. They have a physical presence
there. They are the contributors to the Little League, the PTA.
They are the people--they are also the ones that employ my
local people and my local citizens.
So that is why it is most important to me that a bill that
would follow the guidelines as set out in H.R. 3179 that if
Congress is going to take action this is by far, in my opinion,
the best legislation I have seen proposed to assist the states
in addressing this issue.
Thank you.
[The prepared statement of Mr. Otto follows:]
__________
Mr. Smith. Thank you, Mr. Otto.
Mr. Cohen?
TESTIMONY OF TOD COHEN, VICE PRESIDENT AND DEPUTY GENERAL
COUNSEL, GLOBAL GOVERNMENT RELATIONS, INTELLECTUAL PROPERTY,
REGULATORY AND ASSET PROTECTION, eBAY INC.
Mr. Cohen. Chairman Smith, Ranking Member Conyers and
Members of the Committee, my name is Tod Cohen and I am the
vice president of global government relations and deputy
general counsel of eBay, Inc.
eBay empowers and connects millions of buyers and sellers
across the globe. Ebay's priority on remote sales tax policies
has always been the treatment of small-business retailers.
Hundreds of thousands of small businesses and entrepreneurs
across America use eBay to engage in commerce.
Protecting the ability of small-business retailers to play
a meaningful role in the 21st-century marketplace creates jobs,
fosters competition and promotes innovation. The Internet and
mobile technology is, clearly, a part of every retail business
model going forward. This is true for small, mid-size and giant
retailers.
Small-business retailers have used the Internet to survive
and grow outside of their traditional markets. The remote sales
tax debate is decades old. While the pro-tax rhetoric largely
stays the same, the world of retail has changed around it.
The idea that this debate is about the Internet versus
offline stores is a false paradigm. All retail business models
large and small use the Internet. They also involve physical
facilities like stores, warehouses, management offices or
distribution centers.
A term you should be comfortable using is Brick and Click
retail. It means a network of stores, Web and technology
services all combined in a single retail business model. Large
in-store retailers in America operate Brick and Click
businesses.
To give some perspective, 93 percent of retail goes on in
stores while 7 percent is exclusively online. But almost 45
percent of in-store sales are Web enabled and that is
exploding. Big and small retailers offer consumers different
benefits on different scales and their models come with
different costs.
Giant billion-dollar retailers with national store or
distribution networks offer services like same-day delivery,
lower cost shipping and in-store returns of items bought
online. Being giant creates an economy of scale that has
advantages.
The largest retailers on the Internet including Bricks and
Clicks are growing their market share. In fact, national Brick
and Click retailers are 18 of the top 25 retail websites.
Amazon's version of a Brick and Click is based on its
distribution centers.
Small-business retailers are losing market share even under
the sales tax status quo. As has been the case for decades, the
fundamental threat to small independent retailers is coming
from billion-dollar competitors, not other small businesses.
You hear a lot about fairness in this debate as if sameness is
equal to fairness. It is not.
Different sized businesses face very different conditions
and different rules. In retail, small businesses on the
Internet face higher shipping costs, higher product costs and
difficulties dealing with returns. Retail competition is about
more than remote sales taxes.
Today, the benefits of local presence come with a tax cost.
Honestly, that is fair. If remote sales tax laws changed
without protecting small businesses, consumers will face a new
tax cost on goods purchased from small remote retailers.
But the consumer will not gain any retail benefits tied to
physical presence. Without a small-business exemption, remote
sales taxes will tip the scales further against small-business
retailers and benefit the largest retailers that have the most
facilities.
That is why retailers with national store or distribution
networks support changing current law. Current law regarding
remote sales tax authority is not perfect.
A few large retailers, Amazon, for example, have not
operated in the spirit of the law and link sales tax collection
to physical presence.
Some states have used tax-related incentives to encourage
large-retailer investments without offering similar investments
incentives to small businesses that fulfill their in-state tax
obligations. That is not fair.
Congress has the power to address inequities among a few
giant retailers without putting a new tax barrier in front of
small-business retailers. A real small-business exemption and a
Federal law reversing the Quill decision would meet that goal.
Remember, there will always be small-business retailers
that you want to protect and you want to grow. It is where
tomorrow's big retailers come from. Protecting small businesses
from regulatory and tax burdens is not a new concept.
This is a traditional bipartisan legislative goal. House
Resolution 95, sponsored by Representatives Lungren and
Lofgren, is in that spirit. They are championing small-business
retailers with their resolution. It retains an aspect of
current law that works.
eBay stands willing to work with the Committee to ensure
that any changes in remote sales tax law include meaningful
small-business protections that create an opening for small
retailers to grow into the next billion-dollar businesses.
I appreciate the opportunity to testify before the
Committee and I look forward to your questions.
[The prepared statement of Mr. Cohen follows:]
__________
Mr. Smith. Thank you, Mr. Cohen.
Mr. Kenley?
TESTIMONY OF THE HONORABLE LUKE KENLEY, INDIANA STATE SENATE,
ON BEHALF OF STREAMLINED SALES TAX GOVERNING BOARD, INC.
Mr. Kenley. Thank you, Mr. Chairman Smith and Ranking
Member Conyers and Members of the Judiciary Committee for the
invitation to talk to you today.
I chair the Senate Appropriations Committee in Indiana and
I am a long-time retailer. I come before you today in my role
as someone responsible for producing a balanced state budget,
which we do every year in Indiana, for developing a fair and
sensible tax policy to support that budget, and as president of
the Streamlined Sales Tax Governing Board, the country's most
successful business tax simplification initiative, with 24
fully-qualified member states and, I might add, interestingly,
about three-fourths of the legislators on that board are
Republicans because this is such a pro-business activity.
As a law student at Harvard, when I studied the Bellas Hess
case, I never imagined I would be testifying before Congress
about the court's interpretation of the Constitution's limits
on state sales taxes.
But with the development of the Internet and e-commerce,
both wonderful developments for consumers, serious issues for
state budgets and for retailers have come to the fore.
Today, local retailers compete with Internet retailers, a
development good for consumers, but must do so at a 6 to 10
percent government-mandated price disadvantage through no fault
of their own.
In Quill, the U.S. Supreme Court made it clear that a
state's ability to employ an effective sales tax was going to
depend on the authority granted by Congress under the Commerce
Clause. I come before you today to ask you to exercise that
authority.
In several other cases, the U.S. Supreme Court has made it
clear that voluntary agreements among states such as the
Streamlined Sales Tax Agreement are constitutional exercises of
state authority.
According to the Department of Commerce, e-commerce sales
in 2005 were $87 billion. This year, they will total more than
$175 billion, more than twice that amount. The quarterly sales
of e-commerce have increased on the average 17 percent above
last year's figures. Sales on Cyber Monday 2 days ago increased
22 percent over last year.
Retailers across this country often find themselves acting
as the display case for consumers who come in, try out the
product, solicit information and product comparisons from the
local retailer, then go home and buy it online.
In fact, the amazing power of mobile phones allows
consumers to scan product codes, check prices and buy a product
from online business before they even leave the local store.
Today's technology, with the tremendous advances made in
recent years, makes tax collection simple, cheap and reliable.
Streamlined, with its uniformity of definitions and procedures,
has further enhanced the ease of collection.
We provide free software for companies and our certified
service provider system with six qualified providers will
provide for free to the small Internet retailer collection and
remission services.
In many ways, the Internet is the perfect environment in
which to collect sales tax because it is something that can be
automated. Any small-business exemption for small Internet
retailers will further discriminate against the local small
Brick and Mortar businesses who do not receive the exemption.
In any case, with the free collection service offered by
Streamlined, the perceived burden is removed. The only
remaining burden is that 6 to 10 percent government-mandated
price disadvantage placed on local retailers.
Is this a tax increase? Paying a tax you legally owe but
were not previously paying is not a tax increase.
This tax is already owed as a use tax in every state with a
sales tax by the same thinking. If you refuse to pay or fail to
pay a tax already owed, for example, Federal income tax, that
would be a tax decrease.
None of us elected officials who have sworn to uphold the
Constitution and the laws of the United States are likely to
run a campaign on the platform of don't pay your taxes and get
a tax decrease.
The obligation to pay exists today, and asking one retailer
to collect without asking the same of all retailers doesn't
seem like equal protection under the law.
Some say that we should use other ways to collect the tax
with a tighter audit system. To me, this feels like overzealous
enforcement, practices which seem to invade the consumers'
privacy and fails to adhere to our standard belief that most
people file their returns with integrity and we trust them to
do so.
Three bills have been filed on this subject. There are some
differences among the bills that affect businesses in very
different ways. The original bill filed by Senator Durbin is
the most business friendly in terms of the simplicity and
uniformity.
But that bill does not offer an alternative to non-
Streamlined states which Streamlined agrees should be available
to other states, and we agree with Mr. Otto on that point.
Through the advancement of supporting technology and the
work of business and states together, much progress has already
been made. The differences reflected in the bills are about the
only serious issues left to resolve and those issues are
clearly identified.
I come before you today as a state legislator who develops
budget and tax policy as a retailer seeking a level playing
field to ask you to exercise your authority under the Commerce
Clause and grant states the ability to solve these problems.
[The prepared statement of Mr. Kenley follows:]
__________
Mr. Smith. Thank you, Mr. Kenley.
Mr. Misener?
TESTIMONY OF PAUL MISENER, VICE PRESIDENT OF
WORLD-WIDE PUBLIC POLICY, AMAZON.COM, INC.
Mr. Misener. Thank you, Chairman Smith and Ranking Member
Conyers, for inviting me to testify.
Amazon has long supported an even-handed Federal approach
for sales tax collection and to that end we have participated
in the Streamlined Sales Tax project for over a decade and we
are very pleased to participate in this hearing. Amazon
strongly supports enactment of a Federal bill with appropriate
provisions.
Mr. Chairman, Congress should authorize the states to
require collection with the great objects of protecting states'
rights, addressing states' needs and leveling the playing field
for all sellers.
Congress should protect the states' rights and authorize
them to require collection of sales tax revenue already owed,
and doing so would not violate pledges that are limited to
questions of income tax rates and deductions.
Congress should help address the states' budget shortfalls
without spending Federal funds by authorizing the states to
require collection of the billions of revenue dollars already
owed.
Congress should not exempt too many sellers from
collection, for these sellers will obtain a lasting unlevel
playing field versus Main Street and other retailers.
Mr. Chairman, Congress feasibly can authorize the states to
require collection. With today's computing and communications
technology, widespread collection no longer would be an
unconstitutional burden on interstate commerce and Congress
feasibly can authorize the states to require all but the very
smallest-volume sellers to collect.
Much attention has been paid to the size of a small-seller
exception threshold in Federal legislation, and rightfully so.
Such a threshold, which would exempt some sellers from a
collection requirement, must be kept very low to attain the
objection--the objectives of protecting states' rights,
addressing the states' needs and creating fairness among
sellers.
In this context, several kinds of small volume sellers must
be considered. Foremost are the Main Street small-business
retailers who, unless the small-seller exception threshold is
kept very low, will forever face an unlevel playing field
compared to a newly-created exempt class of out-of-state
sellers.
Small-volume online sellers have received most of the
attention and not without reason. No one wants these sellers to
shoulder alone burdens compared to those faced by the small-
business retailers who already collect sales tax in our local
communities.
Yet, no one should want these online sellers to take
advantage of a newly-created unlevel playing field over small
Main Street businesses and no one should want government to
pick business model winners and losers this way.
The consequences of a threshold's level to states' rights,
the states' needs and fairness are very significant because a
surprisingly large fraction of e-commerce is conducted by
smaller-volume sellers.
For example, nearly 30 percent of uncollected sales tax
revenue today is attributable to sellers with annual online
sales below $150,000 and only 1 percent of online sellers sell
more than this amount.
In other words, a $150,000 exception would deny the states
nearly 30 percent of the newly available yet already owed
revenue but would exempt from collection 99 percent of online
sellers.
Any higher threshold would deny the states even more
revenue and keep the playing field even more unlevel.
