[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]

                            SMALL BUSINESSES



                               BEFORE THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES


                             SECOND SESSION


                             JULY 24, 2018


                           Serial No. 115-65


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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
    Wisconsin                        ZOE LOFGREN, California
LAMAR SMITH, Texas                   SHEILA JACKSON LEE, Texas
STEVE CHABOT, Ohio                   STEVE COHEN, Tennessee
DARRELL E. ISSA, California          HENRY C. ``HANK'' JOHNSON, Jr., 
STEVE KING, Iowa                         Georgia
LOUIE GOHMERT, Texas                 THEODORE E. DEUTCH, Florida
JIM JORDAN, Ohio                     LUIS V. GUTIERREZ, Illinois
TED POE, Texas                       KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC L. RICHMOND, Louisiana
TREY GOWDY, South Carolina           HAKEEM S. JEFFRIES, New York
RAUL LABRADOR, Idaho                 DAVID CICILLINE, Rhode Island
BLAKE FARENTHOLD, Texas              ERIC SWALWELL, California
DOUG COLLINS, Georgia                TED LIEU, California
KEN BUCK, Colorado                   JAMIE RASKIN, Maryland
JOHN RATCLIFFE, Texas                PRAMILA JAYAPAL, Washington
MARTHA ROBY, Alabama                 BRAD SCHNEIDER, Illinois
MATT GAETZ, Florida                  VALDEZ VENITA ``VAL'' DEMINGS, 
MIKE JOHNSON, Louisiana                  Florida
KEITH ROTHFUS, Pennsylvania
          Shelley Husband, Chief of Staff and General Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel
                            C O N T E N T S


                             JULY 24, 2018

                           OPENING STATEMENTS

The Honorable Bob Goodlatte, Virginia, Chairman, Committee on the 
  Judiciary......................................................     1
The Honorable Jerrold Nadler, New York, Ranking Member, Committee 
  on the Judiciary...............................................     3


Mr. Grover Norquist, President, Americans for Tax Reform (ATR)
    Oral Statement...............................................     7
Mr. Chad White, Owner, Class-Tech-Cars, Inc.
    Oral Statement...............................................     9
Mr. Lary Sinewitz, Executive Vice President, BrandsMart on behalf 
  of the National Retail Federation
    Oral Statement...............................................    10
Mr. Bartlett Cleland, General Counsel and Chief Strategy and 
  Innovation Officer, American Legislative Exchange Council 
    Oral Statement...............................................    12
The Honorable Curt Bramble, Past President, National Conference 
  of State Legislatures (NCSL)
    Oral Statement...............................................    14
Mr. Andrew Moylan, Executive Vice President, National Taxpayers 
  Union Foundation (NTUF)
    Oral Statement...............................................    15
Mr. Joseph R. Crosby, Principal, MultiState Associates 
    Oral Statement...............................................    17
Mr. Andrew J. Pincus, Partner, Mayer Brown
    Oral Statement...............................................    19

                            SMALL BUSINESSES


                         TUESDAY, JULY 24, 2018

                        House of Representatives

                       Committee on the Judiciary

                            Washington, DC.

    The committee met, pursuant to call, at 10:00 a.m., in Room 
2141, Rayburn House Office Building, Hon. Bob Goodlatte 
[chairman of the committee] presiding.
    Present: Representatives Goodlatte, Chabot, Gohmert, 
Jordan, Poe, Labrador, DeSantis, Buck, Johnson of Louisiana, 
Biggs, Rutherford, Handel, Rothfus, Nadler, Jackson Lee, 
Johnson of Georgia, Biggs, Rutherford, Handel, Rothfus, Nadler, 
Lofgren, Jackson Lee, Johnson of Georgia, Cicilline, Lieu, 
Jayapal, and Schneider.
    Staff Present: Shelley Husband, Staff Director; Branden 
Ritchie, Deputy Staff Director; Zach Somers, Parliamentarian 
and General Counsel; Dan Huff, Counsel, Subcommittee on 
Regulatory Reform, Commercial and Antitrust Law; Alley Adcock, 
Clerk; Matthew Morgan, Minority Staff; Danielle Brown, Chief 
Legislative Counsel and Parliamentarian; Slade Bond, Minority 
Chief Counsel; Rosalind Jackson, Minority Professional Staff; 
and John Doty; Minority Professional Staff.
    Chairman Goodlatte. Good morning. 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 to this morning's hearing on ``Examining the Wayfair 
Decision and its Ramifications for Consumers and Small 
Businesses.'' And I will begin by recognizing myself for an 
opening statement.
    Welcome, to you all, to this hearing examining the Wayfair 
decision and its ramifications. On June 21, 2018, the Supreme 
Court reversed the long-standing rule that under the 
Constitution's Commerce Clause, the States may not impose sales 
tax collection duties on remote sellers with no physical 
presence in the taxing State.
    The court could have left resolution of this issue to 
Congress, to which the Commerce Clause grants the ultimate 
authority, to regulate interstate commerce, but the court said 
it was eliminating the bright-line, physical presence standard 
because it was wrong to ``ask Congress to address a false 
constitutional premise of this court's own creation.'' This 
reasoning is exactly backwards.
    For most of American history, it was thought a principle of 
universal application that the statutes of one State have no 
force or effect in another. It was only with the New Deal that 
the courts began weakening the traditional safeguards against 
extra-territorial regulation to make way for big government.
    Accordingly, the true judicial creation was not the 
physical presence standard, but the relaxation of its 
strictures, which were thought inherent for most of American 
history. We are in a new world now.
    The courts close and incomplete decision in Wayfair has the 
potential to unleash chaos for consumers and remote sellers, 
particularly small business sellers. There are over 10,000 
sales tax jurisdictions, each with different rates, rules, 
exemptions, product definitions, thresholds for liability, and 
the power to audit. Compliance software is, as the dissent 
noted, still in its infancy, and its capabilities and expense 
are subject to debate.
    The potential costs of audits by thousands of jurisdictions 
could be staggering. The Government Accountability Office 
recently reported on the asymmetry between States' low-cost 
enforcement tools, like letter audits, and the cost to small 
businesses that must often hire outside counsel to represent 
them in foreign jurisdictions.
    Just as worrying, retroactive taxation remains a real 
threat. Already, six State jurisdictions have laws on the books 
with effective dates that look back as much as 2 years. Remote 
sellers could thus be held liable for sales taxes that they 
never collected from consumers, meaning the taxes would come 
out of the sellers' pockets. Just this morning, Bloomberg 
reported that Rhode Island appears to be committed to 
retroactively enforcing its remote sales tax law.
    These are not just my fears. Compliance problems were front 
and center at a recent emergency meeting of States that 
participate in the streamlined Sales and Use tax agreement. 
Topics included giving large online retailers more time to come 
into compliance. Other participants rejected that idea, saying 
it could invite lawsuits based on discrimination.
    Nor was there a consensus among States as to whether a 
seller could lose the economic nexus sufficient to support tax 
liability after a period of time. In other words, a small 
online seller's liability could ebb and flow constantly, 
creating a highly unstable compliance environment.
    Another critical question at the meeting was how States 
will handle overseas sellers. As highlighted recently in the 
Atlantic magazine, States cannot effectively enforce their tax 
laws against them. This effectively retains, exclusively for 
overseas sellers, the alleged tax subsidy afforded by the 
Supreme Court's prior physical presence rule, reducing the 
competitiveness of U.S. businesses.
    Similarly, the multistate tax commission has released a 
memo raising numerous technical questions that must be 
answered. For example, should tax exempt sales count toward any 
small business thresholds? Do State thresholds for determining 
tax liability apply to local jurisdictions? Should States block 
class action lawsuits for incorrect collection by retailers 
struggling to comply? A senior official warned that retailers 
should not be getting different answers from different States.
    With so many unanswered questions, both sellers and States 
need time to figure out how to proceed. We need to also 
consider the ripple effects of removing the physical presence 
standard in other areas of State taxation and regulation. 
Practitioners told the Wall Street Journal that States are more 
likely to take an aggressive approach on income taxes now that 
they have the Wayfair decision. That, in fact, has already 
    On July 12, 2018, Wells Fargo announced an earnings miss 
due, in part, to a $481 million charge for business activity 
taxes States may impose now that the physical presence standard 
is gone.
    Likewise, there are concerns that States will more 
aggressively tax things like financial transactions, streaming 
video, and legal services. Even a State that disclaims these 
options today may change its view in a budget crunch.
    Finally, what are the broader ramifications of the Wayfair 
decision for innovation? The court acknowledged that the 
physical presence rule has permitted startups to use the 
internet as a means to grow, without exposing them to the 
daunting complexity and obstacles of nationwide sales tax 
collection. What does it mean for the e-commerce world that 
this barrier to entry now looms large? It is imperative that 
Congress promptly assess these issues.
    Today's panel of witnesses can provide a wide spectrum of 
views from those who will bear the burdens created by the 
Wayfair decision, and those who are otherwise expert in 
identifying what those ramifications may include to those who 
have the authority to impose these burdens.
    Once we hear from the witnesses, we will be in a better 
position to assess whether and how Congress should intervene, 
as is our prerogative per the Wayfair decision.
    I thank our witnesses for being physically present today, 
and I look forward to the discussion. It is now my pleasure to 
recognize the ranking member of the Judiciary Committee, the 
gentleman from New York, Mr. Nadler, for his opening statement.
    Mr. Nadler. I want to thank you, Mr. Chairman, for holding 
today's hearing. In 1992, the Supreme Court held in Quill v. 
North Dakota that a State may collect sales taxes only from 
businesses with a physical presence in the State. The internet, 
at the time, was just a nascent technology. In the intervening 
years, internet commerce has grown to be a huge share of the 
    As a result, States have lost substantial revenues from 
sales taxes they were unable to collect. In addition, brick-
and-mortar stores are obligated to collect sales taxes from all 
customers, putting them at a severe competitive disadvantage 
with their internet-based counterparts that do not have to 
collect the tax.
    In an effort to respond to these concerns, various 
legislative proposals have been introduced over the years, 
including the Marketplace Fairness Act, which I actively 
supported. Although one of these bipartisan measures passed the 
Senate overwhelmingly in 2013, our committees, unfortunately, 
failed to consider these bills, despite strong bipartisan 
    The need for Federal legislation is now in question, 
however, because of last month's Supreme Court decision in 
South Dakota v. Wayfair, which held that a State may collect 
taxes from any activity with a substantial nexus to the taxing 
State, thereby overruling Quill's physical presence 
    In the wake of this decision, the committee, today, 
revisits remote sales tax issues. I believe there are two 
principles that should guide this discussion. First, the 
Federal Government should not intrude on State tax policy. 
Although Congress has a constitutional responsibility to ensure 
the orderly function of interstate commerce, it is also obliged 
to respect the sovereignty of the States to determine their own 
Sales and Use tax policies in accordance to the input of local 
    Second, we should recognize that we already have 
constitutional guardrails in place to protect against 
discriminatory State tax policies. The Commerce Clause prevents 
economic discrimination by States and safeguards against 
discriminatory tax laws that burden interstate commerce.
    It does not, however, relieve remote sellers from their 
``just share'' of State taxes, nor does it justify the 
congressional intrusion on the States' plenary authority to 
collect these taxes or to reform critical public functions 
through State revenue. With this in mind, the courts are well-
equipped to consider the constitutionality of State tax 
    Furthermore, the Wayfair decision provides States with a 
clear roadmap for passing and enforcing laws that do not 
discriminate against or unduly burden interstate commerce. 
These features include a safe harbor for sellers with limited 
transactions within the State, prohibitions against retroactive 
enforcement, and adopting simplified and uniform tax systems 
that reduce administrative and compliance costs.
    In the months since the Wayfair decision, States have begun 
an extensive and thoughtful conversation on strategies to 
minimize administrative burdens and uncertainty for remote 
sellers. Twenty-four States are already members of the 
streamlined Sales and Use tax agreement, a voluntary interstate 
compact that adopts the best practices among the States through 
distribution of free tax software, simple, uniform standards, 
and requirement that remote businesses are only subject to a 
single audit for each member State.
    There is also a competitive market of certified service 
providers that, in addition to collecting and remitting sales 
tax for remote sellers, also provide businesses with immunity 
from audit liability. The service is free in the 24 States that 
are members of the streamlined sales tax agreement. In the 
other States, businesses may pay for these services at 
competitive rates.
    There is a general consensus among tax experts that States 
will follow the court's roadmap in Wayfair and abandon prior 
enforcement models such as reporting and notification. For 
example, Hawaii, one of the few States that has considered 
retroactive enforcement, has already announced the reversal of 
this policy.
    Congress, of course, has a role to play, but in the absence 
of examples of discriminatory enforcement by the States, I am 
skeptical of the need for congressional intervention on the 
basis of speculative arms.
    In closing, I thank the chairman, as well as our extensive 
panel of witnesses, who represent a broad array of view on this 
matter, and who will help us have a substantive discussion 
rooted in fact.
    Unfortunately, the same cannot be said for President Trump, 
who weighed in yesterday morning via Twitter, and who 
completely misrepresented and misunderstood several key facts 
in just one tweet.
    He wrote, ``The Amazon Washington Post has gone crazy 
against me ever since they lost the Internet Tax Case in the 
U.S. Supreme Court 2 months ago.''
    Let us set aside the fact that Wayfair was decided last 
month, not 2 months ago, that Amazon was not a party to the 
case and did not oppose the decision, that the Washington Post, 
although owned by Jeff Bezos, is not part of Amazon at all.
    The truth is that many online retailers, including Amazon, 
already collect sales taxes in States that require it, and the 
online retailers that did not collect these sales taxes prior 
to Wayfair have already begun doing so.
    With these facts clarified for the record, I look forward 
to today's hearing and I yield back the balance of my time.
    Chairman Goodlatte. Thank you, Mr. Nadler. I would now like 
to recognize the ranking member of the Subcommittee on 
Regulatory Reform, Commercial and Antitrust Law, Mr. Cicilline 
of Rhode Island, for his opening statement.
    Mr. Cicilline. Thank you, Mr. Chairman, and thank you for 
holding today's hearing. Before coming to Congress, I served as 
the mayor of a city, the city of Providence. I witnessed first-
hand how our local businesses have suffered because of this 
sales tax loophole created by Quill v. North Dakota.
    For far too long, this unfair and unjust system has 
discriminated against local commerce, the economic lifeblood of 
our communities. But according to a survey conducted by the 
Institute for Local Self-Reliance, the vast majority of 
independent retailers around the country report that the online 
sales tax loophole undermines their sales. This result is 
confirmed by other findings that consumers tend to make 
purchases from large, online companies over local businesses, 
just to avoid paying sales tax.
    For over two decades, this anti-competitive tax shelter has 
not only devastated small business on Main Street, but it has 
also been an economic catastrophe for working families, as more 
and more small businesses and retailers are shuttered every 
month. Due to the tax loophole for online purchases, the number 
of job losses in the retail sector have been staggering.
    Since 2001, 18 times more jobs were lost in the retail 
industry than in the coal mining industry, according to U.S. 
Bureau of Labor statistics. This included 36,000 jobs that were 
erased in the last year alone by nearly 700 retail 
bankruptcies, which were up 30 percent from the prior year. 
This year, retail defaults have soared to record levels, 
accounting for a third of all corporate defaults.
    But last month, the Supreme Court gave States and locally-
owned businesses a huge win in South Dakota v. Wayfair, where 
it eliminated the physical presence requirement for sales tax 
collection, holding that States may collect sales tax from out-
of-State sellers with substantial activity within the State. As 
the court noted in Wayfair, the tax shelter created by Quill 
costs States billions of dollars in lost revenue every year.
    By providing equal treatment for all businesses through an 
even playing field, the Wayfair decision will significantly 
reduce State budget shortfalls, which is critical for 
investment and infrastructure projects like bridges, roads, and 
broadband internet access, the projects that our communities 
need to flourish in the 21st century economy.
    Eliminating the physical presence requirement also results 
in lower taxes. Some States, including Wisconsin, have already 
signed laws into place to ensure that revenue collected through 
this bill will result in tax reductions. Going forward, I would 
like to associate myself with the comments of ranking member 
Nadler that the Federal Government should not intrude on State 
tax policy.
    Prior to the Wayfair decision, there has been bipartisan, 
bicameral consensus that Congress must even the playing field 
for Main Street sellers. This includes the Marketplace Fairness 
Act and Remote Transactions Parity Act, which would have 
authorized States that have simplified their tax laws to 
collect sales tax.
    While I have been supportive of these efforts and remain 
committed to working with all the stakeholders to ensure that 
we have a sales tax system that works for everyone, the sad 
fact is that under Republican leadership, this committee has 
been the place where bills go to die.
    Inaction on this bipartisan issue has been no different, so 
I am skeptical that my Republican colleagues will seek to 
legislate on this issue in a manner that does not jeopardize 
the health and well-being of our local communities.
    With that concern in mind, I look forward to the input of 
today's panel of witnesses, who represent a variety of views 
across the ideological spectrum. And before closing, I would 
like to take a moment to echo the sentiment of my colleague, 
ranking member Nadler, regarding the tweets by President Trump 
yesterday regarding Amazon.
    Pointing to what the President considered negative coverage 
in the Washington Post on North Korea, the President of the 
United States also threatened Amazon with antitrust 
enforcement. As I have said in the context of the President's 
comments on other antitrust matters, this type of discussion 
has no place in antitrust enforcement, which is a civil law 
enforcement matter.
    I have previously said that this committee should do more 
to actively consider the effects of platform dominance on our 
competition system, on innovation, and small businesses. Last 
year, I, in fact, requested a hearing on Amazon's acquisition 
of Whole Foods. But President Trump's brazen attempt at 
political interference in this area is completely unacceptable, 
and we should all say so. And with that, Mr. Chairman, I yield 
back the balance of my time.
    Chairman Goodlatte. We welcome our distinguished witnesses, 
and if you would all please rise, I will begin by swearing you 
in. Please raise your right hand.
    Do you, and each of you, solemnly swear that the testimony 
you are about to give is the truth, the whole truth, and 
nothing but the truth, so help you God? Thank you. Let the 
record show that all of the witnesses answered in the 
    Our first witness is Mr. Grover Norquist. Mr. Norquist is 
the president of Americans for Tax Reform. Mr. Chad White is 
the owner of Class-Tech-Cars in Virginia. Mr. Lary Sinewitz is 
the executive vice president of BrandsMart and testifying today 
on behalf of the National Retail Federation.
    Mr. Bartlett Cleland is the general counsel and chief 
strategy and innovation officer of the American Legislative 
Exchange Council, or ALEC.
    The Honorable Curt Bramble is a member of the Utah State 
Senate and previously served as president of the National 
Conference of State Legislatures.
    Mr. Andrew Moylan is the executive vice president of the 
National Taxpayers Union Foundation. Mr. Joseph R. Crosby is a 
principal at MultiState Associates, Incorporated. And our final 
witness is Mr. Andrew J. Pincus, a partner at Mayer Brown.
    All of your written statements will be entered into the 
record in their entirety and we ask that you summarize your 
testimony in 5 minutes. To help you stay within that time, 
there is a timing light on your table. When the light switches 
from green to yellow, you have 1 minute to conclude your 
testimony. When the light turns red, that is it, time is up. 
And given that we have eight of you on this panel, we work very 
hard to accommodate as many different viewpoints as possible, 
we really need you to help us with the enforcement of that 
    Mr. Norquist, welcome. You may begin.