Fortunately, today's computing and communications
technology will allow all--excuse me, all online sellers to
collect and remit tax like Main Street retailers. The
technology is not limited to large sellers.
Rather, service providers also make the technology
available to medium- and small-volume sellers. Thus, collection
is either by sellers or for sellers.
There are many such service providers today--ADP, Avalara
and FedTax, for example. Two other examples come to mind,
Amazon and eBay.
Both companies use sophisticated computing and
communications technology to serve their seller customers. But
while Amazon is prepared to make its technology available as a
service to help sellers by collecting tax for them, eBay seeks
to avoid any role in collection, claiming that small-volume
sellers will be burdened and implicitly that eBay's technology
is not capable of helping its larger sellers to collect.
And these claims are made despite the fact that eBay
manages to collect the transaction fees it charges its sellers
and despite the fact that eBay already calculates state sales
tax for eBay sellers all the way down to the local jurisdiction
level.
Amazon and many other service providers will help smaller
online sellers collect and, surely, eBay can as well.
In conclusion, Mr. Chairman, Congress may, should and
feasibly can attain the objectives of protecting states'
rights, addressing the rights--the needs of states without
Federal spending and leveling the playing field for all sellers
but only if any, quote, ``small-seller exception'' is kept very
low.
The time to act is nigh. Amazon is grateful for this
hearing and we look forward to working with you and your
colleagues in Congress to pass appropriate legislation as soon
as possible.
I look forward to your questions.
[The prepared statement of Mr. Misener follows:]
__________
Mr. Smith. Thank you, Mr. Misener.
Let me recognize myself for questions and let me address my
first question to Mr. Byrne and Mr. Cohen, and it is this.
If states already have the authority to collect sales tax
from remote sellers, why shouldn't they also have the means to
collect sales taxes from the remote sellers?
Mr. Byrne. Thank you----
Mr. Smith. Go on, Mr. Byrne, first, if you will.
Mr. Byrne. Mr. Chairman, the Quill decision establishes
that it would be that the states can go up to a certain line
and no further, and that line is drawn by the Supreme Court
at----
Mr. Smith. But Congress could change that line and in fact
the Supreme Court almost invited us to, didn't it?
Mr. Byrne. No question, and they did. No question you have
the power to. No question that per the Quill decision you have
the power to change it.
Mr. Smith. Again, if states can collect it why shouldn't
they have the means to collect it?
Mr. Byrne. I am sorry, sir?
Mr. Smith. If states have the authority to collect a sales
tax from remote sellers, why shouldn't they also be given the
means to do so?
Mr. Byrne. Well, so states have the authority--actually,
the U.S. Congress has the authority to empower the states to
but they shouldn't because at this point it is--what it is
really going to be about is Amazon and the big-box--big-box
retailers having a way to draw the drawbridge up after them.
It is very burdensome and it will be very burdensome for
companies like mine to establish databases or plug in to
databases and keep--charge appropriate taxes on every kind of
product in 10,000 jurisdictions.
Mr. Smith. Okay.
Mr. Byrne. You know, in some--in some jurisdiction candy is
taxed like a candy and some is taxed like food, a gift basket.
It will be extraordinarily complex for us to implement.
Mr. Smith. Okay. Thank you.
Mr. Cohen?
Mr. Cohen. Well, Mr. Chairman, we agree that not only do
you have the power but the means should be provided to the
states. It is just a question of small business and small-
business protection that we believe is where the issue lies,
not whether the states have the--should be given the right and
the means to collect.
Mr. Smith. Okay. Thank you, Mr. Cohen.
Mr. Misener, which of the three bills under consideration
would you support?
Mr. Misener. Well, I think there has been--there have been
three breakthroughs this year, Mr. Chairman. The first
breakthrough was when Mr. Conyers and his colleague, Senator
Durbin, introduced a bill in July which gave to the Governing
Board of the Streamlined Sales Tax Project the right to decide
the correct threshold for a small-seller exception.
The next breakthrough is Mr. Womack's bill, which
recognized that not all states will be able to make the changes
required by Streamlined. And the third breakthrough was the
Senate bill introduced a few weeks ago which would----
Mr. Smith. Would you--would you support any of those
breakthroughs?
Mr. Misener. Yes, sir. All three.
Mr. Smith. All of them?
Mr. Misener. All three.
Mr. Smith. Would you? Okay.
Mr. Misener. We were concerned about the size of the small-
seller carve-out in Mr. Womack's bill but we believe that that
is a subject for discussion here today.
Mr. Smith. Okay. Okay. Thank you, Mr. Misener.
Mr. Marshall, Mr. Otto and Mr. Kenley, if we were to enable
states to collect a sales tax from remote sellers, wouldn't
that increase the cost of merchandise to consumers? And if so,
is that justified or not justified? Mr. Marshall?
Mr. Marshall. Well, I don't--I certainly can't speak as an
expert on that topic but my understanding is that sales tax is
or use tax is owed by Michigan residents on all their
purchases.
So it is not a new tax. It is simply leveling the playing
field as it relates to who is required to collect it and who is
required to voluntarily disclose it in their tax return.
Mr. Smith. Right. That was my point. They had the authority
and they can impose a tax. It is just right now most states do
not actually collect it. But that is my--Mr. Otto?
Mr. Otto. I would agree with what he says.
Here is one interesting point, though. If you are a
business and you hold a sales tax permit in the state of Texas,
you go through audit you are going to be found if you have not
remitted use tax you should have.
So in those instances, there is some. But in Texas we have
no way for a household to remit use tax. There is no state
income tax. There is no form for anybody to remit the use tax.
Mr. Smith. So you are saying the taxes are owed anyway,
they might as well be collected?
Mr. Otto. They are owed.
Mr. Smith. Okay. Mr. Kenley?
Mr. Kenley. Thank you, Mr. Chairman.
My perspective is that the only disparity in the
competitive world that we have today in this arena is the 6 to
10 percent sales tax that is being imposed on some retailers
and not on others.
I think if you eliminate that and level the playing field,
I think you are going to see more competition. So I don't think
the consumer is necessarily going to suffer in that--in that
situation, Mr. Chairman.
Mr. Chairman. Okay. Thank you, Mr. Kenley.
The gentleman from Michigan, Mr. Conyers, is recognized for
his questions.
Mr. Conyers. Thank you, Chairman Smith, and I want to thank
the witnesses for their individual contributions to this
subject.
Now that we have established that Quill gives us the
authority, as a matter of fact we are encouraged to take some
action in this, I think the question really is how do we do it
as fairly as we can.
Now, ironically, as our witness, Mr. Marshall, has pointed
out, there is already a tax on Internet transactions but nobody
is paying it any attention.
Am I correct that Michigan is in that posture, Mr.
Marshall?
Mr. Marshall. Yes, you are. We are required to report our
Internet sales, purchases and pay--remit a use tax on that. But
there is just no way for the state of Michigan to know what
transactions are occurring.
Mr. Conyers. I wonder how many other states are like that.
Does anybody know how many states might be in the same position
that the state of Michigan is in? Namely, that there is a tax
already existing and that, by the way, there is a 6 percent
sales tax in Michigan and there should be a Internet tax and it
is being ignored.
So couldn't someone argue, Mr. Marshall, that we don't need
to do anything, just if everyone followed the law we would be
better off? What do you say to that?
Mr. Marshall. Well, I just think collection ought to be
uniform. If some retailers are required to collect then all
retailers should be required to collect. I think it is just the
unfairness of some of us being required by law to collect sales
tax and other retailers that are selling product in our state
are not.
Mr. Conyers. Well, suppose we passed a law and everybody
did what Michigan does is ignore it. What would you say to
that?
Mr. Cohen. Mr. Conyers, the current law in the 45 states
that have sales tax plus the District of Columbia is that there
is a concurrent use tax obligation for a purchaser who does not
pay the sales tax when they purchase the item. Some states,
like Texas, don't have a way in which that can be remitted.
Other states, like California, have a line on the income
taxes, state income taxes, for use tax collection. It is done.
It is the law.
It is very difficult and I do respect the tax collection
efforts by many states that it is very hard to do and it will
cost a significant amount of money to do that, and therefore it
does seem to make a lot more sense that on large retailers you
impose a burden that they collect and remit sales taxes across
all 45 states.
Mr. Conyers. So you support my legislation?
Mr. Cohen. As currently written, we do not support the
legislation, Mr. Conyers.
Mr. Conyers. Well, that----
Mr. Cohen. Because of the lack of a sufficiently high
small-business exemption.
Mr. Conyers. So that is your main reservation about it?
Mr. Cohen. Yes, sir.
Mr. Conyers. Well, let me ask you this. Is it fair for some
witnesses--some businesses to have a sales tax advantage by not
having to collect sales taxes, which is why you are for this
bill if we could get that small-business exception straightened
out.
Mr. Cohen. Yes, sir. And let me quote Jeff Bezos from 1996:
``In the mail order business, you have to charge sales tax to
customers who live in any state where you have a business
presence. We thought about the Bay Area, which is the single
best source for technical talent, but it didn't pass the small
state test.''
So there was an advantage that he chose for his company to
place it in Washington State to take advantage of the distant
state sales tax exclusion.
Mr. Conyers. Thank you very much.
Mr. Misener. If I may, since my CEO was just mentioned, I
think we have to recognize something here that that choice was
made under current law. What we are proposing today is to
change the current law. Congress has this authority very
clearly.
Let's recall, of course, that eBay has facilities in 20
states around the country. They have fulfillment centers in
eight states around the country. It is not a isolated business,
as they would suggest.
They also, of course, are a multi-billion-dollar company.
Sales through eBay exceed Amazon's retail sales. So doing
something to carve out eBay from collection will have
significant ramifications to the states and for fairness.
Mr. Conyers. Mr. Chairman, could I ask my friend here if he
has any rebuttal comment to that statement?
Mr. Cohen. If eBay was a retailer, of course, eBay, where
it had physical presence, would have an obligation to collect
and remit sales taxes in those states. But eBay is not a
retailer.
eBay is a marketplace in which people offer items for sale
and are the sellers, and the sellers have the obligations. And
one of the things we are quite proud of is that our sellers
that are in the 45 states and the District of Columbia that
remit and owe sales taxes collect and remit them.
Mr. Conyers. Yeah.
Mr. Cohen. So our small sellers, including Mr. Marshall,
pays his sales tax in Michigan for his sales in the state of
Michigan online. Amazon----
Mr. Conyers. Mr. Chairman, could I get a rebuttal to the
rebuttal, please?
Mr. Smith. The gentleman from Michigan is recognized for an
additional minute.
Mr. Misener. Yes, sir. Thank you very much, both of you.
Amazon also has a platform for sellers and we have over 2
million sellers that sell through our sites. We will make a
service of tax collection or remittance available to our
sellers. We only ask that eBay do the same.
Mr. Smith. Thank you, Mr. Conyers.
The gentleman from North Carolina, Mr. Coble, is
recognized.
Mr. Coble. Thank you, Mr. Chairman.
Gentlemen, good to have you all with us today. Mr. Otto,
the Committee--this Committee recently passed H.R. 1439, the
Business Activity Tax Simplification Act, which confirms
Quill's physical presence standard for collection of corporate
income and other business activity taxes.
Would your bill apply just--the nexus just for the sales
tax or would it reach into other business taxes as well?
Mr. Otto. No. It is my understanding that all we are
dealing with here is sales and use tax. We are not trying to
change nexus statutes for any other tax.
Mr. Coble. That was my thinking. I wanted to hear it from
you to be sure. What do you believe, Mr. Otto, is an
appropriate small-seller exemption threshold?
Mr. Otto. Well, you are asking me to get into a battle I am
not sure I am willing to get into. [Laughter.]
Without looking--I mean, I am only familiar with my state.
Without looking, and you are talking about a bill here that is
going to affect 45 states and the District of Columbia, that is
something I understand from the testimony that has been given
here today that is going to be an important issue.
I don't have a preconceived idea. I can't pick a number out
of the air and tell you this should be the small-business
exemption. I think it is going to require some study on this
Committee's part in order to come up with what is fair. I do
support a small-business exemption. It is just in defining what
is small business.
Mr. Coble. I didn't intend to have you to put your oars
into troublesome waters, Mr. Otto.
Mr. Misener, I am getting involved in some hearsay evidence
here. Last week, a constituent of mine told me that he heard on
the radio an ad for Blinds.com. The gist, he tells me, was that
they--was to buy blinds from Blinds.com because there is no
sales tax in most states.
Is it true, in fact, that there is no sales tax in most
states for Internet sales, and if so, would you agree that that
could very well present a competitive edge over the Brick and
Mortar sellers?
Mr. Misener. Thank you, Mr. Coble.
We collect--in the four states where our retail business
has a physical presence we already do that. What we are seeking
today is congressional legislation that would authorize the
states to require all out-of-state sellers including Amazon and
Blinds.com to collect regardless of whether their retail
business has a physical presence in a state.
Mr. Coble. Mr. Bryne--where is Mr. Bryne? I don't see Mr.
Bryne. Byrne--Mr. Byrne.
Mr. Byrne. I am sorry.
Mr. Coble. Mr. Byrne, Brick and Mortar retailers
characterize the Marketplace Equity Act as restoring fairness
to the retail industry. How do you respond to that?
Mr. Byrne. I would say that there is--it cuts both ways.
Brick and Mortars also have advantages over us. They get to--
over Internet companies. They get to interact directly. They
get to hand over the goods immediately. Customers get to, you
know, touch them before they buy them. They can return them
right there.
So there is--so there is advantages and disadvantages that
cut both ways. We wouldn't--we wouldn't come and say gee,
Congress has to do something in order to level the playing
field on Brick and Mortars to take away those advantages. So I
will stop there.
Mr. Coble. Mr. Cohen, advocates of sales tax reform
legislation insist that technology can easily calculate and
collect sales tax--taxes at the destination rate. If this be
the case, what would be the burden on eBay's small-business
customers if such technology were made available to them?
Mr. Cohen. Mr. Coble, we have been very clear for at least
the 11 years I have been working with the company that this is
not a technologically difficult thing to accomplish. It is
burdensome.
It is a morass of many, many different state laws with
9,647 different taxing jurisdictions. But that does not make it
impossible for people to collect and remit.
Our basic point of view is that it would be much more fair
if all small businesses were to receive the same fairness that
a large retailer were to get--lower shipping costs, economies
of scale--and that this is a place in which tax policy can be
used to make sure that small businesses have an opportunity to
participate in the global market.
Mr. Coble. I got you. Thank you, sir.
Mr. Chairman, I am going to try to beat that red light
before it illuminates by putting a question to Mr. Misener.
How have states' affiliate nexus statutes affected your
business and how does Amazon use affiliates? What toll has the
ensuing litigation had on your--on your operation?
Mr. Misener. Thank you, Mr. Coble.
Affiliates are small websites within states around the
country, around the world that place links on their site to a
variety of retailers including Amazon, and when a consumer
clicks on that link and ends up buying something at the
retailer, the website gets a commission.
It is a great advertising model. It is a great business
model. A lot of small businesses have benefited. There have
been counterproductive bills enacted around the country--I
think a half dozen now--where states have tried to describe
those advertising activities as giving an out-of-state retailer
nexus.
We completely reject it but at the same time these laws
have passed and so we simply have stopped advertising. It is
unfortunate.
We certainly wish we could get those advertisers back, and
in North Carolina included we would love to be able to welcome
back our Amazon.com associates and we would do so when Federal
legislation is enacted.
Mr. Coble. I thank you. Mr. Chairman, I lost the race with
the red light. I yield back.
Mr. Smith. Thank you, Mr. Coble.
The gentleman from Virginia, Mr. Scott, is recognized.
Mr. Scott. Thank you, Mr. Chairman.
I yield to the gentleman from Michigan.
Mr. Conyers. Thanks, Mr. Scott.
I just want to ask Mr. Misener, who represents Amazon, you
are one of the big guys but yet you are supporting a fair tax,
a balanced tax, with the little guys like Marshall.
Is there some explanation for your extraordinary good moral
bearing that you bring to this hearing today?
Mr. Misener. Well, personally, it is worthy of question
with me but we have long supported Federal legislation. In
fact, we made this decision right after I joined the company a
dozen years ago.
At the time we faced a choice. Could we draft off of the
Internet Tax Freedom Act moratorium and somehow claim that the
Internet deserved a privileged non-tax position. We have never
taken that position.
We have participated constructively in the Streamlined
Sales Tax Project as a way to work with the states to get the--
eventually get to the point of Federal legislation. The three
breakthroughs that I mentioned this year starting with your--
with your bill in July really, I think, are breaking the
logjam.
So we are to the point of actually recognizing the fruits
of our labor all these years.
Mr. Conyers. Let the record show that there are corporate
good guys in this world. Thanks, Mr. Scott.
Mr. Scott. Thank you.
Senator Kenley, if somebody in Washington, D.C., goes to a
Brick and Mortar store in Virginia and buys something, do they
pay the Virginia sales tax?
Mr. Kenley. If they go to the Virginia store they do and
the basis of the tax is on the destination--in other words,
where the transaction takes place, and it is normally where the
consumer is.
Mr. Scott. And if the Virginia store delivered it in
Washington, D.C., a washing machine, for example, where would--
who would pay the tax?
Mr. Kenley. Well, we spend a lot of hours arguing those
points in Streamlined and we have refined that so that in some
cases it would be in Washington, D.C., where the sales takes
place and in some places it could be in Virginia.
Mr. Scott. Well, if the sale took place in Virginia and
they delivered the washing machine to the residents in D.C.----
Mr. Kenley. Okay. If they deliver it, it is taxable in
Washington, D.C.
Mr. Scott. Okay. Now, are you aware--is there any small-
business exemption to the local sales tax?
Mr. Kenley. No, not in--I don't think there is in any of
the states. Everybody is on the level playing field there.
Mr. Scott. If the tax is due but not collected by the
business, do you have an estimate of how often it is actually
collected, some kind of way?
Mr. Kenley. You mean how often it is paid through the use
tax system?
Mr. Scott. Right.
Mr. Kenley. In Indiana, we have less than 1 percent of our
filers who actually fill out a use tax return and remit a use
tax based on remote purchases.
Mr. Scott. If the business were to actually collect the
tax, what would they do with the money? How would they get it
to the various states and localities?
Mr. Kenley. Well, the service--first off, the small
business can use a certified service provider and we actually
have one small business in New Hampshire of less than $50,000
in sales that signed up for this in 18 minutes and that is all
it took, and they are not charged anything to be a participant,
and the certified service provider--the retailer collects the
tax when they bill the customer.
They then turn it over to the service provider. They fill
out all the returns necessary in the 45 states that have sales
tax and remit it appropriately in a very seamless proposition.
Mr. Scott. Now, who pays for that service?
Mr. Kenley. The states pay for it and then the certified
service providers take the amount of compensation that
Streamlined offers or that those states offered in addition to
the regular compensation package.
Mr. Scott. Now, is that service actually available to
everybody now?
Mr. Kenley. Yes. We have six certified service providers
who can do this. Many of the larger companies have chosen to
just implement their own system, and Amazon has developed a
system where they are a certified service provider for their
retailers that participate on their platform.
Mr. Scott. Does that include the--some localities have a
local sales tax.
Mr. Kenley. That is correct. It includes all of those
jurisdictions with local sales tax as well, no problem.
Mr. Scott. And so a small business can sign up for the
service, no cost----
Mr. Kenley. That's right.
Mr. Scott. Assess the tax. Do you have some software to
tell them how much to charge?
Mr. Kenley. No cost on the software.
Mr. Scott. So the software tells them how much to charge so
they add it to the bill. They collect it and then they send in
the aggregate amount collected to some service who will
distribute the money----
Mr. Kenley. To the--right.
Mr. Scott. At no cost.
Mr. Kenley. That is right.
Mr. Scott. Thank you, Mr. Chairman.
Mr. Smith. Thank you, Mr. Scott.
The gentleman from Indiana, Mr. Pence, is recognized.
Mr. Pence. Thank you, Chairman.
Thanks for holding this hearing and I am grateful for the
testimony of all the participants but I particularly want to
acknowledge not only Senator Kenley that I had the opportunity
to introduce, who is a leader in Indiana, a man I greatly
admire but also I want to appreciate two other of the
witnesses.
Mr. Misener with Amazon--Amazon is a great corporate
citizen in Indiana and we are--appreciate the tone and tenor of
your testimony and your remarks today.
And I also want to acknowledge Mr. Byrne, who I have had
the pleasure to meet because of his association with education
reform at the Milton and Rose Friedman Foundation that is
proudly located in Indianapolis, Indiana. So this is a
distinguished panel, to say the least.
I find this discussion enormously helpful, Mr. Chairman. It
is--it is clear that since the advent of not the Quill decision
but the Commerce Clause itself that under our form of
government we have--the Congress has essentially granted
exclusive power to regulate interstate commerce at the national
level.
I have, as you know, Mr. Chairman, and other Members on
this end of this Committee I have long opposed taxing the
Internet. I greatly associate myself with comments that were
made about the extraordinary innovation that has occurred in e-
commerce in this country and I believe it represents a bulwark
of American prosperity in the last 20 years.
I believe the moratorium on Internet taxation has been
prudent and I have strongly supported it. It does strike me,
though, that as this marketplace has matured that there is an
argument as has been made eloquently by several on the panel
for us to consider letting states decide.
But it--but it strikes me that we ought to follow--at least
this conservative is committed to following a couple basic
principles.
Number one is no new taxes. My colleague from Texas and I,
I feel instinctively share a particular view of taxes. Maybe I
am presuming but I--we ought to make sure there is no new taxes
on the people of the several states.
Secondly, I do--I do acknowledge that there ought to be no
undue burden on commerce, particularly e-commerce in this case.
I am also very interested in the--in what would be the
recommendation of members of the panel about the proper small-
business exemption.
I think the two large principles here for me is I don't
think Congress should be in the business of picking winners and
losers, and inaction by Congress today results in a system that
does pick winners and losers.
I also--I am a very strong advocate of federalism, as you
are, Mr. Chairman, and it is my judgment that having Congress
continue to stand in the way of letting states decide if we can
meet these other criteria is worthy of our deliberations here
as we preserve and promote and seek to invigorate the
principles and the practice of federalism across this country.
Let me ask this question, though. I will direct this to
Senator Kenley in the time that is remaining, that we just
heard Mr. Coble speak about a Blinds.com radio ad, the tagline
of which--well, I will just quote him and paraphrase him, I
don't accuse the company of any particular distortion--but we
have all heard ads like this, saying that in most states no
sales tax. There is no sales tax on Internet sales.
Let me ask you, Senator Kenley, as--in a point of fact is
it that there is no sales tax on Internet sales or is it simply
that states do not have the authority to collect taxes that are
owed?
Because this, to me, is a very--in our very first
conversation about this, Senator Kenley, you know, I am someone
who believes if you owe taxes pay taxes. But maybe you can
address that. Is it--what is the situation in America today,
first, in Indiana and all over the country?
Is there no sales tax on Internet sales or is there in fact
a sales tax, it just simply--Indiana and other states do not
have the ability or capacity to collect it under the law?
Mr. Kenley. Thank you for the question, Congressman Pence.
First off, I would say that this is not a tax on the
Internet. This is a tax on the consumer who is going to receive
the government services that are provided in whatever state
that is.
As to your question about whether or not there is a tax or
whether the tax is collected, we have noticeably been unable to
collect the tax other than by having the retailer remit, and so
that is why we have gone to these great lengths to make it cost
effective or cost free, particularly for small retailers, to be
able to have a collection and remission process.
If we didn't do this, I am afraid we would end up like
Greece and nobody would pay their taxes. But--and we don't want
to go there. So it has just been a difficult proposition to
work it out.