    Mr. Norquist. Sure. Thank you very much, Mr. Chairman, Mr. 
Ranking Member. The Supreme Court made a big mistake, and it 
undermined two important principles in American history. The 
first is no taxation without representation.
    One of the challenges we have here is that politicians, who 
could perfectly well have collected all the sales tax they 
wanted from people who lived in their State by collecting it 
from them, decided they would rather have some business in 
another State do the collecting, so the politician does not 
have his finger on that. And then, they yell at them and tell 
them they are going to go after them if they do not collect it.
    So, they could always have collected this money from people 
in their city, in their State. They thought it would be 
politically easier not to irritate the people who could vote 
against them, but to go after businesses that cannot vote 
against them. And we had a whole revolution on this question, 
about whether it is a good idea to have taxation without 
    Second, and this, of course, is not just for sales taxes. 
This was never about sales taxes. I have been focused on it 
since I was on the advisory commission on electronic commerce 
that reported in 2000, I guess 1997 to 2000. When that 
happened, lobbyists for allowing States to talk tax across 
State lines came and said, ``What would it take to get you to 
reduce your opposition?''
    I said, ``Well, I am really concerned that you guys will do 
this to corporate income taxes and individual income taxes as 
well. If you were to support BATSA or some of the restrictions 
on that, it would make it less of a problem, since this has 
nothing to do with the kind of numbers you guys are imagining, 
in terms of revenue.
    And the answer was, ``We would never do that.'' This is not 
about sales tax. We could not care less about sales tax. It has 
always been about exporting the corporate income tax into other 
States, and loser States, which North Dakota was at the time, 
decided it could wait instead. But back then, it saw itself 
losing people and businesses out, and they wanted to be able to 
tax outside of North Dakota into successful States.
    The other is tax competition. We want good government 
competition between the 50 States, and among the 50 States. And 
allowing people to compete on lower taxes, less regulation, 
better education, better roads, is a great way of getting good 
    To tell States they do not have to compete on those bases, 
because they can export their failures, tells every corrupt 
city mayor, every incompetent Governor, ``You do not have to 
have good government, you just have to be able to expand who 
you tax.'' And taxing people who cannot vote against you is a 
very interesting idea.
    The Europeans have been watching what happened with this, 
and they have decided they want to tax our high-tech companies. 
And I do not understand how the United States government is 
going to go, ``You cannot do that, only we are allowed to do 
that. You cannot reach into a State and tax a successful high-
tech company. Only Illinois can do that, and other States.''
    So, we have really put ourselves in a difficult position. 
For what? We were told this was going to be $20 billion in 
increased revenue. I hear $30 billion now. I just talked to 
somebody from a State that said it is going to be $6 million in 
that State. We are rearranging the relationship between States 
as to whether they need to provide competent government, 
whether they can tax people who cannot vote against them in 
order to get a very small amount of money into those 
    I think it is very important that, given the mess we are in 
now, thank you, Supreme Court, that we delay implementation 
until Congress has a chance to try and undo some of the damage 
that this decision made. I think it is important that we not go 
after smaller businesses, and that the amount of sales it takes 
to be a relevant factor and to have an imaginary nexus in South 
Dakota is not the same number for California, because it is a 
larger State. And it is also important you guys nail down all 
of the other problems that flow from this.
    I was talking about the Business Activity Tax 
Simplification Act, which would help on corporate businesses. 
States are trying to export their regulation, which is why 
Representative Sensenbrenner's legislation, No Regulation 
Without Representation, is another piece of this pie. Efforts 
to make sure that we can have one State and only one State tax 
everything, from streaming videos to music.
    This pandora's box that has been opened up has one hope, I 
guess, and that is that you guys get together and put lines 
around the damage that can flow from this. There is going to be 
a bunch of damage. It is not going to be helpful, but you can 
at least begin to reduce it.
    This is all about a bunch of politicians at the State and 
local level lying to their constituents that there was a magic 
bean collection somewhere that was going to allow them to fund 
everything. That is not there. They will now discover that, but 
they have done a lot of damage in telling that fib and in 
opening up where physical nexus is no longer legally required. 
Something very much like physical nexus needs to be put in its 
    Chairman Goodlatte. Thank you, Mr. Norquist. Mr. White, 

                    STATEMENT OF CHAD WHITE

    Mr. White. Chairman Goodlatte, Ranking Member Nadler, and 
members of the Judiciary Committee, thank you for inviting me 
to testify today. My name is Chad White. I am the owner of 
Class-Tech-Cars, an online small business specializing in 
reproduction automotive parts, located in Timberville, 
    I want to thank Chairman Goodlatte and the committee for 
holding this critical hearing to address the small business 
impacts of the Supreme Court's recent decision in Wayfair v. 
South Dakota.
    Over 30 years ago, I left a career in the hospitality 
industry to take a job in a friend's automotive body shop and 
pursue my passion for classic cars. Over the next 20 years, I 
helped grow that business into a top 10 national vendor for 
Ford products. But I had always dreamed of starting my own 
business and making my mark in the automotive world.
    I began selling items online out of my home in 2001. Over 
the last 17 years, I have been able to grow my business to 
6,500 active listed items, specializing in American-made muscle 
cars of the 1960s and 1970s.
    With the assistance of online platforms like eBay, Class-
Tech-Cars has been able to market and sell products across the 
country and throughout the world. The internet is a tremendous 
tool for small businesses, but make no mistake, starting and 
growing a small business remains a difficult task.
    Every expenditure I make has to be carefully considered. I 
currently employ eight individuals and committed to grow my 
business, but the Supreme Court's recent decision in South 
Dakota v. Wayfair gives me and millions of other small business 
owners across the country pause as we consider what lies ahead 
for internet-enabled entrepreneurs.
    There are many challenges to setting up a small business, 
but one enormous burden small businesses have not yet had to 
bear is the threat of having to collect and remit sales taxes 
in roughly 12,000 jurisdictions across this country.
    Let me be clear, we collect taxes and remit taxes like any 
other business in those States where we have a physical 
presence. I handle this process through a part-time employee 
who spends a few hours a week calculating tax and remitting 
quarterly. I honestly do not know how we will handle having to 
increase this collection and remittance compliance from a few 
locations to thousands across the country.
    I have heard the pitch that free software can solve the 
problem. Well, we all know that in life, nothing is free. 
Software can get expensive. Collection and remittance is one 
thing but think about the risk of audits by far away States and 
compliance measures in thousands of jurisdictions across the 
    Many online small businesses sell in many multiple ways, 
from their physical store, over the phone, on the website, or 
on marketplaces such as eBay. Certified service providers auto-
protection guarantees fall flat when a State of local 
jurisdiction simply claims there is misrepresentation or fraud.
    Once a small business receives a demand letter from a 
faraway jurisdiction, they are left with a lose/lose decision, 
or just paying to try to defend themselves in a foreign tax 
    Small businesses are the lifeblood of the American economy, 
and the internet has allowed American small businesses to start 
up and grow in unimaginable ways. Like so many others, I risked 
in starting my business, to build it with hard work and 
    As confusion sets in after the Wayfair decision, I worry 
about what comes next for my business. I worry about 
compliance, about cost, and about out-of-State audits. I have 
other small business entrepreneurs that have asked me if it is 
even worth it to start an online business in light of these new 
tax burdens. I wonder what my choice would have been if I had 
started my business today.
    Chairman Goodlatte, Ranking Member Nadler, and members of 
this committee, thank you for, again, for the opportunity to 
testify on this critical issue. As you examine the challenges 
ahead post Wayfair, I urge Congress to pass legislation to 
protect small businesses like mine and millions of others 
across the country having to endure this uncertainty and the 
burdensome tax requirements and audit risks.
    Some small businesses are the growth of the engine of our 
economy, and without important protections, we risk preventing 
new entrepreneurs from starting successful online businesses. 
Thank you, and I look forward to taking your questions.
    Chairman Goodlatte. Thank you, Mr. White. Mr. Sinewitz, 