I think once you start down other paths of trying to find
ways to collect that use tax, which is already due and owed,
then you get into things that you are trying to get information
about consumers, are you participating in invasion of privacy,
are we using the heavy hand of government and the tax collector
to beat on people unduly.
And the sales tax system, which historically has been, as
Mr. Marshall states, that the retailer collects and remits the
tax, that is the historical precedent and we could make that
work in this system due to the advances in technology even
since the Internet age of commerce started.
Mr. Pence. But the tax under Indiana law, and I will only
ask you this, the tax is owed.
Mr. Kenley. The tax is owed.
Mr. Pence. It is owed by the consumer.
Mr. Kenley. It is owed in all 45 states. They all have the
same situation in that regard.
Mr. Pence. Thank you.
Thank you, Chairman.
Mr. Smith. Thank you, Mr. Pence.
On the way to recognizing the gentlewoman from California,
I would like to recognize Congresswoman Jackie Speier who,
along with Congressman Womack, is a sponsor of the Marketplace
Equity Act and who has just come into the room. Does she--there
she is. Okay. Good.
The gentlewoman from California, Ms. Lofgren, is
recognized.
Ms. Lofgren. Well, thank you, Mr. Chairman, and for this
useful and interesting panel. I didn't have the chance to
introduce Mr. Cohen but eBay is actually headquartered in San
Jose. So welcome, San Jose-based eBay.
You know, one of the things that I am listening here is to
try and identify we want to stand with the little guys because
small businesses are the engine for the American economy. They
are the ones that are creating the jobs and the difficulty is
who is that.
You know, who is standing up for the little guys, and I
guess the question I have for you, Mr. Cohen, is I know eBay is
an entity but you don't sell stuff. I mean, it is your--it is a
platform and people are selling.
When I go on eBay, it looks like it is mainly small guys.
When I go on Amazon, which I do a lot and thank you for having
your service, especially when we are in Washington and
Christmas is coming up, you know, sometimes there are small
guys, like especially for specialty books, but it is mainly
larger retailers that you get to through your site.
What percentage of eBay's users are what you would consider
small business and how would you define that, Mr. Cohen? And
then I would like to ask the same question of the Amazon
witness.
Mr. Cohen. Congressman Lofgren, for many of our sellers
eBay is only one channel that they use. So whatever statistics
we know of their use of our platform, like Mr. Marshall, eBay
is one part of his business.
Ms. Lofgren. I see.
Mr. Cohen. He has a significant portion of his business, a
much larger portion of his business, in the state of Michigan.
What is important, though, what we believe is important is
how do you define what the size of a small business should be
to take advantage of an exemption, and we have recommended and
endorsed bills that have included the Small Business
Administration's determination of what is an electronic
retailer.
That is what determines whether a small business qualifies
for SBA loans and other assistance, and the number, which is
reset annually to determine what is the appropriate size, the
last year was approximately $30 million in distance sales. That
is what we would----
Ms. Lofgren. Now, that sounds like a lot but for--that is
gross, correct? What would that usually--if you had that kind
of gross sales what would that really net you as a business,
ordinarily?
Mr. Cohen. Well, if you live in the state of Texas, where
they don't have a personal income tax, it may make a lot more
money than in the state of California or in other states.
But our general impression is that most of those sellers,
even up to a $30 million in sales, are having very, very tiny
margins and that what they are making and netting out from that
is significantly less than what their large retailer
competitors can be.
For one example, our estimate is that $30 million number we
believe that would be the amount of sales on Amazon since the
beginning of this hearing today.
Mr. Misener. Thank you, Ms. Lofgren.
First of all, on Mr. Cohen's Small Business Administration
number, we just need to debunk that right from the start. It
has absolutely nothing to do with the conversation today which
is about burden on small businesses for collecting sales tax.
It has everything to do about set-asides for small business
in government contracting context. Absolutely nothing to do
with remote sale collection.
Mr. Cohen's company has told Wall Street, at least, that
they have something over 25 million sellers. I assume that is a
worldwide number so, forgivingly, that is probably about 10
million domestically. We have analyzed it with just as few as 5
million sellers so really cutting off a large part of the long
tail that exists. Analyzing at $5 million, only 1 percent of
those sellers sell more than $150,000----
Ms. Lofgren. But my question to you was what percentage of
your sellers are small businesses as compared to big, you know,
larger retailers?
Mr. Misener. Yeah. Our retail business, which clearly is
not a small seller, is still the bulk of the sales at
Amazon.com. We have only 2 million sellers, additional sellers,
the vast majority of which are small. But that pales in
comparison----
Ms. Lofgren. But that is a number. In terms of dollar
amount, I mean----
Mr. Misener. We don't----
Ms. Lofgren. A little book seller--I sometimes get my
husband the books. I mean, they are not doing big volumes, it
doesn't look like, in terms of money.
Mr. Misener. Yeah. I am sorry. We have not released that
amount in our SEC filings. But just for scaling it, it is
important to recognize that the sales through eBay still exceed
the sales by Amazon retail and the number of small sellers at
eBay is many times as----
Ms. Lofgren. Well, that is really not--that doesn't tell us
anything.
Let me ask you this, Mr. Cohen. If we did not have an
exemption for small businesses, what would the impact be? I
mean, you have got small businesses all over the United States,
people that are actually supporting themselves in these tough
economic times by having, you know, helping to sell stuff, I
mean, including Mr. Marshall.
What would the impact be, do you think, on those small
businesses across the country?
Mr. Cohen. Without a robust small-business exemption you
put an artificial limit on the size and impose the costs
immediately upon those people, and we think that the cost on
the economy would be fairly significant.
There is an enormous amount of income generated by the eBay
platform, by the use of ad words through Google for many
different small businesses through the Amazon marketplace to
have an opportunity to compete on a global marketplace.
So we think our estimate is that there would be significant
job losses with low small-business exemptions.
Ms. Lofgren. My time is up, Mr. Chairman. I thank you and
thanks to the panel.
Mr. Goodlatte [presiding]. I thank the gentlewoman and the
Chair is now pleased to recognize the gentleman from Utah, Mr.
Chaffetz, for 5 minutes.
Mr. Chaffetz. And thank you. This has been a great
discussion. I appreciate the panel and all of your
participation.
Does everybody agree there should be some exemption for
small business or is anybody advocating that there--we should
actually get to be at zero?
Mr. Kenley. The Streamlined organization in their plan has
a $500,000 small-business exemption. Speaking for myself as a
retailer, I think that the--there should be no small-seller
exemption and I say that because the minute you give a small-
seller exemption to the Internet retailer you are then
discriminating against the small-seller of the Bricks and
Mortar type.
Mr. Chaffetz. Okay, but everybody else is agreeing that--in
my mind, one of the big questions is what should be that
threshold.
Mr. Kenley. Right.
Mr. Chaffetz. What is the threshold by which small--what is
a small business and what threshold should it be?
Mr. Byrne, I would like to start with you, if I could.
Let's talk about the difference in the modeling and how that
affects what you are doing, what eBay is doing, what Amazon is
doing and what advantages, disadvantages.
I mean, we are really trying to empower small businesses in
this country. Some may say oh, you get an advantage but the
others say it is a terrible burden when you are trying to start
a new business or supplement your income and do it part time.
Can you just go a little bit deeper into that, please?
Mr. Byrne. Yes. Sure. In the bill as we have proposed the
small-business exemption is up to $20 million. I think that may
be the highest of any proposed cap. But as far as the models,
if I understood your question correctly, what is really going
on is this.
If we open a warehouse in Indiana, as we did once, we
interpret the law to be that we have to pay taxes in Indiana.
My fine competitor down at the end of the table, Amazon,
they have done--taken a much more aggressive tax position
historically where they open a new warehouse in a state, they
put it in as a subsidiary and they say oh, you see, we don't
own that warehouse, we just own a subsidiary which owns the
warehouse. So we don't owe taxes.
They have been doing that from the beginning. Our tax
accountants would never let me try something so aggressive.
What has happened is the ground is dissolving under their feet
on that position and so now they are jumping on this, which is
really giving the sleeves out of their vest because Amazon is
essentially turning into a big-box retailer, not in the sense
of having storefronts everywhere but in the sense of having
warehouses.
Mr. Chaffetz. Mr. Misener, how many distribution centers do
you have across the country?
Mr. Misener. A couple dozen.
Mr. Chaffetz. A couple dozen?
Mr. Misener. Yes, sir.
Mr. Chaffetz. And do you pay taxes on those or don't pay
taxes on it?
Mr. Misener. It is not a tax on Amazon that we are talking
about. It is a collection responsibility.
Mr. Chaffetz. Right.
Mr. Misener. We collect where we are legally required,
which is in the four states where we have a retail presence.
Mr. Chaffetz. I know you--I mean, you got a nice compliment
shout-out from Mr. Conyers there but you have also taken a
fairly aggressive tax position in saying well, we have no
physical presence because it is supposedly--but it is under
your control, is it not?
Mr. Misener. No. These are separate corporations. I don't
think anybody on this Committee want to start----
Mr. Chaffetz. Let me go back to Mr.--let me go back to--my
time is real short. Let me go back to Mr. Byrne here.
Finish that thought. I interrupted you.
Mr. Byrne. You see my point.
Mr. Chaffetz. Yes.
Mr. Byrne. You see my point. Okay. So because--but that
ground is eroding from beneath their feet so they are looking
more and more like a big-box and therefore they are jumping on,
well--they are jumping on let's get this tax reform. But it is
the sleeves out of the vest.
All this tax reform is sleeves out of the vest for big-
boxes because they already have--they already have nexus
everywhere. So there is--so they are already charging tax
anywhere so--everywhere so they don't have to pay any new tax
through this, and Amazon is in exactly the same boat.
Mr. Chaffetz. Mr. Cohen, let's--eBay is so pervasive
everywhere. We are talking about the exemption threshold.
Where do you see that line? I happen to think it should be
higher rather than lower but where--what number do you like and
what is your perspective on it?
Mr. Cohen. Mr. Chaffetz, we do support the Small Business
Administration's calculation for the size of small businesses
but we are also open to a discussion that makes it relevant to
trying to determine what the appropriate level is.
But our general viewpoint is that if a small business
qualifies to obtain loans or if it qualifies as a small
business by the people that we entrust to determine the size of
small businesses, that it makes a lot more sense than handing
the power over to the tax collector who has an interest in
trying to maximize every single possible dollar and does not
have any interest whatsoever in determining how you create more
jobs.
Mr. Chaffetz. What is that threshold number? I forget.
Mr. Cohen. Thirty-one--it is approximately $31 million
right now.*
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*Mr. Cohen changed this figure to $30 million.
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Mr. Chaffetz. Okay. Thanks to the Chairman. I yield back.
Mr. Goodlatte. I thank the gentleman.
The Chair recognizes the gentlewoman from Texas, Ms.
Jackson Lee, for 5 minutes.
Ms. Jackson Lee. Mr. Chairman, thank you very much and let
me thank a number of Members who have legislative initiatives
including--certainly all are my friend but my dear friend and
the Ranking Member, Mr. Conyers. And I think it generates or it
speaks to the emerging reconsideration of where we are today in
2011 as where we might have been a decade ago or 15 years ago
and I believe this issue was before this Committee.
I am delighted to see my colleague from the state of Texas
and listen to testimony. So I--let me just show my cards. I
think compromise and the recognition of changing times is
vital, and all of us have heard the refrain of creating jobs.
Jobs can be created, maybe, if you are a small business and
you are using online sales and maybe you have one or two
persons in your home or one or two persons in their homes
working with you and we don't want to disrespect that level of
jobs.
But we also know that the idea of building Bricks and
Mortar, persons working in a place, creates a stream of jobs--
those who are building, those who pave the parking lot, those
who have worked on the roads to get you to the location and,
certainly, those who work in the facility, and maybe if we had
a number of Black Fridays you would have people working the
midnight shift in retail.
So I have to be very concerned about how we bring about
this balance and I want to go to my friend from Texas,
Representative Otto, and tell me, frame for me, that story you
were saying about your town and stores and how much of a
difference that makes.