    Mr. Sinewitz. Chairman Goodlatte, Ranking Member Nadler, 
and members of the committee, my name is Lary Sinewitz. I am 
the Executive Vice President of BrandsMart, a 41-year-old 
family-owned business headquartered in Fort Lauderdale, 
Florida. I am testifying today on behalf of the National Retail 
Federation. I am also a member and on the board of directors of 
the Florida Retail Federation and the Georgia Retail 
    BrandsMart has 10 stores located in south Florida and 
Georgia. We also have internet sales. BrandsMart sells 
appliances, TVs, electronics, mattresses, furniture, and other 
household items. Approximately 95 percent of our sales are 
through our brick-and-mortar stores.
    A number of years ago we invested in our website, primarily 
as a means of advertising and providing information on our 
products to our local customers. About 6 to 7 years ago, we 
added a shopping cart to our website, and began to sell over 
the internet by participating in some of the marketplaces and 
some other third parties, to glean the best deals to offer 
customers for a small commission from the sellers.
    Today, we have some sales in all 48 contiguous States. 
Together, these sales still make up less than 5 percent of our 
overall sales. Although we are hopeful that our internet 
business will grow, as has been the trend for the overall 
retail industry, our biggest concern has been protecting sales 
in our brick-and-mortar stores.
    As an appliance retailer, BrandsMart has experienced a 
significant loss of sales from customers who come into our 
stores to ``showroom.'' That is, they come into our stores to 
learn about the products from our experienced sales personnel.
    With the growth of mobile sales, we regularly find the 
customers will come into the stores, learn about the products, 
and then purchase the products online in order to save the 
sales tax. State and local taxes in Florida and Georgia can be 
as much as 7 to 9 percent, so customers that are not charged 
sales tax can get a significant savings on a high-priced 
appliance or a television set.
    Sometimes, the customer will order the product on the phone 
right in front of one of our sales people, who has just 
invested a significant amount of time in educating the 
customer. Like other retailers, we will often engage in price 
matching, but our profit margins are slim, and we cannot afford 
to absorb the price of tax. Therefore, online sellers have not 
had to collect that.
    BrandsMart is looking forward to competing in the 
marketplace in the post-Wayfair environment. We believe that 
when we compete on price and good customer service without 
having to overcome a discriminatory tax burden, we will be far 
more successful.
    There are challenges to meeting sales tax collection 
requirements for remote sellers that have not been collecting 
sales tax prior to the court's decision, and BrandsMart is now 
figuring out how to face these challenges. In fact, among the 
NRF members that have only one or two stores, it is weird for 
them not to have a website in which they may have some number 
of sales out of State.
    In discussions at meetings of the NRF small business retail 
council, where most of the retailers are actually smaller than 
BrandsMart, concern has been raised that if there were not 
Federal legislation that included free software, among other 
protections, the cost of compliance might be so great that it 
was not worth selling into other States where a retailer did 
not have a sufficiently high level of sales.
    However, after the Supreme Court issued its decision, I 
checked out and investigated software packages that are now 
available, pricing in the services that were offered. And I 
feel confident that BrandsMart can quickly come to compliance 
with whatever collection requirements may be imposed for a very 
modest fee, and this will give us the ability to compete and 
expand our internet sales.
    As a starting point to our discussions, the software 
providers asked us in how many States, other than Florida and 
Georgia, we have more than 200 sales. Of the 46 States in which 
we have remote sales, 34 met this minimum level of sales. The 
packages that we are negotiating with our software provider 
will calculate and remit our sales tax, file all the returns, 
and be the first point of contact for any kind of audit with 
these 34 States and appropriate localities within those States, 
will cost less than one tenth of 1 percent of our remote sales 
in the first year, and that is only because there are startup 
costs. And after the startup costs, it will actually become 
more cost efficient.
    The startup costs include mapping of thousands of products 
and they estimate it will take them, literally, just 2 weeks to 
complete this process. More importantly, these software 
companies are monitoring the day-to-day changes in State and 
local taxes and will provide me with the right amount of sales 
tax at the time of the sale.
    Having participated in discussions with several different 
software companies, I can tell you there were lots of different 
ways that the companies priced their services, but it was very 
clear that they were interested in developing a plan that was 
economically successful for both the retailer and the software 
    So, what once loomed as this potential compliance nightmare 
now is just an incidental cost of doing business that should 
not prevent BrandsMart or other remote sellers from expanding 
in their internet presence.
    We have approximately 1,700 families that work for 
BrandsMart, and we ask for your help, and we ask for the 
fairness, so that these 1,700 families will continue to 
    Chairman Goodlatte. Thank you, Mr. Sinewitz. Mr. Cleland, 
welcome. Turn on your microphone.


    Mr. Cleland. Thank you, Mr. Chairman, Ranking Member 
Nadler, and members of the committee. I wanted to give a brief 
background on ALEC. We are the Nation's largest non-partisan 
voluntary membership organization of State legislators. So, we 
are exactly where the rubber hits the road on this issue.
    ALEC is dedicated to three primary principles: limited 
government, free markets, and federalism. We have had a long 
history working with State and Federal legislators on the issue 
of remote taxation. This hearing is one of the highlights. We 
filed an amicus brief in the Wayfair case, another highlight.
    We do a State ranking, of which, hat tip to Mr. Bramble, 
Utah has been the number one ranked State for 10 years running 
on taxation. Hopefully, they are not about to jeopardize that 
in our rankings. I have asked if these, in my written 
testimony, please be included on the record, but I ask again if 
the Chairman is still inclined to include these documents?
    So, where are we, post-Wayfair, and what should we do? Let 
us take a look with ALEC's limited government, free market, and 
federalism principles in mind.
    On federalism: some have asserted that, in result of the 
Wayfair case, is a step toward or a reinforcement of 
federalism. Actually, at best, it is what I call ``false 
federalism.'' It is the knee-jerk opposition to the Federal 
Government doing anything.
    In fact, we know from history that was never the intent. 
Unrestrained States able to loot other States has never been 
allowed, but for a brief period under the Articles of 
Confederation. For those of you who have forgotten your history 
from seventh and eighth grade, that was the period where the 
Founders had to run back to Philadelphia and draft what, today, 
we call the U.S. Constitution, the Articles of Confederation 
being a failure exactly because of States interfering with the 
business of other States. The Commerce Clause was the result. 
Put in the Commerce Clause to stop States from reaching across 
the States lines into other States and interfering with 
interstate commerce.
    Limited government: post-Wayfair, as we have heard from the 
chair and others, government is virtually unrestrained. 
Government now can be as big as the internet reaches. 
Government even over those who have no recourse against it. 
But, forgetting that time of the Articles of Confederation, 
this is the first time in our jurisprudential history, in 330 
years, that we live in a place where you are now able to be 
taxed without having representation. First time that right was 
guaranteed was in 1689 in the English Bill of Rights.
    The common phrase that started in England and was picked up 
here later was, ``No taxation without representation.'' The 
modified phrase was, ``Taxation without representation is 
tyranny.'' That is as true today as it was then.
    Finally, our third point: the free markets. The current 
situation, before Wayfair and today, was confusing and 
complicated. Simplification is needed with bright lines, clear 
definitions, like some of the proposals we have seen from 
    In addition, merchants should be reimbursed fully and 
completely for any rules that are put in place. That not only 
includes the real costs, but also for the liability they bear 
if they do not collect the right amount of tax or they do not 
remit the right amount of tax.
    Essentially what has happened in history is government has 
conscripted merchants into being servants of the government. It 
is only fair that they get reimbursed for their efforts.
    In conclusion, Congress needs to act, and they need to act 
now. In my written testimony, I suggest a way forward. There 
are other ways forward, many of which ALEC would be supportive 
    But in the end, we need to reinstate real federalism. We 
need to limit government reach to what has always been intended 
in our U.S. Constitution, at least demanding that there is 
representation before taxation.
    Finally, we must require simplification and reimbursement 
for merchants. Thank you, and I am happy to answer any 
    Chairman Goodlatte. Thank you, Mr. Cleland. Mr. Bramble, 
welcome. I should say Senator.


    Mr. Bramble. Thank you, Mr. Chairman and Ranking Member 
Nadler. Members of the committee, my name is Curt Bramble. I am 
a member of the Utah Senate. I am also the past president of 
the National Conference of State Legislatures and a lifetime 
member of the American Legislative Exchange Council.
    In addition to my public service, I have spent the last 
nearly four decades as a CPA, where I have defended taxpayers 
and small businesses in tax matters of varying magnitudes. I 
look forward to sharing my insights today, but I need to start 
by setting the record straight on a couple of points.
    Sales tax is a tax on the purchaser. The citizens of a 
State elect their State legislatures that impose the States 
sales tax provisions. It is those purchasers that are the 
taxpayers. A business has to collect and remit, that is true, 
just as it collects and remits withholding taxes and complies 
with other regulations.
    Six-thousand, 10,000, 12,000 taxing jurisdictions. We heard 
one witness today talk about that. The State of Virginia has 95 
counties. They have taxing authority. In my own State, there 
are 240 cities, there are 29 counties, there are some 400 
special service districts. All of those go in to make up that 
number of 12,000, but you only pay tax to one entity, and that 
is the State tax commission. And there is only one entity that 
has audit authority.
    In 1, elected policymakers, tax administrators, and 
retailers from over 40 States developed a sales tax system to 
address the concerns of Quill, but Congress failed to act. In 
2003, Streamlined Sales Tax petitioned Congress for authority 
to require out-of-State sellers to collect and remit, but 
Congress did not act. Marketplace Fairness, Main Street 
Fairness, Congress failed to act. The Remote Transactions 
Parity, which States reluctantly supported because it seeded 
some autonomy, Congress failed to act.
    In fact, the chair of the National Governors Association, 
president of the National Conference of State Legislatures, met 
with leadership of this committee to urge congressional action. 
RFTPA was not even afforded a hearing or a chance for a vote. 
Congress did not act.
    In recent years, State lawmakers across the country have 
enacted conservative economic policies by championing tax 
reform that closes loopholes and special interest carveouts in 
favor of flatter and lower overall tax rates for everyone. We 
did that in Utah last week in a special session, where I had 
the privilege of sponsoring the legislation to mandate 
collection of taxes beginning January 1st of 2019, and we 
lowered other taxes to make it revenue-neutral. That is good 
tax policy: expanding the base, broadening the base, and 
lowering the rate.
    And yet, through all of this, in 26 years since Quill, 
Congress has not acted. I am here today to ask Congress and 
you, Mr. Chair, to continue doing what this committee and 
congress has done best on this issue over the last 26 years. 
And that is nothing, to not act.
    The reason for that: when the Supreme Court found that 
physical presence was not a violation of the Commerce Clause, 
States across the country have now begun to deal effectively, 
deliberately with this issue. This is something that States can 
effectively address. It is interesting that it was a nine-zero 
decision that Quill was bad policy. It was a five-four decision 
saying that the Supreme Court would fix that which it broke, 
and it should not be Congress that does that.
    In conclusion, it is true that red States, blue States, 
purple States, States across the country, we are not looking 
for a tax advantage. We are looking for tax parity. The chaos 
that has been talked about in this committee, the chaos that 
has been spoken of by witnesses today, that chaos exists with 
the tens of thousands of businesses that have closed, the 
hundreds of thousands of employees who have lost their jobs 
because they cannot compete adequately on the internet.
    It is those small businesses that, as a State legislator, I 
am elected to represent. It is those small businesses that are 
experiencing chaos, the chaos of not being able to compete in a 
marketplace because online retailers do not have to collect the 
6 to 10 percent tax, and that 6 to 10 percent tax, they are 
fighting desperately to maintain that competitive advantage.
    In conclusion, this is a tax equity issue. Businesses that 
want to take advantage of the market in my State and in every 
State should comply with the regulations in those States no 
different than they do with automobiles or alcohol, tobacco, or 
any other commodity. With that, I thank you for the opportunity 
and look forward to questions.
    Chairman Goodlatte. Thank you, Senator. Mr. Moylan, 