I would then like to follow up with Mr. Misener, excuse me,
who has a little twist on this issue. You are the famous Amazon
with all of its attractiveness but I hope that you are also in
the realistic world that can help us be part of the solution.
Let me go to Mr.--Representative Otto at this time.
Mr. Otto. Thank you, Congresswoman. The--thank you.
It is estimated currently in the state of Texas that there
is between $600 million and $800 million a year in sales and
use tax that is not collected on out-of-state sales. That is a
tremendous amount of money.
That points out to me the unfair competition that my
storefronts are competing with. If I am a retailer going into
business, certainly I am going to take advantage of the
Internet and selling over the Internet. No one here is
discouraging that. No one here is wanting to tax the Internet.
But in leveling the playing field to make sure that my
local stores will continue to be developed, you know, my
concern is are we migrating to an economy, and it appears that
way if you look at the growth. Not where we are in total
dollars but if you look at where the growth is, the growth is
definitely to entice people to go to the Internet.
Anybody that thinks they are not going to take an 8 to 10
percent discount into consideration on a big-ticket item such
as a camera or something or a computer or a television set, I
just don't believe that.
Ms. Jackson Lee. Let me, because my time is short--you have
eloquently stated that. Speak quickly to the issue of it is too
complex if you begin to tax, and my point would be we have
migrated or moved to a level of technology that it is probably
less complex than it might have been 10 or 15 years ago.
Mr. Otto. All of the bills, as I understand, that are
before Congress right now call for the very simplification. For
example, if we take H.R. 3179 and allow states to do a states-
only, you could end up with as few as 25 jurisdictions because
Streamlined has got 24 already in one.
There is 21 states not in Streamlined that have a sales tax
and all of these provide that the states have to provide the
software if they are going to get down to the local area.
Ms. Jackson Lee. One quick question and then I would like
the gentleman from Amazon. It would probably be unfair
competition if we left--I know there is an opt-in scenario but
if we left some states out I think we are at a point now where
we need to look at whether or not all 50 states need to be
under that umbrella.
Mr. Otto. I agree. I think that whatever is passed it needs
to be made available not only to the compact states but the
other states as well that will comply.
Ms. Jackson Lee. Thank you, sir.
Mr. Misener, thank you.
The question is you are the mother of all. What could you
live with, and as you look at this legislation do you see the
complexity of trying to deal with helping communities, taxation
for education and the online marketplace?
Mr. Misener. Yes, ma'am, Ms. Jackson Lee. We want----
Ms. Jackson Lee. And you have compacts with New York and
California.
Mr. Misener. Yes. What we are trying to do here is to get
Congress to authorize all the sales tax state to require out-
of-state sellers like Amazon to collect.
We believe it is imminently feasible. We have come out in
strong support of a bill that has a $500,000 small-business
exception in it.
It seems very reasonable to us. We wanted one much lower.
We really think that if 1 percent is at $150,000 we are talking
about a fraction of 1 percent of online sellers would be
required to collect under a $500,000 exception. That seems to
be a decent compromise to us.
Ms. Jackson Lee. So your issue is to make it all the states
in a compact and you believe that there can be a system, a
technology system, that would not be complex to collect those
taxes for the states. Is that what you are saying?
Mr. Misener. Yes, ma'am. I actually feel very badly for Mr.
Cohen because he is in a position of having to try to prove a
negative, that it can't be done or they don't want to do it. We
are saying we can do it and we will do it for our sellers.
Ms. Jackson Lee. Well, I think we have come to some means
of collaboration here and I hope for those who oppose it we
will find a common ground for them as well.
But I think the economy is such, Mr. Chairman, that we need
to do that.
Mr. Chairman, may I just get a yes or no answer from Mr.
Marshall?
I am not sure if--it looks as if he has a different
perspective but, Mr. Marshall, would you be willing to engage
in compromise and discussion, listening to the testimony not
only that you have given but to others on the--on the panel
here, recognizing the loss of resources and revenue that states
are losing under the present scheme?
Mr. Marshall. Well, if I--if I understand your question
correctly, indeed, and as it relates to the small-business
exemption, you know, I have small retail stores and I am not
exempt.
I collect sales tax on the very first dollar of my sales
and, quite frankly, you know, any level of exemption is still
picking winners and losers. All you are doing is changing the
measure of which are winners and which are losers.
But I would still be competing with some online retailers
that wouldn't be obligated to charge that same sales tax that I
have to charge.
Ms. Jackson Lee. Well----
Mr. Goodlatte. The time--the time of the gentlewoman has
expired.
Ms. Jackson Lee. We will work through that for the
gentleman. Thank you. I yield--I yield back. Thank you.
Mr. Goodlatte. The gentleman from Arizona, Mr. Quayle, is
recognized for 5 minutes.
Mr. Quayle. Thank you, Mr. Chairman.
My first question is to Mr. Byrne and Mr. Kenley because I
want to get kind of opposing views on this. Now, the U.S.
Supreme Court has interpreted the due process clause of the
14th Amendment to require that a minimum connection between a
state and the person, property or transaction it seeks to tax.
Now, I want to talk about a different avenue that raises
some concern. Each of the three bills actually has a clause
that says that this doesn't establish a nexus for any other
type of tax or payment that is required.
But my concern is since we are kind of getting rid of that
minimum connection are we opening the door for other states to
actually apply their regulatory environment onto companies who
have no physical presence within that state, whether it be they
pass a law that bases it if you do not have a physical presence
and you meet some sort of threshold with annual revenue, which
will be easily ascertained via the sales tax, then they meet
that threshold and then they have to actually abide by the
regulatory environment in said state.
I will give just a specific example of this, is that
Arizona is right next to California, and California and Arizona
have very different overtime rules. We have overtime that kicks
in a 40-hour work week. Once you go over 40 hours a week,
overtime kicks in. However, in California, it kicks in also at
the 8-hour day.
Now, are we opening a Pandora's Box where we are actually--
since we are getting rid of this connection that we are
actually going to allow a court to interpret what Congress has
done and also the ability for the state to regulate within its
own--within its own environment but since we got rid of that
specific connection are we not opening the door to the fact
that states will be able to regulate companies that have no
connection besides the actual sales into their state?
I will start with you, Mr. Byrne.
Mr. Byrne. I would think that doing so is--would be a
direct insult to the dormant Commerce Clause so I would think
it wouldn't be capable of being done. But I have been surprised
before.
Mr. Quayle. As have I.
Mr. Kenley, do you see any danger of that? That is one of
my chief concerns of opening this--opening this door. I
understand what we are trying--what is trying to be
accomplished by this, these pieces of legislation.
However, if we are not looking at the unintended
consequences of this are we opening this door, which would
basically eviscerate, you know, a company's ability to kind of
look at the states and what their regulations are, to move
their facilities there?
Mr. Kenley. That's a very legitimate question. It is a very
legitimate question and one that needs to be carefully
considered as we do this because I agree with your fear if that
were to happen that that would be totally inappropriate.
There are two things that protect you on this. The first
thing is that Congress has the authority and that is why you
see the language in the bill that says Congress has the
authority to define how you can regulate the interstate
commerce.
So if they restrict it to the sales tax instance it is only
Congress that can change that and enlarge that and make it be
further.
Now, secondly----
Mr. Quayle. But in each of the three bills it only talks
about the nexus that is established only for state and sales
tax and only in terms of the cost, not in terms of regulations
or those types of things moving forward. That is where my
concern is. Do we need to actually broaden that, the language
there, to----
Mr. Kenley. I think the language could be broadened and I
think it should be. I think we--before we pass a bill I think
we should look at that carefully. I think the language needs to
be broadened to the point where we feel more confident that it
will not do that.
Now, the second backup you have in addition to the fact
that Congress gets to set the rules as to what will be
happening in interstate commerce is you still have the 14th
Amendment due process clause which allows any individual to go
to court and say look, this has gone beyond that and it is a
due process question too.
So but I agree with your thoughts that this needs to be
handled very carefully.
Mr. Quayle. Okay. Thank you.
Mr. Cohen. Mr. Quayle, can I add to that?
Mr. Quayle. Absolutely.
Mr. Cohen. Because the due process question is particularly
important for small businesses who are not necessarily in a
position to advocate on their behalf that there would be a due
process violation--the lower the small-business exemption is.
So you are exactly along the right lines that it is not
simply that just for their sales alone that they may be subject
to different state laws but also the collection.
Mr. Quayle. Well, one thing, and since we are talking about
the small-business exemption I wanted to ask you about this as
well is we have different numbers--$150,000, $500,000, $1
million.
I just want to know on eBay, at eBay what percentage of
your sellers are--have annual revenues via eBay of $150,000 or
over $150,000? Do you--do you know offhand?
Mr. Cohen. So like I said to Congresswoman Lofgren, we have
a significant number of sellers that are below that and we have
a significant number of sellers that are above that.
But we have very few sellers that only use eBay--they are
multi-channel retailers in which they use many, many other
places. And so therefore they may use eBay for sales. Many of
them use Amazon for sales. That's why it makes much more sense
to say for each retailer what their obligation is across their
entire portfolio of business.
Mr. Quayle. Okay. Mr. Misener, do you want to respond to
that real quick?
Mr. Misener. Yes, sir, if you don't mind, Mr. Quayle.
First of all, that means that the sellers are actually
smaller than Mr. Cohen is alleging--larger than Mr. Cohen is
alleging. They look unnaturally small if you are only counting
how they look as an online channel.
But back to the due process point, Mr. Cohen is right
except that the Quill court already decided that the due
process clause does not apply in the context of sales tax
collection by--in interstate sales. That was part of the
difference between the national Bellas Hess decision and the
Quill decision. They actually dropped out the due process
concern and left only the Commerce Clause concern.
Mr. Quayle. All right. Thank you, Mr. Chairman. I yield
back.
Mr. Goodlatte. The gentleman from Georgia, Mr. Johnson, is
recognized for 5 minutes.
Mr. Johnson. Thank you, Mr. Chairman.
Is there anyone on the panel who disagrees with the thought
that government facilitates the ability of Brick and Click or
just Click as well as Brick and Mortar businesses to actually
do business?
Is there anyone who disagrees with that, government enables
or facilitates your ability to do business whether or not you
do it just over the Internet, whether or not you do it over the
Internet and you have a Brick and--you have a Brick and Mortar
distribution facility or if you are just Brick and Mortar? Mr.
Cohen, you?
Mr. Cohen. No, we don't, and----
Mr. Johnson. You don't----
Mr. Cohen. We're thankful that the government helped to
create the Internet.
Mr. Johnson. Okay. All right. Okay.
So now, state and local governments facilitate your
ability, your company's ability, Mr. Cohen, to deliver your
merchandise. Isn't that correct?
Mr. Cohen. Yes, sir.
Mr. Johnson. Yeah. I mean, you got to--somebody has to
drive it down a road that was maintained or built by state or
local government, the road is laned, it is properly maintained,
traffic signals, police officers to enforce the rules of the
road, a court system for those who may be accused of--those
delivery drivers who may get accused of speeding or something
like that they have a right to go to court.
And even if eBay is unable to obtain payment from someone,
they may have to depend on the local police or the court system
funded by the local government or the state government in order
to collect. Is that not correct?
Mr. Cohen. That is correct.
Mr. Johnson. Okay. So is there anybody on the panel who
thinks that we should do away with state and local sales taxes?
Mr. Cohen. Mr. Johnson, can I continue though? But 2
years----
Mr. Johnson. Well, no. I just want to answer that
particular question. Sales tax revenues, should they be
outlawed so that we can level the playing field between Brick
and Mortar and Brick and Click?
Because I am assuming everybody believes that there should
be--there should not be a difference in treatment between Brick
and Mortar and Brick and Click.
Mr. Cohen. We don't object to that. We think it makes
perfect sense.
Mr. Johnson. Yeah. So--yeah. So you got to pay the sales
tax in order to do the business and so the question is how do
we go about collecting the sales tax. That is what we are here
for today.
It is not so much, I don't think, that we should not have
an obligation by Internet retailers to collect the sales tax.
Is that correct? Mr. Byrne?
Mr. Misener. If I may, Mr. Johnson, I could--quick answer.
I think that you are absolutely right that it should be a
matter of state choice. States can choose whether or not to
have a sales tax.
Mr. Johnson. Yeah. And if they--yeah. This just--this----
Mr. Misener. Texas--yeah. Texas, for example, chose not to
have a personal income tax and they--so they rely heavily on a
sales tax, and so a company like eBay, which just opened a
facility in Austin with a nearly $3 million Texas Enterprise
Fund grant, they are taking advantage, clearly, of Texas'
hospitality yet at the same time have not done anything to help
with the sales tax collection in the state.
Mr. Cohen. Mr. Johnson, I appreciate the need for state
sales taxes in the states that choose to do it. What I do find
remarkable, though, is that just 2 years ago Mr. Bezos, when
describing what the obligations were for Amazon in states
around the country, said, ``In Washington State where we have a
presence we get police protection. We get fire protection. We
send our kids to local schools. I don't see why, since we get
no services in North Carolina, that they should be able to
force us to collect sales tax.''
Mr. Johnson. Well, because you do have to--you do have to
use the police and the fire and the roads and drainage and that
kind of thing. You use that.
Mr. Cohen. No, no. That's what Mr. Bezos from Amazon's
position 2 years ago----
Mr. Johnson. Well----
Mr. Cohen. Was that he didn't want to have to collect and
remit in North Carolina.
Mr. Johnson. Okay. All right. Well, things change.
[Laughter.]
Things happen. But let me ask this question.
Why is it that we would need a carve-out for small Internet
businesses from collecting sales taxes on Internet sales when
we don't have an exemption for small businesses Brick and
Mortar?
Why should we have one for Brick and Click?
Mr. Byrne. Congressman, well one reason is there is an
implementation cost for the software and there is a friction
cost, and if you did a cost benefit analysis you would see that
the cost for a----
Mr. Johnson. Well, why--how about making it--subsidizing it
for small businesses?
Mr. Byrne. I am all for that.
Mr. Johnson. The cost.
Mr. Byrne. I am all for that. But as long as there is some
cost, which there is always going to be, then at some point if
you are--if you are having people who sell $10,000 or $20,000
on the Internet have to pick up that cost in order to
integrate, that cost is going to be higher than the taxes they
actually remit. So it is actually a net loss to society.
Mr. Johnson. Okay. Thank you. And you all have been
excellent spokespersons for the need for government.
Mr. Goodlatte. On that note, the time of the gentleman has
expired. [Laughter.]
I am going to recognize myself and take us back here.
The history of this is not that this originated with the
Internet. In fact, the Quill decision was a decision based on a
mail order case and the principle--the Chairman asked earlier
what was the reason for not giving to the states the ability to
collect the money. Well, the reason, of course, was delved into
somewhat by the gentleman from Arizona but the principle is
that those states who want to impose this collection
requirement on taxes have jurisdiction over their citizens.
They don't have jurisdiction over the citizens of other
states and therefore those citizens of other states engaged in
various business activities don't have any say in how the laws
are constructed in those states that they are going to then be
forced to comply with.
So the court ruled that that was the province of the
Congress under the Commerce Clause and here we are today and
have been for the last at least decade that we have been
dealing with this issue.
So the question really becomes one, not only of fairness
but also of practicality for those businesses. So my first
question for you, Mr. Kenley, is why should the Congress cede
the authority, as some of these bills apparently do, to your
organization to determine what is the standard for out-of-state
businesses to collect these taxes rather than set a standard
ourselves and allow that to take place that way?
Mr. Kenley. The reason that we had originally put forth in
having Congress cede the authority with the proviso that you
could always appeal anything determined by the Governing Board
to the Federal courts, which is the normal process through the
interstate Commerce Clause was----
Mr. Goodlatte. But you would be effectively a legislative
body that would set the, for example, size of a small business
that would be exempt from having to comply with the collection
of the taxes.
Mr. Kenley. The whole premise of the thing had been with
the--when the legislators went to the Governing Board and from
their respective states and then they had to go back to their
state and then pass their state laws in compliance was that
they were acting as agents of the state. And so it was really
the states doing it, not the Governing Board itself.
Mr. Goodlatte. What about the five states that don't
collect sales taxes now? How would they fit into this?
Those states would be burdened. In other words, businesses
that do business online in those states would be burdened but
there would be no benefit to those states because they don't
have a sales tax.
Mr. Kenley. Well, Mr. Chairman, let me go back first and
say that the Streamlined organization recognizes that there
needs to be an avenue for the states who do not want to join
Streamlined and do not want to adhere to those rules.
Mr. Goodlatte. Would their--would their businesses in those
states--if they don't want to have a sales tax collected would
they be allowed to exempt those businesses from having to
collect state taxes for other states that do?
Mr. Kenley. I am not sure I follow that question.
Mr. Goodlatte. Well, if you are in Delaware and you don't
have a state sales tax but you have a business in Delaware that
is engaged in online businesses and making sales, that business
is going to be burdened by having to collect sales taxes for
other states, even though Delaware hasn't for all time as I
understand it not collected sales tax.
Mr. Kenley. Well, first off, I would argue that there is no
burden on the business because there is no cost to the business
to do that.
Mr. Goodlatte. Let me--let me get to that question. You
indicated that you had software that would work for the
Streamlined businesses--states, the states that have
participated in this.
What about a state that wants to collect this tax but wants
to continue its own unique definition of what is subject to tax
and what the tax rate is, and do you make a difference between
the rates of these 10,000 jurisdictions? Do you have one
unified rate or do you have a different rate for each
jurisdiction?
Mr. Kenley. Well, the Streamlined software allows you to
handle every jurisdiction in the United States and sort out the
rates as well as any other. We have----
Mr. Goodlatte. So if a state collects--has a local grocery
store collect a sales tax----
Mr. Kenley. Which is my business, yeah.
Mr. Goodlatte. On potato chips and another state makes a
distinction between the size of the bag, and different
jurisdictions in different states do that, this software will
make that distinction? It will say this is a 5-ounce bag so we
are going to not impose the tax but the 12-ounce bag, that is
subject to the tax?
Mr. Kenley. Within the Streamlined rules and definitions we
have toggle switches that allow you to exercise choices.
But to go back to your basic question, we do feel that it
is appropriate for Congress to enact a bill which allows states
not to join Streamlined but to have their own systems and to
make some of the----
Mr. Goodlatte. That complicates the matter for that small
business, particularly in a state that----
Mr. Kenley. Not really.
Mr. Goodlatte. Doesn't even have a sales tax.
Mr. Kenley. Not really.
Mr. Goodlatte. Well, I think the--I will ask Mr. Byrne to
respond since he had a very different experience with the cost
of the software implementation for his business.
Mr. Byrne. Yes. I don't believe the software is, at least
as of a year ago, it is not--it is what they call in the
industry vaporware. It is not as advertised. It is expensive
and so forth. However, that is a technical problem that could
be solved probably in a year or two.
They could--software could be created that does this
smoothly. I still--I think that there is not quite the range of
disagreement among us as may first appear, although I would
prefer you didn't change anything at all. If you----
Mr. Goodlatte. But you want a small-business exemption. He
says you don't need a small-business exemption.
Mr. Byrne. Okay.
Mr. Goodlatte. Tell me why you do need a small-business
exemption.
Mr. Byrne. Well, I think you need a small-business
exemption to reflect the fact that there will be implementation
and costs for any business. I think the states who want to do
this should be providing it for free but there is still going
to be an implementation cost and that--for really small sellers
that implementation cost is going to be higher than the tax
this----
Mr. Goodlatte. Let me ask both of you this question.
If we are doing this for interstate sales, and I assume you
are going to do this for not only online businesses but also
mail order businesses, telephonic businesses and so on, if you
are going to do it, why not have one uniform interstate
definition of what the tax is?
If a state wants to collect some different formula with
different conditions in its state, great. But if it is going to
collect sales taxes, require a business out of state to collect
taxes, why not have one uniform definition of what is subject
to the tax and one uniform interstate tax? Some states that
have a very high sales tax, well, they may lose a point or two.
Some states with a low sales tax, they might gain a point
or two. But for the business doing business online, it would
seem to me a lot more practical and a lot more fair to say this
is the rate that you have to pursue if you are going to do
business online.
Mr. Byrne. Sir, I agree. That is very much in the direction
of the bill that we are proposing. What we are saying is don't
do it but if you are going to do it don't go with the
Streamlined project, which will end up--it doesn't create a
uniform system.
It is still a complicated system. Go with a much simpler
uniform system but where the states are--the bill as we propose
it would still allow the states to keep their individual rates
but they would have to provide the software and the interface
but it would be uniform. What you are proposing is going a step
further where even the rates get unified, which I would
applaud.
Mr. Goodlatte. Mr. Kenley, I want to give you an
opportunity to respond to that but my time has expired so be
brief.
Mr. Kenley. I struggle with--I struggle with your--the
thing that you posit there because it intrudes so much on the
federalism and the state sovereignty side of the issue. And so
I think----
Mr. Goodlatte. It is interstate commerce. It is--it is
business being conducted across state lines. It is not
something that is confined within the jurisdiction of a state.
That is why we are here. That is why the court ruled as it did
in Quill.
Mr. Kenley. Well, I--I will have to think that through and
I am not sure if I can buy that on that basis. But let me think
about that.
But, secondly, let me say that the technology that we have
today, even within Streamlined, allows those toggle switches to
be developed to allow states to have different choices both as
to rates and both as to the--your example on the bag of potato
chips, which is taxable and which is not taxable.
So those are things that are being done within that realm.
Mr. Goodlatte. Anybody else want----
Mr. Kenley. And I think the technology allows us to solve
that without it being a problem.
Mr. Goodlatte. Anyone else want to comment on this point?
Mr. Otto?
Mr. Otto. I think--I am okay with the states having to
provide the solution and hold the retailer harmless as long as
they are using it. I mean, there is nothing wrong with that.
The same thing that the Streamlined compact has done why
couldn't the states that maybe don't want to join Streamlined,
don't want to change their definitions, but maintain the
definitions uniformly throughout their state be allowed to
develop the software to give to the retailer?
Mr. Goodlatte. But now you are talking about having a small
business having to deal with a variety of different software
programs.
They have got one program for the Streamlined folks and
then you have got 20 other----
Mr. Otto. Most of these are going to end up in----
Mr. Goodlatte. States with different definitions and you
got 20 different software programs that----
Mr. Otto. Not if the states go together to form a compact
to develop it.
Mr. Goodlatte. Right. But that is--but that is why the
suggestion that you have one definition and one rate----
Mr. Otto. But are you talking about one definition for all
the states or a definition within each state?
Mr. Goodlatte. No, no. One definition for all the states
and one flat rate.
Mr. Otto. Then I have to agree on the--on the, you know,
from a federalism standpoint I am not--the reasons Texas
doesn't belong to the Streamlined sales compact is we are not
willing to give up that right to determine what is taxable and
what is not taxable.
Mr. Goodlatte. I understand, but you are making it harder
to get to where you want to go in terms of collecting sales
taxes through businesses that are not under your jurisdiction
in your state.
Mr. Otto. Then what we are going to end up with is what we
have today, which is states going out on their own to try to
define physical presence in all kinds of ways.
Mr. Goodlatte. Well, I think we need to develop more
consensus here. That would be my observation.
Ms. Chu, the gentlewoman from California, is recognized for
5 minutes.
Ms. Chu. Thank you, Mr. Chair.
Well, before I came to Congress I was elected to the
California State Board of Equalization, whose main
responsibility it was to collect the state sales tax as well as
the use tax, and I can attest to the dramatic decline of sales
tax revenue as a proportion of the state budget revenue because
of online sales and I can also attest to the complete lack of
compliance with use tax obligations despite the fact that we
have a line on our income tax forms reminding people of their
use tax obligation.
And besides that, what I found was that few people even
know what a use tax is and are shocked to find that they
actually owe that tax regardless of whether they buy online or
not.