                    STATEMENT OF MR. MOYLAN

    Mr. Moylan. Thank you, Mr. Chairman, and thank you for the 
invitation. My name is Andrew Moylan. I am executive vice 
president of the National Taxpayers Union Foundation, a 
nonpartisan, protaxpayer research and educational organization, 
and I am also director of the interstate commerce initiative at 
the National Taxpayers Union, a policy project that focuses on 
the effects of States attempting to exercise power outside 
their borders.
    In South Dakota v. Wayfair, the Supreme Court undermined 
the foundation for decades' worth of growth and innovation when 
they decided to throw out the precedent that State taxing 
authority must be confined to a State's borders.
    With the stroke of a pen, the court rewrote our 
understanding of State involvement in their State commerce and 
opened the floodgates to burdensome levies on businesses large 
and small, regardless of location. And now, chaos is brewing. 
States are moving rapidly to take advantage of an expansive 
view of the new power granted to them by the court, with little 
regard for administrative simplicity, and it is my view that 
Congress should move swiftly to prevent further problems, by 
enacting a moratorium on State responses to Wayfair.
    You will hear from some panelists that there is no chaos, 
that States are going to proceed in an orderly fashion, that 
they will minimize compliance burdens while returning 
additional revenue to taxpayers in the form of tax cuts. Let us 
suppose, for the moment, that that is true. Even if we assume 
that that is true, there are innumerable unanswered questions 
that, I believe, demand congressional action.
    For example, many States require retailers to purchase a 
sales tax bond to ensure full and prompt payment of sales tax 
obligations. Post-Wayfair, it is unclear if a business selling 
online must now secure a sales tax bond in each State into 
which it sells. Sales tax bonds can cost thousands of dollars 
and are often linked directly with business licensing 
requirements, which are similarly murky post-Wayfair.
    Another example: many publicly traded companies face 
significant new tax bills as a result of Wayfair, but the 
deadline for public filings about those burdens for the second 
quarter is in just 2 weeks, putting businesses in the 
impossible position of being legally responsible for reporting 
on costs that are essentially unknowable with precision in such 
a time frame. And this is just a taste of the administrative 
complexities that abound post-Wayfair, and that is before we 
depart from any supposition that States will, in fact, behave.
    Now, the reality, of course, is that States cannot be 
relied upon to proceed with caution. After all, New Jersey is 
still the same State that held trucks hostage at the State 
border to extract business taxes. Nebraska is the same State 
that assessed tax to a business whose only connection to it was 
to have driven through it on an interstate highway.
    Massachusetts is still the same State that attempted to 
assert that the delivery of a browser cookie while browsing its 
website constituted a basis for taxing an out-of-State 
business. Given this history, taxpayers can be forgiven for 
holding onto their wallets and watches.
    And thus, it is my view that retroactivity remains a 
serious threat. While some States have statutory language 
ensuring they do not collect retroactively, many do not, and 
taxpayers must simply rely on State forbearance.
    Our research shows that at least eight States lack a 
statutory ban on retroactivity and have also yet to commit 
publicly not to collect retroactively, putting businesses at 
risk not just of tax assessment, but from audit, as well.
    And what is more, the Wayfair genie cannot be put back in a 
bottle labeled ``Sales Tax Only'' now that the court has let it 
out. Many practitioners agree that Wayfair adds fuel to the 
fire of States pursuing tax schemes across the board based not 
on tangible, physical connections, but on nebulous measures of 
economic presence.
    One very vivid illustration of that fact came when Wells 
Fargo announced that it had set aside nearly half a billion 
dollars for its income tax reserves as a direct result of 
Wayfair and what they see as likely future tax assessments.
    The salt in these wounds is that the majority's opinion was 
relatively vague and highly deferential to State tax power, and 
so it leaves few options for taxpayers to secure injunctive 
relief against an unconstitutional State scheme. In order to 
effectively challenge the constitutionality of a law, it would 
require business to face assessment and sue, taking years and 
millions of dollars, a daunting proposition for even the 
largest of businesses.
    Thus, it is my view that Congress should immediately move 
to enact a moratorium to help provide the time and space 
necessary for both Congress and the States to meet the 
challenges I have laid out here and others to be discovered. 
Eliminating the mad scramble underway today would do wonders 
for our ability to surface and appropriately address issues 
like those discussed today and to continue the hard work of 
crafting a more comprehensive solution to effectively govern 
interstate commerce.
    A moratorium is, in my view, a modest step. It is a 
necessary step, and it is a step that I hope that this 
committee gives full consideration in the near future. Thank 
you, Mr. Chairman.
    Chairman Goodlatte. Thank you, Mr. Moylan. Mr. Crosby, 


    Mr. Crosby. Thank you, Mr. Chairman. Congressman Johnson 
and members of the committee, I am Joe Crosby, CEO of 
MultiState Associates. I advise many businesses and trade 
associations on State tax policy matters, but I appear here 
today on my own professional behalf.
    I have only one point to make in my testimony today: there 
is no immediate problem requiring congressional action in 
response to South Dakota v. Wayfair. I applaud Chairman 
Goodlatte for calling this hearing. It is important that these 
issues are put on the table, that there is a broad and thorough 
discussion of them, and most importantly to dispel, hopefully, 
some of the myths that might lead to a crisis that would call 
for unwarranted congressional action.
    In prior testimony before this committee, I have said that 
it is only Congress that can fix the problem of State sales tax 
collection. I was wrong, because I had no expectation that the 
court would ever weight in on this again, but it has. And in so 
doing, it has eliminated the problem which animated prior 
congressional proposals and hearings about how to restore to 
States the authority to require collection by remote sellers on 
sales taxes.
    Since the decision, the States have acted, and I expect 
them to continue to act, responsibly and deliberately in 
providing notices and guidance to taxpayers. No State has yet 
attempted to impose taxes retroactively. As the Chairman 
indicated in his opening remarks, the only State that has even 
indicated that they would do so, Hawaii, has since rescinded 
that recommendation.
    Of course, Congress does retain full authority to legislate 
with regard to the appropriate extent of State tax 
jurisdiction. But even a prohibition or moratorium, as Mr. 
Moylan just called for, or a ban on retroactive taxation, would 
be devilishly complicated.
    A so-called moratorium would affect all States and it would 
do so in different ways. The Congress would need to define 
terms that the court never defined because it was not making 
law, it was simply interpreting the dormant Commerce Clause. In 
writing those definitions and in defining a statute, the 
commerce would be creating a new law. There is no way, as Mr. 
Moylan said, to put the genie back in the bottle and, to go 
status-quo, anti-Wayfair cannot be neatly and precisely done.
    Even a simple prohibition on retroactive taxation would be 
fraught with complications. There are several other risks, I 
think, that militate against immediate congressional action. 
The first and most obvious is it will interfere with State 
revenue collections. The second, and it has been discussed here 
today, it would interfere with existing State activities to 
reduce taxes with the additional revenues from legally due and 
owed taxes. A whole number of States, even the District of 
Columbia, have already announced that they will be looking at 
legislation to reduce taxes. Here in D.C., they are talking 
about reducing the commercial property tax rate.
    Senator Bramble already indicated that Utah has acted to 
reduce manufacturing sales taxes by using this revenue, and 
Wisconsin Governor Walker has already issued not just a 
statement, but guidance saying exactly what the reduction in 
personal income tax rates are going to be as a result of the 
additional collections.
    Importantly, if Congress were to intervene now, it would 
not only jeopardize all of these tax cuts, but it could also 
interfere with the economy. I am going to quote here, because 
the Supreme Court said something very important in agreeing 
with South Dakota, that the physical presence standard 
``creates rather than resolves market distortions, and also 
produces an incentive to avoid physical presence in multiple 
States, affecting development that might be efficient or 
    Overstock.com, one of the plaintiffs in the case, said 
almost something the same immediately afterwards, that it 
``would begin expanding its physical and digital operations, 
including supply chain, marketing, and recruiting into States 
in which tax nexus concerns previously prevented the company 
from having a direct presence.''
    So, in other words, the physical presence standard itself 
interfered with the free flow of commerce among the States by 
preventing businesses which would otherwise make economically 
sound decisions from doing so because of a potential loss of a 
tax advantage.
    I will conclude by highlighting the fact that the history 
of congressional action on State tax matters demonstrates that 
temporary solutions are rarely temporary, and they are rarely 
full solutions.
    Somewhere in this building is a report that was produced in 
1965 after 7 years of hearings on the appropriate extent of 
State tax jurisdiction, covering not just income taxes but also 
sales taxes. That was in response to Public Law 86-272, which 
was enacted in 1959. It was intended that that would be a 
temporary bill. The Senate report at the time says it was 
temporary, waiting for the conclusion of the Willis Committee 
to do its work and then come back and adopt a more appropriate 
long-term legislation; that never happened. That law from 1959 
remains on the books today, unaltered except for a 1961 
amendment to expand it to address the issue of sales taxes.
    More recently, as Mr. Norquist mentioned, we had the 
advisory commission on electronic commerce. That was in 
response to a temporary prohibition on certain internet taxes. 
That commission was unable to produce any formal findings or 
recommendations in the area of taxation because it could not 
read a statutory requirement of a two-thirds majority vote.
    And so, its report still sits there, again, with the 
permanent moratorium now being on the books. Mr. Chairman, 
thank you very much, and I look forward to questions.
    Chairman Goodlatte. Thank you, Mr. Crosby. Mr. Pincus, 