So I would like to ask our two state representatives,
Senator Kenley and Representative Otto, why are the current
methods of collecting the use tax such as auditing not an
effective way to collect use tax?
Mr. Otto. In Texas, because we do not have a personal
income tax, the only audit provision you have on use tax is a
business that holds a sales and use tax permit.
Those are the only people that would be buying across state
lines that would be subject to audit for the purposes of
determining whether they had paid the appropriate amount of use
tax.
We have no form. We have no reporting system for
individuals or anybody else unless they hold a permit to comply
with paying the use tax.
Ms. Chu. Do you even have auditors that do such things?
Mr. Otto. Yes. We have auditors. The comptroller, you know,
because sales and use tax makes up a very large portion of our
state budget and from the revenue standpoint we have auditors
that are very aggressive.
Ms. Chu. And Senator Kenley?
Mr. Kenley. Well, in Indiana we do have an income tax.
Certainly, what you are suggesting would be a Full Employment
for Auditors Act.
It would require an awful lot of auditors, and I pointed
out earlier in the testimony that it seems that traditionally
sales tax has been administered by the retailer doing the
collection and being given an allowance to do so to try to
cover their cost of doing that, and it is the most efficient
way of doing--making the collection.
Now, a secondary problem, and we have talked about this in
Streamlined, is once you start trying to find ways other than
hiring legions of auditors to do this to make this work out,
then you for example, you might say somehow or other we are
going to demand that all the credit card companies send us a
cross-reference file on all the purchases by a consumer and
then so you get into that and then all of a sudden with a
married couple you have a discussion about well, gee, what was
this purchase from Victoria's Secret, I don't remember that.
And so there is a element of privacy intrusion there that
we are uncomfortable with, I think, as public officials to go
too far on that point.
So that is--those are the concerns that we have discovered
in that audit process. It may be over time that people will
declare and pay use tax because it is becoming more a
phenomenon that we are all shopping over the Internet in one
way, shape or form.
So maybe it is a experiential factor. But I think there are
some barriers to going a different way than we have in the past
traditionally, which is that the retailer does the collection
and the remission.
Ms. Chu. In other words, it is expensive and inefficient to
use auditors to collect the use tax.
Mr. Kenley. Right. Since you are doing it at the time of
the transaction with the retailer it just kind of fits within
the flow of the commerce system.
Ms. Chu. And what would it mean to your states, to your
respective states, if you were able to collect the remote sales
tax?
Mr. Kenley. What would it mean to the states to----
Ms. Chu. For your--for your state budget.
Mr. Kenley. The estimates in Indiana run anywhere from $150
million a year to $400 million a year under the current
situation.
I think the bigger issue that we need to think about here
today in Congress is that this is a growing part of our
commercial environment so it is probably going to be a growing
number regardless of what number you project or settle on.
Mr. Otto. In Texas, the current estimates are $600 million
to $800 million per year.
Ms. Chu. And finally, I would like to ask Mr. Misener of
Amazon, Mr. Byrne said that it was very onerous to have a
software to collect sales tax revenue and that it cost $300,000
and many man hours of the IT staff. But you seem to have a
different view regarding the type of technology that is
available to help collect the sales tax.
Can you talk more about that and about the purchasing of
software to remit sales tax in locations where you do have
nexus, and does the technology exist?
Mr. Misener. Thank you, Representative Chu. Thank you very
much.
Yes, we do collect, as I mentioned before, in the four
states where we have--our retail business has a physical
presence and thus we have nexus there, and so it is possible.
You only need to look around and see all the multi-channel
retailers who also are collecting nationwide in 46 states.
So it is absolutely doable. Now, you might say, well, those
are only big companies like Amazon and the multi-channels--what
about the little guy.
Well, the little guy will get services provided for him or
her. Those small sellers won't have to create the software from
whole cloth. They will obtain it as a service from service
providers and it certainly is something that we plan to do.
I certainly hope eBay does it and maybe our friends at
Overstock will sell through Amazon and take advantage of our
service as well.
Ms. Chu. Thank you. I yield back.
Mr. Goodlatte. The gentleman from Florida, Mr. Ross, is
recognized.
Mr. Ross. Thank you, Mr. Chairman.
Mr. Marshall, Dr. Byrne indicates in his written testimony
that based on the Quill decision the status quo is a success.
Would you agree?
Mr. Marshall. No. I don't agree at all. You know, I feel
the current situation is picking winners and losers, and
retailers incur expenses and benefits in all types of sale
endeavors and if I choose to sell nationwide I am perfectly
comfortable incurring the responsibility of collecting and
remitting the sales tax for those purchases just as I do at my
retail stores for state of Michigan residents.
It is--any level of consideration for a certain size or a
certain type of retailer is creating a unlevel playing field
and that is what is difficult is not to be able to compete on a
level playing field with all other players in the retail
Internet or retail----
Mr. Ross. With your customer base.
Dr. Byrne, you indicated in your opening testimony, of
course, that the cost of compliance is rather significant. I
mean, you have got over 9,000 taxing districts I think you
alluded to. Wouldn't this legislation, the Marketplace Equity
Act, quite frankly, you know, bolster your concern and even
give an argument that we need this because we would have
uniformity in the taxing laws?
Mr. Byrne. Well, I think that the bills as proposed would
not--the Streamlined initiative would not create uniformity but
that is why we have proposed a bill that says if you are going
to do this, this is the way to do it.
It really does create uniformity. It lets the--where the
states indemnify. But it also has a provision where there is a
small reimbursement of----
Mr. Ross. And that is what I want to talk to you about
because I think that that is important, and when you talk about
cost of compliance it doesn't matter whether you are a small
Bricks and Mortar retailer or an e-tailer. The cost of
compliance is something that you have to face as a cost of
doing business.
So would you propose and what would you propose a cost of
collection that would be--that would be adequate compensation
for your business if you were to do this?
Mr. Byrne. Two to 3 percent of the taxes that we collected
on behalf of the state would be our fee and that would be--that
would not just be Internet people. That would be for Brick and
Mortar people. So it would create a truly level playing field.
Mr. Ross. And Mr. Otto, I--when I served on the floor of
the legislature I was an advocate of and sponsor of the
Streamlined Sales Tax initiative. It got nowhere, I mean, and I
understand that.
But would you not agree then that maybe as an--as an
inducement for these online companies that they should be
compensated at least to cover the cost of their collection from
an administrative----
Mr. Otto. Texas currently has a collection allowance of \1/
2\ percent that we grant but not all states do. Again, this is
a question of--you know, I agree. The reason we have left it in
our law is to try to compensate retailers in our state that
collect and remit the sales tax.
Mr. Ross. Senator Kenley, would you agree, I mean, that
there ought to be some compensation at least to cover the cost
of collection?
Mr. Kenley. Yes, and within the Streamlined agreement we
struggled and worked to reach a compensation agreement that's a
three-tiered compensation agreement with a higher level of
compensation for the smaller retailer, and it moves down as you
get larger and we think that provides adequate compensation.
Plus, we have the free software and the certified service
provider system.
Mr. Ross. Mr. Cohen, you were asked this question and I am
not sure I got the answer. How many of your members would be
affected by the exemption that is currently being proposed in
the Marketplace Equity Act? Do you know?
Mr. Cohen. The Marketplace Equity Act is----
Mr. Ross. As Representative Womack's and Speier's bill. It
is the----
Mr. Cohen. The $1 million?
Mr. Ross. Yes, $1,100,000.
Mr. Cohen. Like I said, we can't determine the users that
go outside of our system and use others. There are a
significant number that would be above the threshold.
Mr. Ross. Dr. Byrne or Mr. Misener, did you want to speak
to that?
Mr. Misener. I am pleased to be called Doctor.
Mr. Ross. I am sorry. I was just--thank you. [Laughter.]
Dr. Byrne, let me ask you a question because this is
something that is--in my position back home, I have a couple,
married couple, Ron and Nancy, put their life savings in a
small retail boutique retail out--a store.
They sell barbecue grills, they sell smokers and
accessories, and they constantly have open houses. They are a
great corporate partner for the community, doing fundraisers.
But people come in and try their products. They try their
spices that they buy through a distribution center. They try
their products. They measure them. But when it comes to
purchase, and this is their complaint to me, is that they as a
retailer are now having to negotiate with the consumer whether
they will discount at 6 percent, which is our state sales tax
there, and they say they can't do it.
My question to you is how do I respond to them? I mean,
there is a--there is a desperate need there for community
partners in the retail establishment, those who invest their
life savings in Bricks and Mortar to make sure that their
livelihoods are not only maintained and fulfilled but also that
their communities are better off because of their investment.
How do I respond to them when I say, I am sorry, we don't
have any enforcement jurisdiction to allow you to have an even
playing field in the retail environment with online retailers?
Mr. Byrne. Well, Congressman, I love the Brick and Mortars.
I have been a Brick and Mortar guy myself. There are advantages
and disadvantages of being Brick and Mortar. But what I would
really say is that their pressure came from the big-boxes.
It is the big-boxes who have taken over 87 percent of
retail and so that is really where their competition has come
from. There is other small retailers in some other state than
yours who is maybe selling their barbecues online and so it
creates winners and losers.
The issue is, I think, as Mr. Cohen said, it is a false
dichotomy to view this as Internet players versus small Brick
and Mortars. It really is the big-box retailers versus small
entrepreneurs.
Mr. Ross. But the small entrepreneurs are the ones who make
the investment to allow the consumer to see the product and
then the consumer makes the choice to buy it online because
they don't have to pay sales tax. And I see my time is up and I
yield back.
Mr. Amodei [presiding]. Thank you, Mr. Ross.
The gentleman from Florida is recognized.
Mr. Deutch. Thank you, Mr. Chairman.
I would just like to follow up on that point, Mr. Byrne. I
don't--I don't know that it is entirely accurate to try to
couch this in terms of--to shift the debate to a battle between
smaller retailers like Mr. Marshall and the bigger retailers.
The fact is in many ways some of the smaller retailers--
correct me if I am wrong--who have specialized products sell
those products.
That is--those are the products where the consumer has to
go online if they want to try to find a lower price and often
does, and when you speak about the benefits, and this is a
question I would like to put to you and to Mr. Marshall because
you spoke, Mr. Byrne, about the benefits that Brick--that Brick
and Mortar retailers have and the advantages they have and
people being able to go in and touch the product, people being
able to go in and interact with someone directly, to have
questions answered about the product.
What are the--what are the benefits? Let me start with you,
Mr. Marshall. What are the benefits, given all those wonderful
benefits that you have, why would anyone go online ever to buy
a product?
Mr. Marshall. Well, in many cases, that purchase decision,
in a final analysis, is based on price. Every hour of every day
our sales associates entertain customers' questions, provide
demonstrations, allow them to evaluate different instruments
and then they are confronted with okay, now, you know, here is
the best price I can get on the Internet, can you match that.
And with our 6 percent sales tax we could and we
comfortably do with Internet retailers that also charge sales
tax. But those that have that competitive advantage it is just
a burden that we cannot overcome.
It is an unlevel playing field and there is just no logical
sense to it, and engaging that customer and saying well, you
understand that this 6 percent that we have in our price we are
not taking that, we are giving it to the state, you know, the
customer doesn't care. You know, the bottom line is price in so
many cases, and in this unlevel playing field we cannot compete
with that.
Mr. Deutch. Mr. Byrne?
Mr. Byrne. Well, that is why the bill that we have proposed
totally eliminates the tax benefit. What we are saying is if
you are going to do something don't--you know, you can level a
playing field by either, you know, filling in dirt on one side
or scraping it off the other.
Our bill says if you are going--if you are going to do this
it totally eliminates the tax--the tax benefit of shopping
online versus Brick and Mortar and it says let us--since the
states are now deputizing or not just deputizing, conscripting
retailers to do their work for them as tax collectors, there
should be a--they should be providing the software. They should
be indemnifying us and Mr. Marshall against mistakes and they
should be reimbursing us as well.
Mr. Deutch. All right. So let me--since Mr. Womack and Ms.