    Mr. Pincus. Thank you, Mr. Chairman and Ranking Member 
Nadler, members of the committee, for the opportunity to appear 
before you today. I would like to make three points focused on 
Wayfair's impact on small businesses.
    First, we do not yet know the standard for determining when 
it is constitutional for a State to impose tax obligations on 
an out-of-State small business. Second, States are nonetheless 
moving ahead to subject these entrepreneurs, who are the 
engines of our economy, to unfair and costly requirements. And 
third, small businesses have no way to protect themselves again 
unconstitutional obligations.
    On the first point, the Supreme Court in Wayfair made clear 
that there are constitutional protections for small businesses, 
but it did not decide what they are. It could not, because the 
three plaintiffs in Wayfair were all very large companies. The 
amount of business that a company does with customers in the 
State is a relevant factor, but how much business is required? 
We do not know. The court did not hold that South Dakota's 
$100,000 annual revenue, 200 transactions test was sufficient, 
even for South Dakota. And if that level of connection were 
sufficient for South Dakota, one of our least populous States, 
then a much larger amount plainly must be required to permit 
New York or California or Texas to require tax collection.
    And even if the level of business factor is satisfied, the 
Supreme Court indicated in Wayfair that a tax collection 
obligation still can be unconstitutional based on the burden on 
a small business of complying with multiple States' different 
rules. In other words, a small business cannot be forced to 
comply with 20 different complex tax collection requirements, 
each with an accompanying audit risk, even if it does some 
amount of business with customers in each of those States.
    And finally, Wayfair did not address a separate 
constitutional protection for small businesses, the Due Process 
Clause, that requires a more substantial and direct connection 
between an out-of-State business and a State imposing a 
regulatory obligation such as a tax. The small business has to 
``purposefully avail,''--that is the language the courts used 
in its precedence, itself of the benefits of the State's market 
and laws. Sales to customers in the State are not, by 
themselves, sufficient. So, we do not know what the 
constitutional rule is.
    But nonetheless, as you have heard, States are moving ahead 
to impose tax collection requirements, including on small 
business, and there is no reason to believe that States will 
appropriately protect these out-of-State businesses, who have 
no ability to hold politically accountable the officials who 
are making these decisions. The ``Trust us'' argument does not 
hold up as a matter of political reality.
    Just look at the NCSL statement that was issued right after 
Wayfair that urged States to wait until January 1, not to 
impose retroactive taxation, to all abide by the streamlined 
tax rules. It is not clear at all that every State is going to 
do that. Some States have announced that they want to start 
collecting taxes before January 1, for example. And some 
States, I should say, have statutes with thresholds lower than 
that in the South Dakota statues, and there is no indication 
that they are backing away from those thresholds.
    Third, and I think, most importantly, small businesses have 
no way to protect themselves against unconstitutional State 
requirements. Their choice is either to comply with a costly 
sales tax collection obligation that could well be 
unconstitutional even though their business will be hurt, and 
hope for relief years later, or decide not to comply and suffer 
draconian financial penalties if the obligations are later 
upheld by a court.
    In virtually every legal context other than taxation, 
individuals and businesses subject to a State or Federal law 
that could be unconstitutional can go to court and seek a 
judicial determination regarding their constitutional claim 
before they are obligated to comply with the law.
    But constitutional challenges to tax laws almost always 
cannot be asserted until after the victim of the 
unconstitutional obligation has shouldered the burden of 
collecting and paying the tax and seeks a refund. That is true 
in a Federal court because of a law called the Tax Injunction 
Act that bars any kind of injunctive or preliminary relief in 
Federal court, and most States have a similar requirement. That 
is why small businesses face this terribly unfair Hobson's 
    So, protecting small business and, respectfully to Mr. 
Crosby, I think there are ways to protect small business. Our 
laws have definitions of ``small business,'' Federal law does. 
It is not too hard to figure out who they are and to grant them 
the protection they need.
    And I think it is critically important because all the data 
indicates that small businesses on the internet have not only 
been an engine of growth, the internet has been a mechanism for 
women entrepreneurs, minority entrepreneurs, and veterans who 
otherwise have a hard time starting businesses, to get a leg up 
through access to this national market. It would be terrible to 
take that away from them. Thank you.
    Chairman Goodlatte. Thank you, Mr. Pincus. I now ask for 
unanimous consent to enter into the record the following items 
detailing substantial compliance burdens as described by actual 
sellers experiencing them, highlighting the ripple effects of 
removing the physical presence standard in areas outside the 
sales tax, and calling for congressional action to address 
these issues because of the effects on business growth and 
    First, a statement by Jonathan E. Johnson III, on behalf of 
Overstock.com. Second, a statement by Timothy B. Matthews, CEO 
of Jewelry Television. Third, a statement from Engine, which 
represents some of the most innovative and fast-growing 
companies in the country. Fourth, a letter from 16,000 Etsy 
sellers. Fifth, a statement of Hamilton Davison, president and 
executive director of the American Catalog Mailers Association. 
Sixth, the testimony of Terri S. Alpert, founder and CEO of 
Stony Creek Brands. Seventh, the testimony of William M. 
Garbose, president and CEO of Harriet Carter, Fresh Finds, and 
Wise and Well. Eighth, a statement of Steve DelBianco, 
president of NetChoice. Ninth, statement of Douglas L. 
Lindholm, president and executive director of the Council on 
State Taxation. Tenth, a statement of the Honorable Jimmy 
Hayes, former Congressman and former commissioner of financial 
institutions for the State of Louisiana. Eleventh, the 
testimony of Edward Burnert, who is chair of the State and 
local tax committee of the American Bar Association's tax 
section. Twelfth, the testimony of Jessica P. Melugin, 
associate director of the Center for Technology and Innovation 
and the Competitive Enterprise Institute. And thirteenth, the 
testimony of Mr. Joseph Bishop-Henchman, executive vice 
president of the Tax Foundation.
    Chairman Goodlatte. We will now proceed under the 5-minute 
rule with questions, and I will begin by recognizing myself. 
And I have a number of questions, so I would ask the witnesses 
to keep their answers brief, so we can get through as many of 
them as possible.
    First, to you, Mr. Norquist. Is there a real danger of 
retroactive tax liability for online sellers? Can you provide 
examples of States imposing retroactive tax liability either in 
the wake of the Wayfair decision or otherwise in the past?
    Mr. Norquist. Yes, even before Wayfair, Washington State 
did, back in 2015. Michigan did in 2016. These are States 
looking back as much as 23 years. Yes, it has been done, and 
there is no reason to believe that it would not be done.
    Chairman Goodlatte. Mr. Cleland, does the bright-line 
physical presence rule protect or undermine States' rights?
    Mr. Cleland. Well, I guess I would say, pretty obviously, 
it protects, in that the rule is clear and other States cannot, 
under a bright-line rule, under physical presence that we have 
had to date, the Commerce Clause, States are not allowed to get 
into the business of businesses in other States.
    Chairman Goodlatte. Thank you. Mr. Moylan, conservative 
groups have long been hesitant to embrace most proposals in 
Congress to address the remote sales tax issue. What, in your 
belief, is the thinking now in that community?
    Mr. Moylan. Well, it is hard to know exactly. My hope is 
that you have consumer groups and policy organizations 
recognizing that there is a significant amount of turmoil that 
exists post-Wayfair. The answer has always been vested here in 
Congress, that Congress needs to act to place some reasonable 
structures that folks can abide by. And so, while the landscape 
has certainly changed in terms of the political dynamics, 
ultimately, the policy resolution comes from the same place, 
and that is Congress.
    Chairman Goodlatte. And Mr. Pincus, what are the ripple 
effects of removing the physical presence standard in areas 
outside of sales tax collection, and what sort of businesses 
should be worried about those effects?
    Mr. Pincus. I think there is a broad range, Mr. Chairman. 
For example, accountants, lawyers, doctors, architects, others 
who provide services over the internet. Online education and 
training services, sellers of digital products such as apps, 
online software services that are not downloaded, but that are 
online services.
    Then, there are questions, as have been raised earlier, 
about apportionment of corporate income taxes. I give an 
example in my written testimony, but there is a risk that is a 
result of this, as the Wells Fargo disclosure indicates, 
significant increases in duplicative corporate income taxes.
    Chairman Goodlatte. In light of the substantial compliance 
issues facing sellers and the lack of consensus from States on 
important details, some have called for a moratorium on the 
imposition of sales tax duties on remote sellers. Is a 
moratorium warranted, and is there way to implement it that 
would be helpful and fair to all interested parties?
    Mr. Pincus. I think a moratorium is critical, because 
history shows that without some kind of control, States go off 
the rails. Just to back up and give one example, Mr. Chairman, 
years ago, there was a multistate tax compact to deal with 
apportionment of State income taxes. The idea was to promote 
uniformity because there was a threat of congressional action. 
As soon as Congress did not act, the number of States joining 
dropped away and the uniformity dropped away. So, some kind of 
oversight and control is critical.
    I think a moratorium is one way to do it. Another way to do 
it is to create a vehicle so that if a State moves to impose a 
tax, there is an opportunity for those who are burdened to go 
to court and challenge it before it takes effect. As I said, a 
critical problem in this area is that for business, especially 
small business, there is no way to get their institutional 
claim adjudicated, and so there really is no practical limit on 
the States.
    Chairman Goodlatte. The Supreme Court really did not give 
much guidance or practical approach to this, did they?
    Mr. Pincus. I am sorry?
    Chairman Goodlatte. I said the Supreme Court did not really 
give much guidance or a practical approach to----
    Mr. Pincus. No. The Supreme Court decided one thing: 
Physical presence is not required. It then left open five other 
questions about when a State tax obligation is constitutional 
and when it is not.
    Chairman Goodlatte. I want to ask a question of Mr. 
Sinewitz. Overstock told the committee that it received an 
estimate of $250,000 for compliance software that wound up 
costing $1.3 million. Jewelry TV told the committee it received 
an estimate of $2 million for enterprise software 
implementation; the project wound up costing $10 million, did 
not work, and ended up in litigation. Is your confidence that 
you can get software for a modest fee based on actual installed 
cost or contract estimates in the contract?
    Mr. Sinewitz. I am dealing right now with three different 
companies, and the average price of what I have been given with 
the implementation is around $30,000, and after that first 
year, $20,000, because the implementation is a one-time charge. 
The fees that they want to charge are based on the fact----
    Chairman Goodlatte. So, the answer is it is not done. You 
have been given promises, but you have not gotten experience--
    Mr. Sinewitz. I have got statements of work on my desk. We 
are just deciding which company we are going to go with.
    Chairman Goodlatte. Very good. Senator Bramble, the NCSL 
recently issued guidance stating that the States should 
consider waiting until January 1, 2019, to begin sales tax 
collection requirements on remote sellers. Why is that waiting 
period advisable?
    Mr. Bramble. Thank you for the question. I think it gives 
sellers a reasonable period of time to ramp up their IT 
departments and such. But I will tell you, as a CPA in our 
State, the chairman of our State tax commission, who is a tax 
attorney with some 40 years in the profession, suggested very 
strongly that Utah adopt an October 1st deadline. The 
legislature did not agree, because we wanted to give a little 
more time to give businesses time to prepare.
    Chairman Goodlatte. Other than Utah, how many States of the 
22 States with remote seller laws on the books are explicitly 
following the NCSL recommendation of a January 1, 2019, start 
    Mr. Bramble. I do not know the answer to that today.
    Chairman Goodlatte. All right. In 2015, the State of Utah 
filed an amicus brief challenging a California law that applied 
California's cage size requirements to laying hens outside the 
State. Utah's brief argued horizontal federalism; in 
particular, Utah's brief stated that each State should not 
expect that their internal policies are dictated by another 
State where the first State's citizens have no democratic 
    The brief noted that California regulators have already 
inspected egg producers for compliance outside of California. 
Do you believe that California regulators should be able to 
tell Utah farmers how to run their farms?
    Mr. Bramble. I think that is a false equivalency, Mr. 
Chair. I think that the issue of sales tax deals specifically 
with a tax imposed on a purchaser within the State of Utah, and 
if a business wants to take advantage of that marketplace they 
comply with those laws.
    Chairman Goodlatte. You are not collecting that tax from 
the consumer; you are regulating an out-of-State business to 
require the collection of the tax.
    Mr. Bramble. The issue of taxation without representation; 
who is it that is voting for that tax, and who has that tax 
imposed upon? That is imposed on the purchaser.
    Chairman Goodlatte. Who pays for the audit? Who pays for 
the fact that each jurisdiction has a different regulatory 
scheme on how to collect and how to remit?
    Mr. Bramble. We have that issue across the economy. Remote 
workforce is a good example. Utah chooses to not require 
withholding taxes and does not tax income earned in the State 
of Utah until an individual has been in the State 60 days. New 
York taxes the day you arrive.
    Chairman Goodlatte. So, I take it, then, that you would 
agree with me that California regulators should not be able to 
inspect Utah farms for compliance with California cage size 
    Mr. Bramble. While I agree with that, I do not believe that 
applies to the Wayfair case or the Quill case, and I believe it 
is a false equivalency.
    Chairman Goodlatte. Thank you. My time is expired. The 
chair recognizes the gentleman from Georgia, Mr. Johnson, for 5 
    Mr. Johnson of Georgia. Thank you, Mr. Chairman. Gentlemen, 
we have before us a rare situation where the Supreme Court has 
reversed its own earlier decision. And looking at this esteemed 
but exclusive panel of white males before us today--eight--I am 
struck with the proposition that the U.S. Supreme Court can one 
day overturn Brown v. Board of Education, just as Brown v. 
Board of Education overturned the Plessy v. Ferguson separate 
but equal concept.
    As I ponder the judicial nominees of President Trump, many 
of whom refuse to say that Brown v. Board of Education was 
correctly decided, it gives me pause, and it should give all of 
our American people pause to think about what can happen with a 
U.S. Supreme Court that is improperly stacked with right-wing, 
bigoted justices.
    Our society has undergone a drastic transformation in the 
26 years since the court decided Quill. We are now all 
participants in a connected world that enables us to, among 
other things, buy products from across the country with the 
click of a button.
    According to the Census Bureau, in the first quarter of 
2018, 9.5 percent of all retail sales occurred on the internet, 
and in the wake of Wayfair there have been many calls for 
action by both States and Congress. We are here to assess those 
demands and determine how States and businesses will implement 
the Wayfair decision.
    Mr. Norquist, you have risen to fame based on being an 
anti-tax crusader, is that not correct?
    Mr. Norquist. I certainly support lower taxes on the 
American people, yes.
    Mr. Johnson of Georgia. And you are the founder of 
Americans for Tax Reform, and you are the author of the 
Taxpayer Protection Pledge, is that not correct?
    Mr. Norquist. Correct.
    Mr. Johnson of Georgia. And is it true that 95 percent of 
all Republican Members of Congress have signed onto your 
    Mr. Norquist. Roughly that number have made a commitment to 
the people. If you read it, it is a commitment to the American 
people that they will vote against tax increases, yes.
    Mr. Johnson of Georgia. Certainly. And it is your opinion 
that the Wayfair decision violates the spirit of the Taxpayer 
Protection Pledge, is that not correct?
    Mr. Norquist. Well, yeah, but I could not get any Supreme 
Court justices to sign the pledge.
    Mr. Johnson of Georgia. You might be more fortunate in the 
future if President Trump has his way. Mr. Cleland--and, by the 
way, Mr. Norquist, you are a member of Mr. Cleland's 
organization ALEC, is that not correct?
    Mr. Norquist. Am I? OK, yes. I thought you had to be a 
State legislator. I am a supporter; I think ALEC does great 
work, if that is the question.
    Mr. Johnson of Georgia. Well, certainly. And, Mr. Cleland, 
any organization that seeks to make a difference in this world 
and be effective has to be properly funded and resourced. Is 
that not correct?
    Mr. Cleland. I would suspect, although I suspect there also 
are many people who have very little funding and make a huge 
difference in this world.
    Mr. Johnson of Georgia. Well, ALEC is very well funded.
    Mr. Cleland. From your lips to God's ears, sir.
    Mr. Johnson of Georgia. And most of ALEC's money comes from 
corporate memberships, is that not correct?
    Mr. Cleland. I honestly could not tell you the exact 
breakdown. We are funded like most nonprofit nonpartisan 
organizations: Individuals, State legislators, corporations, 
and foundations.
    Mr. Johnson of Georgia. But most of your money comes from 
corporations, is that not correct?
    Mr. Cleland. I cannot say that I know that to be a fact. I 
do not know the answer for you.
    Mr. Johnson of Georgia. Is ALEC a tool of the corporations 
that fund it?
    Mr. Cleland. The really cool thing about ALEC, and about a 
lot of organizations which I have worked, we put our bias right 
on the website, and it is in fact the exact way I did my 
testimony. We are a tool of our legislator members, including 
Mr. Bramble, who all believe in limited government, lesser 
taxes, and federalism.
    Mr. Johnson of Georgia. And you went through those three 
themes earlier.
    Mr. Cleland. Absolutely. Yes, sir.
    Mr. Johnson of Georgia. And I definitely understand what 
ALEC is about. ALEC actually is supporting the online retailers 
versus the mom-and-pop brick-and-mortars who are disadvantaged 
by their requirement to collect sales taxes. Is that not 
    Mr. Cleland. Oh, no, no, no. Not at all. If you heard the 
testimony and in my comments that I have submitted written, 
that is not at all our position. Our position is to have 
simplified systems, so everyone can understand it. I believe 
everyone should know when they are going to be taxed and what 
taxes are owed; I believe merchant should be equally as clear 
in that.
    I am crazy old-school; I believe in no taxation without 
representation. I believe that the free market should be 
allowed to operate without hindrance of that confusion, and 
finally, I do believe that the State legislators should be 
empowered in most situations except in interstate commerce, as 
the Commerce Clause calls for, which is the jurisdiction of 
this Congress.
    Mr. Johnson of Georgia. Well, I thank the gentleman, and I 
thank you all for your appearance here today. And with that, I 
will yield back.
    Chairman Goodlatte. The chair thanks gentlemen and 
recognizes the gentleman from Ohio, Mr. Chabot, for 5 minutes.
    Mr. Chabot. Thank you, Mr. Chairman. I want to commend you 
on putting together really, I think, very different and good 
points of view on an issue that we have been struggling with 
for quite some time here. I think all of them, whatever side 
you are on, have really done a very good job in their 
statements and responses to the questions.
    I would also maybe advise my colleagues on the other side 
not to throw the term ``tool'' around here too much about 
funding when one considers how much the trial lawyers and the 
labor unions and radical left-wing environmental groups throw 
around this place.
    But that being said, I would like to start out by 
submitting for the record a recent Forbes article titled 
``Let's Be Blunt: Internet Sales Taxes, or Our Economy-Sapping 
Domestic Tariffs,'' which I think highlights some of the 
difficulty in resolving this complex issue.
    In it, the author raises some important considerations that 
we, as Members of Congress and also various State legislators, 
should take into consideration as we work through this issue.
    So, Mr. Chairman, I would ask that that be entered in the 
record. Mr. Chairman, could we get that entered in the record?
    Chairman Goodlatte. Yes, without objection, that will be 
made a part of the record.
    Mr. Chabot. Thank you very much. Mr. White, in addition to 
serving as a senior member of this committee, I also happen to 
be the chairman of the House Small Business Committee, and in 
fact, just last week we had a roundtable with various small 
businesses from across the country who use various electronic 
marketplaces to sell their products.
    My first question to those folks at the table was, ``How is 
the Wayfair decision going to affect you, and what do you think 
Congress ought to do about it?'' and that sort of thing. So, I 
will ask you simply, as I asked many of them, how will the 
Wayfair decision affect your business as far as you can see it 
at this point?
    Mr. White. Well, there is no doubt that I am going to incur 
more costs in having to hire more employees. Possibly, I may 
even have to lay off other employees to make room for 
bookkeepers and accountants to try to collect and remit this 
    Mr. Chabot. How much time and resources do you currently 
spend, would you estimate, complying with State tax laws now?
    Mr. White. Right now, I have a part-time bookkeeper that 
probably spends 3 to 4 hours a week, maybe less, in complying 
with remitting taxes.
    Mr. Chabot. And how might that change if you had to begin 
collecting in multiple tax entities? It has been estimated 
10,000; I do not know what the true number is, but----
    Mr. White. Yes. I mean, I have heard numbers as high as 
12,000 tax jurisdictions. This would completely change the 
complexity of my business, and we would no longer be an auto 
parts supplier, but we would become a tax collector.
    Mr. Chabot. Senator Bramble, let me turn to you. The South 
Dakota law, as the laws in other States--including your State, 
Utah--includes a minimum sales threshold. However, it seems 
unclear whether the collection obligation arises only on 
transactions completed after the threshold is met. It is also 
unclear whether that threshold, once met, creates a continued 
obligation to collect and remit taxes or if the threshold 
requirement rises annually.
    It seems to me that if Congress does not act, these and 
other complex questions raised by the patchwork of State sales 
tax systems will likely be answered only through wasteful 
guesswork or long, expensive litigation. Would it be better if 
we relieved the burdens on small businesses by requiring States 
to simplify internet sales tax structures within their State 
that small businesses could more easily comply? What would your 
thinking be on that?
    Mr. Bramble. Well, let me set the record straight as it 
relates to Utah law since I was the sponsor of the Utah 
statute. In Utah, once a seller reaches the threshold of 200 
transactions or $100,000, then it becomes effective for the 
next quarter. There is no retroactive provisions under our 
statutory framework, nor will there be.
    Now, if you had asked me this question a year ago, pre-
Wayfair, I would have agreed that Congress should act. As a 
matter of fact, as a CPA, long before I was elected to the 
Senate 18 years ago, before I was elected to the Senate as a 
CPA I came to Congress on behalf of the AICPA, the American 
Institute of Certified Public Accountants, seeking a solution 
to the challenges of Quill.
    Because you cite the small businesses that may incur some 
additional cost for compliance, ignoring completely the 
thousands and thousands of small businesses that are going out 
of business because they cannot compete because of the 
differential on tax policy, where government is choosing 
winners and losers. And it is that inaction of Congress that 
caused NCSL, the National Governors Association, and others--in 
January 2016 we announced a changed strategy, and we came to 
this committee, this leadership, and we said we would prefer 
Congress to act.
    You have the remote transaction parity; the Senate had 
passed the Marketplace Fairness or Mainstreet Fairness--MFA--
Act. We were begging this committee to take action, and this 
committee refused. States were given no other choice but to 
seek judicial redress for an unlevel playing field to protect 
those thousands and thousands of small businesses and those 
employees in the small businesses.
    So, pre-Wayfair, I would have agreed with you, and I was 
one of many State legislators and organizations petitioning 
Congress to act, but Congress did what it did best, which was 
nothing, and now, post-Wayfair, I believe it will be up to 
those 50 laboratories of democracy to determine what is best 
for their States, recognizing that Wayfair, as we have heard 
testimony, addressed one piece of the Dormant Commerce Clause.
    It dealt with whether physical presence should be criteria 
in establishing an undue burden. The rest has been left; it has 
been remanded back to the lower court for further action. But 
in the meantime, States are obligated to act, because those 
general fund revenues, whether States want to do it like Utah, 
where we are broadening our base and we are lowering our rate 
both in sales tax and income tax, we will make this revenue-
neutral as we see what those revenues coming in are. But that 
should be up to the States.
    As a State legislator, a president pro tem of the Utah 
Senate, and past president of NCSL, many Members of your body 
have served in State legislatures. It is a real challenge at 
the State level when we hear Members of Congress saying, 
``Well, we know better for the States than the States know for 
themselves.'' That is a very real challenge for us, sir.
    Mr. Chabot. Thank you.
    Chairman Goodlatte. Would the gentleman yield?
    Mr. Chabot. I would be happy to yield.
    Chairman Goodlatte. I thank the gentleman for yielding, and 
without objection, the gentleman will receive an additional 
minute. I just want to say to the gentleman that there are a 
couple things that need to be added to that record.
    First of all, this committee for 15 years or more 
encouraged the States to do a uniform State law on this issue, 
and the States time and time and time and time again failed to 
accomplish that. Not so much the fault of the State of Utah, 
but actually some of the largest States in the country, and 
with no ideological consistency, insisted that they had to do 
it their way. So, that is number one.
    Number two, this committee put forth a multitude of 
alternative proposals that would have solved not only the 
problem that Senator Bramble talked about but also the question 
I asked him about the California egg case. This issue regarding 
the reach of States into other jurisdictions to regulate is one 
that is going to grow and persist and be a serious problem in a 
Nation that is built upon the concept of federalism. So, I 
appreciate the views of the senator, but I think that it needs 
to be supplemented. I thank the gentleman.
    Mr. Chabot. Reclaiming my time, if I could just make one 
final point, the senator mention ``failed to act'' a number of 
times, and I think Congress deserves a lot of criticism it gets 
on a whole range of things, but the term ``failed to act''--
oftentimes that means we did not pass a law, and when we pass 
laws, that means more regulations, which the public also 
complains about, for good reason. New laws mean more 
regulations, more government, et cetera. So, ``fails to act'' 
is not always a bad thing.
    Mr. Bramble. I agree.
    Mr. Chabot. Thank you.
    Chairman Goodlatte. The gentlewoman from California is 
    Ms. Lofgren. Thank you, Mr. Chairman, and thank you for 
this hearing, which I think is an important one. You know, when 
I heard the news that the Supreme Court had made a decision, 
although, you know, we have had various viewpoints on this, I 
think many Members felt, ``Oh, gosh, now that is off our 
plate,'' because this has not been a fun issue to deal with, 
except when you read the opinion you realize, actually, that is 
not the case. All they decided is the substantial nexus issue, 
and we still have a lot of issues that need to be sorted 
    I was in local government, not State legislature, for a 
very long time, so I am very sympathetic to local control, but 
we also have an interstate commerce issue here. And as the 
court mentioned, there is concern about small business, and my 
concern as a Representative in the House, but also as a local 
government official, was the small businesses that are brick-
and-mortar, but also the small businesses that are online, and 
both of them need some attention to make sure that they do not 
get squashed.
    And so, one of the things I hope that we can address as we 
go forward is how to make sure that those small businesses can 
continue to flourish, because small businesses are the engine 
of our American economy. I would just observe that the big 
money for States is really in the big actors online, and so, to 
some extent, this decision has actually solved that in terms of 
the major money coming in. But you know, the person who is 
selling crafts out of their living room is going to have real 
trouble complying with some of this.
    Mr. Pincus, I know that you wrote one of the amicus briefs 
on this. In terms of small business exemptions to online sales 
tax collections, there is a lot of laws being discussed. One 
that I know of that was introduced in this Congress would have 
granted an exemption to businesses with revenue below a certain 
threshold unless it made those sales through an electronic 
    However, one of the questions I had about this if the 
revenue qualifies for an exemption, but then I make a sale from 
my website, I am no longer protected, as I understand that, and 
now I would have to collect sales tax, along with all the 
complications and potential audits that that could imply. Is 
that your understanding, and does that really solve the 
    Mr. Pincus. Congresswoman, I think there is a big problem 
in trying to slice up the responsibilities between electronic 
marketplaces and sellers, because the fact is most every seller 
today is using multiple channels----
    Ms. Lofgren. Multiple, yeah.
    Mr. Pincus [continuing]. To reach consumers. They may be on 
one or more websites. They could be on eBay, Etsy, others. They 
probably have their own website, and they may have other more 
local websites as well that they sell through. So, the problem 
with shifting the responsibility or triggering sales tax 
collection based on a marketplace is that that just really does 
not work in a multi-channel world.
    Ms. Lofgren. One of the things that I have been concerned 
about is not only existing small businesses but maybe incoming, 
for lack of a better word, fledgling businesses that have not 
even launched and how they might be affected by the electronic 
marketplace issue. For example, you have got crowdfunded 
businesses that are raising money through Kickstarter or 
Indiegogo that I think probably fits the electronic marketplace 
definition, maybe not.
    How could we deal with the exemption with a business that 
does not even have a product yet that we might expect to comply 
with tax requirements of 45 States? And further, at that point, 
we have no idea what the revenue is going to be. Let's say it 
is $100,000 in South Dakota. You do not know, so you are going 
to have to collect all that information anyhow. Is that right?
    Mr. Pincus. I think that is one of the problems, both with 
the level of the threshold and when it kicks in. You know, 
Senator Bramble indicated Utah seems to have a good structure 
in terms of not imposing the responsibilities until the 
threshold is met. We could discuss whether that threshold makes 
sense or not separately.
    But other States may not be doing the same thing, and it 
still requires the seller to keep track of all of this 
information and be ready to go into a mode of collecting taxes 
as soon as the threshold is reached, which is one of the 
reasons why I think the Supreme Court focused partially on the 
level of sales into a State but also on the total burden on a 
small business.
    Ms. Lofgren. Right.
    Mr. Pincus. And I think those are two critical questions 
that the Constitution requires to be addressed that States are 
not addressing in this, you know, ``We are just all going adopt 
a threshold level of business'' rule.
    Ms. Lofgren. Well, if I may, this is as complicated as it 
ever was, and with tremendous respect for each of the 50 States 
grappling with this, it is really a multistate issue that needs 