Speier are so committed to this issue that they have sat
through this hearing, let's assume for a moment that the
legislation that they have introduced passed the Congress and
was signed into law by the President tomorrow.
What would--in the--as you talk about all of the potential
costs, and I would like to actually open this question to Mr.
Misener and Mr. Cohen as well as Mr. Byrne, what would you have
to do? How much would it actually cost? What would the burden
be to you?
Mr. Byrne. Myself first?
Mr. Deutch. Mm-hmm.
Mr. Byrne. On the--right now would be fairly cost, I would
imagine, a couple of million dollars and a year of sort of
integration to the different commercial packages that are
available and there would still be a liability because no one
is yet guaranteeing that if we use the package----
Mr. Deutch. I understand.
Mr. Cohen?
Mr. Cohen. We believe there would be a significant loss of
sales from a significant number of sellers who would leave
online platforms and go to either using places in which it
would be much harder to collect from, use other types of
services where they wouldn't, for example, ad words or other
systems in which the auditing of different states would not
apply to them.
That is why we are so adamant that we would like a
significant small-business exemption so that they are not
driven from the Internet. We think the cost will go up,
absolutely.
Mr. Deutch. Well, I understand you think the costs will go
up and Mr. Marshall's argument is the cost is going to go up.
You are going to bear some additional cost. He bears an
inordinate amount of additional costs by having his store open
so the customers can come in and look at the products before
going online. What--I don't understand. The customers are going
to be driven where?
Mr. Cohen. To larger retailers. Just to larger retailers. I
mean, the cost advantage that Amazon has right now will be
magnified without--some pushback on small businesses who have a
sales tax advantage, no question.
Mr. Deutch. Mr. Marshall, is that a battle you are willing
to engage in? Do you think that is right that everyone----
Mr. Marshall. We do every day.
Mr. Deutch. Everyone is going to leave and run off to the
larger retailers?
Mr. Marshall. Well, that is a battle that retailers, small
retailers, are joined every day and comfortably joined. You
know, it is a competitive world and, you know, if you can't
stand the heat you shouldn't be in retailing. But as long as
the field is level, you know, we will battle the big retailers.
We have advantages over them. You know, we have a
connection with the community. You know, our--you know, it is a
level playing field and there is benefits and drawbacks to
being a big-box and being a small retailer. That is just fine.
Mr. Deutch. But at that point--at that point, the big-box
retailer, the smaller retailer, the online, at least at that
point there is a level playing field to engage in that.
Mr. Marshall. Absolutely.
Mr. Deutch. Thank you. Thank you, Mr. Chairman.
Mr. Amodei. Thank you, Mr. Deutch.
The gentleman from Texas is recognized, Judge Poe.
Mr. Poe. Thank you, Mr. Chairman.
I want to start with you, Mr. Otto. Just so everyone on the
panel or the Committee understands, the Texas legislature meets
every 2 years for 5 months. Is that correct?
Mr. Otto. That is correct.
Mr. Poe. And yet Texas is, what, the 13th largest economy
in the world, something like that. And your primary source of
revenue for the state is----
Mr. Otto. Sales and use tax.
Mr. Poe. Sales tax and use tax. It seems to me--let's talk
about Dayton, Texas. People who build a building and sell a
product take a greater risk than someone that is somewhere else
in the fruited plain selling through the Internet.
In Dayton, just since you have been elected, you have had
Hurricane Katrina, Hurricane Rita, Hurricane Humbert, Hurricane
Gustav and Hurricane Rita all hit Dayton, Texas. Some of those
Main Street businesses were destroyed, rebuilt, destroyed,
rebuilt, destroyed, rebuilt.
It seems to me that that is a risk they take yet they have
a disadvantage with the Internet service retail. Do you agree
with that or not?
Mr. Otto. That is true in Dayton, Texas. That is true
anywhere in the state of Texas.
Mr. Poe. Yeah, I know. The whole state, whether it is fires
or hurricanes or droughts, all of that has, you know, occurred
since recently.
Tell me about your concept that this is not a new tax. You
know, nobody wants new taxes on anybody. Well, most people
don't want new taxes.
Mr. Otto. I, for one----
Mr. Poe. Tell me--explain that to me. Make it simple.
Mr. Otto. Right. I don't--this is not a new tax.
Mr. Poe. Yeah. You are a CPA but keep it simple.
Mr. Otto. All right. This is a tax that, when the sales tax
laws were passed decades ago, the use tax was put into
existence. This is not a tax that the business pays. This is a
tax on the consumer that the businesses that retail collect on
behalf of the states.
So this is not a new tax we are imposing. It is a tax we
have been unable to collect partly because of the line drawn in
the Quill decision. But even in that, we have--I mean, Amazon,
we had a--we had a battle with them this session.
They have a distribution center in Irving, Texas, owned by
a wholly-owned subsidiary and are not collecting the Texas
sales tax.
I have read Quill over and over and I can't find where that
is not physical presence but--and before we went into session
the comptroller sent them a tax due notice for $269 million
that should have been collected over a 4-year period.
Mr. Poe. Has that tax been paid?
Mr. Otto. Not to my knowledge. So what we are looking at is
in order to avoid--what I don't like seeing on the landscape
right now for Texas and for any other state is what states are
trying to do to, in my way, Mickey Mouse the definition of
physical presence, all right, and that is not a desired
outcome.
We need to create a level playing field where everybody
understands the rules and they are very clear. This bill that
has been introduced in the House calls for simplification. It
calls for software to be provided. All of these additional
costs the states are going to have to front that.
If we want to take advantage of the--of the provisions that
are going to be made available to us in this legislation, we
are going to have to come up with the money to provide that
software.
Mr. Poe. Sales tax revenue in the state of Texas, has it
been going up? Has it been going down? Is it about the same?
Mr. Otto. Well, when I first got to the legislature in
2005, the--our sales tax revenues were growing at double-digit
percentages until we hit the current recession. We have just
now become where our August sales tax collections for 2011 got
back to the level the were at at 2008 pre-recession but they
are not back to the 2006-2007 levels that they were at and what
I would call our peak economy.
Mr. Poe. There are a lot of factors, of course, involved in
that. Is one factor or not the fact of consumers buying online?
Mr. Otto. That is correct. I will tell you what is driving
our recovery right now is the oil and gas sector down in the
Eagle Ford formation in south Texas. We have got an oil and gas
boom going on that is driving most of the sales tax. Our
housing sector has not come back, which is a big driver in
sales tax in the state.
Mr. Poe. One other question. What is the biggest store in
Dayton, Texas? It is not Sonic but what is it?
Mr. Otto. Oh, wow.
Mr. Poe. Well, let's go to Houston. Here is an example.
Mr. Otto. Probably Western Auto.
Mr. Poe. Western Auto. I have seen this and I have heard
about this phenomena where a consumer goes into, let's use Best
Buy, finds the TV they want and while they are there, they are
ordering it on the Internet right there in the store, the Main
Street store--ordering it on the Internet because they can get
a, you know, no sales tax. Texas 8\1/2\ percent, 8\1/4\?
Mr. Otto. 8\1/4\.
Mr. Poe. So they can save that 8\1/4\ percent by ordering
it in Main Street business the same TV set. That jus doesn't
seem right to me.
Mr. Otto. It doesn't. We had the same kind of testimony
before the House Ways and Means Committee this last session
that that was occurring on big-ticket items.
Mr. Poe. All right. Thank you, Mr. Chairman. I will yield
back.
Mr. Amodei. Thanks, Judge.
The lady from California, Ms. Sanchez.
Ms. Sanchez. Thank you. I feel like the last person who
gets to go at a roast and all the best lines are already taken.
[Laughter.]
I appreciate your patience in hanging in here and I have
listened to all of the testimony and the questions with a lot
of care. So, hopefully, I won't be repeating some of the points
that some of my colleagues made.
I want to start with Mr. Marshall. Mr. Marshall, I
understand you are a family-owned business. It is second
generation.
Mr. Marshall. Correct.
Ms. Sanchez. And that you have seven physical stores.
Didn't start out that way, did it?
Mr. Marshall. No. It was just in the last 15 or 20 years
that we expanded from a single location to seven.
Ms. Sanchez. When you opened that single location, did the
government help you with any of the costs of collecting sales
tax on the items you sold in that Brick and Mortar store?
Mr. Marshall. Well, it----
Ms. Sanchez. Did they subsidize any of that for you?
Mr. Marshall. It predates my time but to my knowledge, no.
The system that exists within the state of Michigan for
collection of sales tax, you know, seems reasonable and there
are--there are considerations shown for the burden that we
incur collecting it.
The government did assist in the creation of Marshall Music
because my father was a pilot in World War II and my mother
worked for the government during World War II, and it was
savings that they accumulated during that time that made the
down payment on their first music store.
Ms. Sanchez. Okay. I am somewhat facetiously highlighting
that point because there seems to be a lot of consternation
about the cost of implementing, you know, compliance with
collecting sales tax revenue through online purchases.
Now, you have admitted that you also sell products online.
Is that correct?
Mr. Marshall. Correct.
Ms. Sanchez. And what percentage, just roughly, can you
give me a ballpark, of your business is done through online
sales versus the Brick and Mortars that you own?
Mr. Marshall. Less than 1, 1\1/2\ percent online.
Ms. Sanchez. Okay. So if you were--if we were viewing you
strictly through the lens of your online sales and what you
take in on a yearly basis through those online sales, under
some of the definitions that people have proposed for the
small-business exemption you might look like you actually were
a small business that qualified for that exemption, would you
not, if we were strictly looking through the prism of what a
small business does in online sales?
Mr. Marshall. Indeed, and I apparently would not have to
collect sales tax and would have a competitive advantage over
those that do. You are--it would--you know, it would still be
picking winners and losers.
Ms. Sanchez. And so, you know, with some of these, you
know, proposed limits for what a small-business online retailer
is, and I believe, Mr. Cohen, and you can correct me if I am
wrong, you don't know exactly what percentage of people
strictly sell online but very well could be a situation like
Mr. Marshall's situation in which part of their portfolio of
sales is online but, you know, you could--and they could look
strictly through that prism like a small-business entity but in
fact they could be doing millions or billions of dollars worth
of business through other, you know, platforms from which they
sell.
Is that correct, Mr. Cohen?
Mr. Cohen. Yeah, and for many online and for many Main
Street retailers we think the Internet is a great way for them
to expand their business. Exactly.
Ms. Sanchez. I understand but, you know, again, the--you
know, creating these artificial distinctions between Brick and
Mortar and online sales and small-business versus--you know,
what is the definition of small business.
I have listened with a lot of attention to the small
business discussion because I used to serve on the Small
Business Committee, and the definition of small business pretty
much is in the eye of the beholder because if you look at SBA,
government entity, you know, their definition in some instances
is 500 or fewer employees.
And if you asked the average person out on the street does
500 employees sound like a small business to you I think most
people would say no. If you look at the IRS and the filings
that they receive, in the IRS's eyes--most businesses in the
United States employ five or fewer people, and if you asked the
average man out on the street does five or fewer people sound
like a small business to you I imagine most people would say
yes. And yet, you have these huge disparities in what the
definition for small business is.
So with respect to the small-business exemption and with
all due respect to the idea that there are some start-up costs
to starting a new system and to implementing it and to
recouping those sales taxes, you know, those are--those are
expenses that Brick and Mortars incur and nobody is--nobody
helps them with the cost of that transition or the cost of
that--doing business that way.
And so I think we need to be very careful in terms of when
we talk about small-business exemption what exactly the
criteria should be because something that looks like a small
business through small-business online sales could actually be
somebody that does a lot of--generates a lot of sales in
another context.
And I see that my time has expired. I thank you all for
your participation and for your patience and I yield back my
time.
Mr. Amodei. Thank you, Ms. Sanchez.
I would like to thank our witnesses for their testimony
today.
Without objection, all Members will have 5 legislative days
to submit additional written questions for witnesses or
additional materials for the record. The hearing is adjourned.
[Whereupon, at 12:42 p.m., the Committee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
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