to be resolved, the same problem that we have been grappling 
with here; not only we in the Congress but that the States have 
been trying to address and failing successfully to do.
    I guess, now that this is before us--I mean, the court has 
decided, and we have got a remand--this could light a fire 
under not only the Congress but all of the States who have an 
interest to try and sort through this complicated issue for the 
benefit of small businesses, both brick-and-mortar and online. 
I think the chairman for allowing me to go a bit over.
    Chairman Goodlatte. The chair thanks the gentleman and 
recognizes the gentleman from Louisiana, Mr. Johnson, for 5 
    Mr. Johnson of Louisiana. Thank you, Mr. Chairman. Thank 
you for holding this hearing and all of you for your time and 
your expertise. It does mean a lot to us. Many of your old hats 
at this game, but do not--this is a sparsely attended hearing, 
but the record is going to matter a lot to us.
    There is a lot going on; it is our last week before August 
recess, so everybody is scattered all over the Hill. Their lack 
of presence here does not mean they are not interested. We are 
all keenly interested in this, and your statements and the 
transcript of this testimony is going to help us a lot, so 
thank you for that.
    I came out of the State legislature in Louisiana, and I am 
ashamed to say that our State, while I tried to fix it when I 
was there for 2 years, probably ranked lowest on these lists, 
where we probably have the worst--I think we have the highest 
sales taxes in the Nation, or we might be a close second now. 
It is a big problem. Retailers are very concerned about all 
this, and I appreciate all your testimony. Let me go through as 
many questions as I can.
    Mr. Norquist, I appreciate all your work. The question I 
have is, could foreign governments use the Supreme Court's 
removal of the physical presence standard as a justification to 
impose on U.S. companies tax burdens based on economic nexus, 
like the digital services tax?
    Mr. Norquist. They are already doing it. They are already 
talking about that. The Europeans are all excited about this, 
and they think we opened the door, and our courts cannot even 
protect ourselves. California went after a guy named Hyatt who 
invented something in Nevada, but they think maybe he thought 
of it when he lived in California. So, they sent people over to 
harass him, and cops and all sorts of illegal things.
    It went to the Supreme Court; the Supreme Court said, 
``This is unconstitutional. This is illegal. You cannot send 
police from California and go after this guy here, and here is 
this huge fine for having done it.'' Nothing; California just 
sits there and laughs at them. ``Oh, the law would be very 
reasonable.'' Oh, yeah? Not when there is enough money on the 
table they will not be. And they just sit there.
    They went after the guy; they harassed him, and the Supreme 
Court said, ``You cannot do that,'' and they said, ``We do not 
care, and we do not pay our bills, and we do not care what this 
fine was that you say we are supposed to pay.'' And Europeans 
will have even more contempt for the American court process 
than does the State of California.
    Mr. Johnson of Louisiana. It is ironic since taxation 
without representation, as has been pointed out today, was one 
of the animating principles that started the American 
    Mr. Norquist. It is habit-forming. Politicians love it.
    Mr. Johnson of Louisiana. Yes. One of the ideas we have 
been talking about is the Business Activity Tax Simplification 
Act, BATSA, which would prevent State overreach in the area of 
business income taxes. Is there a greater need now, obviously, 
for bills like that in the wake of Wayfair?
    Mr. Norquist. Yes, because this has always been the target. 
When I have argued with a lobbyist who was theoretically 
working on the other side for the big retailers, they were 
actually working for the spending interests, and their position 
was, ``We just want the money, and there is no money in the 
sales tax, nothing worth looking after. We are looking over the 
sales tax into corporate income taxes and personal income tax. 
Just fly across the State; land in our State; make a business 
deal maybe in our State.'' They wanted some VIC.
    Mr. Johnson of Louisiana. One more. New Hampshire is 
working on legislation to shield its online sellers from on 
onerous sales tax collection obligations imposed by other 
States. First, is that a good model, and second, what else do 
you think States can do to protect sellers from extreme 
compliance burdens? Is there a role for Congress in that part 
of it?
    Mr. Norquist. I think each State should protect its own 
small businesses by insisting that any judicial questions on 
this be settled by their State court, not somebody else's State 
court. This went to the California State courts. They had no 
limitations on what they were willing to do to some guy in 
Nevada. Why would they care? They do not. And so, it is 
important that you have the judges here.
    The other part of ``no taxation without representation'' is 
we objected to the Brits wanting to try our guys in Britain--
they wanted to have trials in Britain, not here--when they had 
been abusive to Americans. In that case--where you say, ``If 
you want to go after a small business in New Hampshire, you 
will go before a New Hampshire judge, not a California judge or 
a Chicago-Cook County judge; that is not happening''--that is a 
good start in making the case that States have the right to 
protect their citizens.
    Mr. Johnson of Louisiana. That is good. Mr. Cleland, I 
really appreciate the limited government mission of your 
organization. You have written about how Wayfair will impact 
the spending habits of citizens. I am really interested in 
that. You have said that instead of States expecting inevitable 
increased revenues, they should be wary of increased taxes, 
meaning citizens have less to spend, obviously. But as you all 
have pointed out, many of the States have not understood this 
    The question I have is how many States have taken the 
approach so far of reducing their taxes to try to attract new 
businesses to reside there to create new jobs and all the rest? 
And if so, do you think you have any data that demonstrates the 
result of those decisions? In other words, can we show with 
empirical evidence that that is the right approach?
    Mr. Cleland. My direct answer to your question is I do not 
have that with me, and I will check with our tax folks back 
home back at the office to see if they do. What I will tell you 
experientially is, yes, every State, every locality--you cannot 
open a newspaper--including here in this area--Virginia is 
trying to lure Amazon, Maryland is trying to lure Apple, and 
vice versa. People are trying to have the Redskins move the 
stadium somewhere else; we are trying to figure out a place to 
put a soccer team; and they all propose reducing taxes in one 
way or another.
    It highlights the notion that taxes really are a local 
issue. It is not out there; it is not virtual. And by the way, 
Louisiana? Fair to middling: 28th.
    Mr. Johnson of Louisiana. We are a little better than I 
thought. We do have the highest sales tax, though. Thank you. I 
am out of time. Thank you. I yield back.
    Chairman Goodlatte. The chair recognizes the gentlewoman 
from Texas, Ms. Jackson Lee, for 5 minutes.
    Ms. Jackson Lee. Mr. Chairman, this is an important 
hearing; however, I simply just do not know where to start. I 
know there is an array of very important witnesses here, and 
certainly one of the strongest advocates against any form of 
taxation at all.
    But I think it is important to put on the record that, as a 
member of the Budget Committee, having to suffer through a 
Republican budget that took $2 trillion out of Medicare and 
Social Security on the basis of having to fund the $2 trillion 
1 percent benefit tax cut that was proposed and passed by this 
Republican majority, I think that is worthy in the midst of 
talking about internet sales tax, of which I have been an ally 
of the chairman; I have respected bricks and mortar. But we are 
at a point where we need to find solutions.
    And before I engage in that discussion, let me also say, 
Mr. Chairman, I just came back from the border, and I want to 
affirm--I know my good friend Mr. Rutherford always makes the 
point that law enforcement do as they are asked to do and work 
under the rules and guidelines and laws and nonpolicy--since 
the snatching of children from their parents had no evidence in 
best practices, nor did it have any evidence in law--wrong-
headed, meanspirited policy. I went throughout the various 
detention centers and the place that was cited for 
reunification and went to the border.
    And all of these hardworking Americans of which I have 
worked with, because I am a member of the Homeland Security 
Committee--and my colleague was there and will speak 
eloquently, and she continues to advocate in this issue; I 
thank her for her leadership, Congresswoman Jayapal--but all of 
them are working, but they were working on the deck that they 
were handed. Whether it was jails or silver blankets, this is 
what deck they were given. They were given the deck of not 
being able to have a grandmother who had raised a child from 
babyhood to be considered a parent.
    And finally, on the reunification issue, we got a chance to 
see four--and they were hardworking individuals there, but they 
were without resources. They were baffled; they are not going 
to make the court deadline. And I insist that this committee, 
even in these waning days, holds a hearing and subjects itself 
and this Congress to a resolution of inquiry to deal with this 
catastrophe and this collapse.
    And frankly, I believe that this is a disaster and a pox on 
our house of which these children and these individuals who 
present themselves at the border did not desire to have. So, I 
wanted that on the record, because I think this is extremely 
    Let me also indicate to Mr. White and Mr. Sinewitz we have 
had legislation where we do a $1 million exemption. I mean, I 
think there is a reality to your situation that we need to 
address. I understand, Mr. Pincus, who I certainly support 
lawyers trying to clarify what we have not clarified; I do not 
know if you want to comment on that eBay has indicated that 
this would not affect them. And so, my question is going to go 
to you, but it is also going to go to Curt Bramble.
    I am from Texas; it is a big State. It is so long ago that 
when we were discussing it, we were talking about, before 
Wayfair, we were talking about bricks and mortar and what kind 
of contacts the business had in the State. Now, we have gone 
beyond that with criteria.
    So, I would just ask the two of you, Mr. Bramble, what kind 
of impact is on our States now, on the State of Texas as we 
stand? And then, Mr. Pincus, if you would just give us the 
purpose of your thinking on your lawsuit.
    And I would simply join with Republicans and Democrats to 
try and resolve this in a way that addresses our small 
businesses throughout the Nation, our States that are dependent 
upon sales tax. And as I said, we are cutting so much out of 
the Federal Government it is a wonder we are going to be able 
to pay our light bills with this tax bill that we have not seen 
the impact from.
    But I really want to be able to help out small businesses. 
So, Honorable--but I think you are past president, senator, 
representative, but we are delighted to have you here--I yield 
to you.
    Mr. Bramble. Thank you. I cannot speak for Texas, but I can 
speak for Utah and what the impact is in Utah. After the 
Wayfair decision was handed down, that did not change our tax 
structure at all, because in Utah, until we enacted legislation 
last week in a special session, we did not have a statutory 
framework to require mandatory collection and remittance of 
sales tax from out-of-State sellers. And that was inherent in 
our compliance with the Streamlined Sales Tax Project, or the 
streamlined Sales and Use tax agreement.
    But the challenge to small businesses in Utah, and we have 
heard today about women and minority and other businesses----
    Ms. Jackson Lee. Right.
    Mr. Bramble [continuing]. Those are being challenged. The 
bricks and mortar, the people that are investing their life's 
earnings in a business are being put out of business because 
they cannot compete fairly due to a fabricated disparity of tax 
    We are seeing that in Texas; we are seeing that across the 
board. We hear about, ``Well, a small business in Utah or small 
business in South Dakota might be different than a small 
business in Texas,'' because South Dakota has less than a 
million population, and Texas has however many----
    Ms. Jackson Lee. Not at all.
    Mr. Bramble [continuing]. Tens of millions. But to that 
small business it does not matter how big the State is; it 
matters that they are being competed against unfairly, and it 
is government choosing winners and losers through tax policy. 
And what myself--bipartisan advocacy is we want tax fairness; 
we want all businesses to play by the same set of rules, and if 
a small business plays by the same set of rules they can 
compete effectively. That is what is happening with the small 
businesses across the country.
    Some 80 percent of all employees in this Nation work for 
small businesses. It is not the large businesses; it is the 
small businesses that really are the engine of our economy, and 
that is who we're elected to represent, in my opinion.
    Chairman Goodlatte. The time of the gentlewoman has 
expired. The chair recognized the gentleman from Florida, Mr. 
    Ms. Jackson Lee. Mr. Pincus was going to do a sentence. I 
asked him to--over here, Mr. Pincus.
    Chairman Goodlatte. Very well. Briefly, Mr. Pincus.
    Ms. Jackson Lee. Thank you for your courtesies, Mr. 
    Mr. Pincus. Thank you, Mr. Chairman. Just a couple of 
points. I would urge you, Congresswoman, to look at the amicus 
briefs that eBay and 50 sellers filed, that Etsy and a number 
of filed, discussing the real-world burdens on those online, 
very, very, very small businesses from having to comply with 
multiple State tax regimes. I think in this level playing field 
argument it is important to realize that there are advantages 
and disadvantages to each.
    A brick-and-mortar business has customers that walk in; 
they see the merchandise; they can buy it there. If it needs 
service they can get the merchandise there, and most important, 
there is no shipping charge. If an online business has a 
shipping charge, which is a real financial cost that the others 
do not.
    The online business, if it is doing business in multiple 
States, always has the compliance cost for its State sales tax, 
as does the brick-and-mortar business, but the online business 
in this world is going to have, potentially, compliance costs 
associated with 30 or 40 different State tax regimes. That is a 
much higher compliance cost.
    So, you cannot just say the entire difference here is that 
tax collection. It is not. Shipping; compliance costs; there 
are lots of different pluses and minuses on each, and I think 
the problem here is the critical question is when a State 
decides to impose a burden on an out-of-State seller, does that 
out-of-State seller have any real protection under the 
Constitution? Can it make the Constitution's protection real by 
going to court to say, ``This burden is too much?''
    Under the current regime, where the only way you can 
challenge those things is after you have collected the taxes, 
small businesses cannot do that. They need another way.
    Ms. Jackson Lee. Thank you very much.
    Chairman Goodlatte. The chair recognizes the gentleman from 
Florida, Mr. Rutherford, for 5 minutes.
    Mr. Rutherford. Thank you, Mr. Chairman, and I want to 
thank the panel for being here today. Mr. Norquist, I have 
spoken with you, at length, in the past about some taxation 
issues, and I know that the physical presence rule is kind of 
at the heart of no regulation without representation principle 
that you talk about.
    But I would like to ask you and Mr. Bramble--and you 
already touched on it a little bit, I believe--and correct me 
if I am wrong about it, but I think from our previous 
discussions that, you know, one of the principles that you also 
profess is that government should not pick winners and losers 
among business through taxation policy. Is that a correct 
interpretation of your position?
    Mr. Norquist. You would not want to use tax policy to 
punish one product or industry versus another or subsidize one 
product or business over another. Congress and State 
legislators would get the winter off if they quit doing that.
    Mr. Rutherford. Right. Going to the core of it, it seems to 
be a fairness issue, you know, to me anyway, and I presume to 
you as well. When I hear, you know, the conversation that Mr. 
Bramble just had with Ms. Lee, you know, there is concern about 
the launching of these new businesses and the impact that this 
would have on those who are trying to grow their business, yet 
we are not hearing a lot of talk about the existing brick-and-
mortar businesses that are struggling to compete against this.
    My question is, do you see this collection online as 
unfair, number one, and number two, do you see it as a new tax?
    Mr. Norquist. If you have to change the law to get more 
money it is a new tax. You asked about fairness; I spoke with a 
Republican Governor who had legislators--I am sorry, the Retail 
Federation people came by and said, ``This is terribly unfair 
to us, and he said, ``Well, I will introduce a bill. How much 
money are we missing?'' ``Jillions, because you are not taxing 
interstate sells.''
    Fine. We will take jillions, we will reduce the sales tax 
on everyone in our State, and we will tax all the other guys. 
So, complete equity. They walked out and never came back, 
because the issue was not fairness. The issue was behind them, 
where the city mayor was saying, ``If you do not go get us more 
money we are going to raise your taxes through the property 
taxes,'' and so they were put out in front to make the case.
    But when they came back and said, ``They offered us 
fairness,'' he said, ``You stupid idiot, fairness was not the 
goal. Money was the goal; fairness is the argument.''
    Fairness: When people say, ``Here is fairness,'' you know 
how you get fairness? Always raise taxes; fairness. Any State 
can get more fairness between people outside the State, who 
they have no right to tax, and people that they do tax by 
reducing their sales taxes.
    Lots of States have lower sales taxes than other taxes, 
lower income taxes than other taxes. Congressman Johnson from 
Louisiana asked about how this works. HowMoneyWalks.com is the 
website to go to, and it will show you the high tax States and 
how many people leave each year and how much income leaves each 
year, and the low tax States, how much money and people move to 
    So, it is not only good policy to have tax competition, but 
Europe wants to get us into, the U.S., into a tax cartel. They 
consider our 21 percent corporate rate to be unfair. They loved 
it when we were up at stupid 35, and they were 10 points under 
us and could outcompete us in the world. Now we are at 21, they 
want to yell foul and have tax harmonization. Fairness in the 
U.S. is what America calls tax harmonization; in Europe they 
call it fairness here. Always up, always up; never down.
    Mr. Rutherford. Right. But I do question whether the 
expansion of a collection of a tax that already exists--sales 
tax--that is standard across all States, I believe. It is an 
interpretation of the application that would change and create 
an expansion. How is it a new sales tax?
    Mr. Norquist. Many States have Sales and Use taxes. You 
could always in your State collect the Sales and Use tax from 
one's citizens, but Governors and State legislators do not like 
to do that because it looks tacky to follow the UPS tax around 
and go beat people on the head and take their money. They would 
much rather have the beating on the head take place someplace 
else in another State with somebody else.
    So, those taxes could be raised in State by any politician 
that wanted it to. They want somebody else. They want the 
Hessians to do it. They do not want to do it themselves.
    Mr. Rutherford. Thank you. Mr. Bramble, could you respond 
to that very quickly? I see my time is up.
    Mr. Bramble. Certainly. I appreciate the question. First of 
all, the tax compliance. Currently, every State that has a 
sales tax--Congressman, you touched on it--it is a burden on 
the purchaser, and currently, every individual citizen, 
millions of citizens are required today to track their 
individual purchases, accumulate those, and voluntarily report 
them with their income taxes. That is true across all States 
that have a sales tax. So, when we are talking about compliance 
burden, we could talk about the millions of individuals who 
would be required to comply today versus having a State comply.
    Now, the idea of having a business collect tax, the 
wherewithal-to-pay doctrine, that is inherent in our tax 
system. We have employee withholding taxes. Why, rather than 
have an employee voluntarily pay their taxes when it comes due? 
Because government gets their money at the time of the 
paycheck. It is withheld at the time. Sales taxes are collected 
at the time of the purchase because of the wherewithal-to-pay. 
That is sound tax policy. Broadening the base/lowering the rate 
is sound tax policy.
    And one final point I have got to make. A colleague in 
South Dakota has a little adage that he regularly repeats: If 
you bought it, a truck brought it. It does not matter whether 
you are an internet seller or whether you are a bricks-and-
mortar store. As a CPA, I will tell you that a line item on 
virtually every income statement or statement of revenue and 
expenses is shipping, and shipping costs are inherent.
    If you carry inventory in your business you have paid 
shipping to get it there, whether it is a bricks-and-mortar 
store that someone then comes and buys it across the counter, 
or UPS delivers it to your doorstep, there are shipping costs 
that are assessed on virtually every delivery of every product.
    Chairman Goodlatte. The time of the gentleman has expired. 
The chair recognizes the gentlewoman from Washington, Ms. 
Jayapal, for 5 minutes.
    Ms. Jayapal. Thank you, Mr. Chairman. Before I go to the 
topic at hand, I just wanted to say that I appreciated my 
colleague from Texas's remarks on our trip to the border, and I 
would ask, Mr. Chairman, that we do have an open hearing on the 
issue of family separation.
    The Department of Justice is now, by the way, saying that 
463 parents were deported already, which was a huge jump from 
180 that we were told last week in a briefing were deported. It 
is a travesty. It is government-sanctioned violence, and I 
really hope that we have a full hearing in this committee.
    Thank you all for your testimonies today. Remote sales tax 
collection has been an extremely important issue for my home 
State of Washington since our State has no income tax and 
therefore is extremely vulnerable. Nearly 52 percent of our 
general fund revenue comes from retail sales and Sales and Use 
tax, and so, as a result, the shift to online shopping has 
meant that we are no longer called collecting essential dollars 
that are needed for things like public education. And at the 
same time, our local brick-and-mortar businesses were telling 
us that they are ending up at a huge competitive disadvantage 
to out-of-State retailers.
    The reality is that States had to address this, because we 
had no other option. We needed to address the very real changes 
in our economy and the shift to this online shopping and the 
technology that changed the economy, and that is why Washington 
State last year decided that it had to act.
    We enacted a law that requires online sellers delivering 
products to our State to pay our sales tax. It is absolutely in 
line with what the Supreme Court just decided in Wayfair. And 
today Washington State expects to bring in $432 million in its 
first year to pay for our very essential services.
    I want to start by going to Mr. Norquist, because I am very 
confused by your statement that Washington State is one of the 
States that collects retroactively. Simply not true. But I 
wanted to give you a chance to defend that remark. Can you turn 
your microphone on?
    Mr. Norquist. Dot Foods, Inc., the Department of Revenue, 
Washington, 2016. I can read the site. You were retroactively 
taxing interstate, not on the sales tax, on a different issue. 
The question was do States----
    Ms. Jayapal. Exactly. Let me just say----
    Mr. Norquist. Do States do retroactive taxation? Yes, they 
    Ms. Jayapal. OK, Mr. Norquist, you said in response to the 
chairman's question about retroactivity in this issue--you said 
Washington State. I want to correct the record and make it very 
clear that our sales----
    Mr. Norquist. You can read my statement. It is not wrong.
    Ms. Jayapal. Mr. Norquist, this is my time. Reclaiming my 
time, thank you very much. I want to State for the record that 
our Washington State law does not allow for retroactive 
collection on this issue, and I want to make it clear----
    Mr. Norquist. On this issue.
    Ms. Jayapal. I am not asking for your comment. Thank you 
very much.
    Mr. Norquist. I did anyway. Free country.
    Ms. Jayapal. I am reclaiming my time. Madam Chairwoman, 
please instruct the witnesses that they are not to answer a 
question unless they are asked. This is my time, and I would 
like to have an additional amount of time allocated to me. All 
right, moving on. Senator Bramble----
    Mrs. Handel. Well, hang on a second. The chair did not rule 
yet. But, yes, the chair will graciously award additional time.
    Ms. Jayapal. Thank you, Madam Chair. Mr. Bramble, several 
of the witnesses today have argued that Wayfair may create a 
patchwork of uneven rules across the country. I am just 
curious, particularly in your role both as a State senator and 
with NCSL, can you talk about your views on that on that issue 
and whether you think that Wayfair actually might help promote 
    Mr. Bramble. Certainly. I think you will probably raise an 
eyebrow with my answer. Let me quote from ALEC's statement on 
tax policy: ``Low competitive tax rates on a broad tax base 
offer a level playing field to all. In this environment, more 
residents will benefit from greater economic growth.'' That is 
coming from the American Legislative Exchange Council.
    The issue is if you are going to take advantage of a 
State's economy, you should comply with the rules of the 
State's tax policy. And if a retailer wants to come into 
Washington or Utah they should comply with the same collection 
and remittance program that businesses inside the State have to 
comply with. It is that simple. This idea about a patchwork, 
this idea of 10,000 or 12,000 taxing jurisdictions; we have 
heard a couple of witnesses today talk about that.
    As a CPA--you were not here for the testimony, but in the 
State of Utah there are well over 600 taxing jurisdictions, and 
yet every business that either has physical presence in the 
State and operates, or, beginning January 1st, under Wayfair, 
that will sell into the State remotely, will make one 
remittance to the State tax commission, and then those revenues 
will be distributed/allocated to the various political 
    That is true in virtually--well, not all States; I guess 
you could say Colorado with home rule. The vast majority of 
States--this idea about 10,000 or 12,000 taxing jurisdictions 
and 10- or 12,000 audits is pure fabrication. It does not exist 
in the real world.
    Ms. Jayapal. Thank you, Mr. Bramble. You know, in our State 
we had such strong bipartisan support for our legislation, and 
we worked very closely with Republicans, who understood that we 
are trying to protect our brick-and-mortar businesses; we are 
trying to protect the broad tax base. Let me ask you another 
    What protections--I know some of the things we put into our 
law in Washington State, but what protections in general exist 
to ensure that State remote sales tax laws do not harm those 
small sellers, and what is the economic threshold for States to 
require remote sellers to collect taxes on sales within the 
State in general, speaking from your experience?
    Mr. Bramble. Starting from the 60,000-foot-view, the 
Commerce Clause still exists. An undue burden still exists if a 
State poses an unreasonable burden on an out-of-State seller. 
What Wayfair decided was simply that physical presence was no 
longer a criterion for establishing an undue burden. States 
like Utah; we are establishing a small seller exception. We 
follow the South Dakota law.
    Many of the States that are part of the Streamlined Sales 
Tax Project have protections for audits, for compliance, 
standardized definitions of the types of transactions, et 
cetera. And I believe that, post-Wayfair, States will be 
looking for ways to streamline, to simplify, and to make ease 
of compliance, because right now compliance with our sales tax 
laws--Washington and Utah are no different except you do not 
have a State income tax.
    Ms. Jayapal. Right.
    Mr. Bramble. In Utah----
    Mrs. Handel. You are now approaching 2 minutes on this. I 
will let you wrap up the sentence but not in a filibuster-y 
kind of a way.
    Mr. Bramble. Sorry.
    Mrs. Handel. Thank you.
    Mr. Bramble. In Utah it easier to comply because you have a 
tax return that you voluntarily remit on in the State that has 
an individual income tax. It is much more difficult. Post-
Wayfair, that will solve the problem.
    Ms. Jayapal. Thank you, Senator. I yield back.
    Mrs. Handel. Thank you. I now yield 5 minutes to myself. 
First of all, before I get into my questions I really do feel 
compelled to express my incredible disappointment in the 
derogatory and inflammatory comments from my colleague from 
Georgia regarding the U.S. Supreme Court.
    While there may not be many members here listening, this is 
a very important issue that is going to affect every single 
State in this country, every small business, large business, 
and every consumer, and I think that we deserve to be focused 
on this and not distracted in that way.
    Most of the States, including my home State of Georgia, are 
actively involved in the multistate tax commission, the 
Streamlined Sales Tax Board, the Federation of Tax 
Administrators, all working together to come to some sort of an 
agreement around a uniform State law. And while Chairman 
Goodlatte mentioned the lack of progress on that over the past 
decade, I wondered if there was, from your perspective, Mr. 
Cleland, hope in progress in that, or is congressional action 
really necessary and prudent at this point in time?
    Mr. Cleland. Thank you, Madam Chairwoman. There is always 
hope. I can say I was part of the streamlined sales tax process 
for a bunch of years in another capacity. There was always hope 
that actually something would get decided. That said, I think 
most of the evidence weighs that it is time for Congress to 
step in now that we are in a world where the rules are very 
    And if I may add, my good friend Senator Curt Bramble is a 
great guy, but context and facts matter. And so, when quoting 
ALEC policy, it is pretty important to understand the context. 
One of our big three, as I pointed out even here today--and he 
knows; he was on the board, so he was the final say of these 
principles--is that that was all within the context of 
    There is not chance that any ALEC policy has ever been 
passed to suggest that broadening a tax burden on people who 
have no way to defend themselves against the government has 
over passed ALEC, and never will.
    Mrs. Handel. Thank you. I have never been, frankly, a big 
fan of the internet sales tax. With some 25 States already out 
of the gate with these taxes, it is clear that we need to 
understand what the framework should be. Let me go to Mr. 
Norquist. Do you think that the appropriate action from 
Congress should be a far-reaching bill, or should we try to 
tackle, at a minimum, prohibiting retroactivity right out of 
the gate?
    Mr. Norquist. I would go for as much as you can get, but I 
think retroactivity is the immediate danger. That's where the 
assault--I mean any State can say, ``We charge you for X 
amount,'' and send bills out to people and harass them, 
deciding on a political basis to make that harassment. You have 
seen attacks on Chick-fil-a by various cities like Chicago. 
They could pull this stunt there.
    I mean, any number of products and businesses could be got 
on, based on who is on what board of directors. It is a 
tremendous political threat to go after people with long 
threats of retroactivity. So, taking that off the table would 
be extremely helpful. Delaying implementation until you can get 
something done I think would be extremely helpful.
    But the other questions of protecting against corporate 
income taxes being sent across State lines, individual income 
taxes sent across State lines--those are very important. The 
other team does not care about sales taxes. It is all about 
corporate and individual income taxes. That is where the money 
is, despite all the rhetoric. There just is not much cash worth 
fighting for on internet sales tax.
    Mrs. Handel. Thank you very much. And with that, that 
concludes my questions. I recognize my colleague from Rhode 
Island for 5 minutes.
    Mr. Cicilline. Thank you, Madam Chair. Thank you to our 
witnesses. I would like to start with you, Mr. Sinewitz. 
Several witnesses that testified that remote sales tax 
collections will not be easily implemented across different 
taxing jurisdictions, particularly for small businesses. Is 
sales tax compliance software available to determine the 
correct taxability and rate in all State and local 
    Mr. Sinewitz. I am going to negotiations right now with 
three different companies. It is going to come down to, 
basically, how much with a dozen--all retailers. and the answer 
is for under $35,000, including implementation I will be able 
to collect sales tax. One of the stores that we have is in 
Georgia, and in Georgia, in Atlanta, two houses that live side 
by side collect different sales tax. And we do that from a 
brick-and-mortar standpoint, because we have stores in GA.
    This software will allow me to go directly into the State, 
the zip code, and the actual tax of the physical building 
itself and will know immediately what sales tax to collect. We 
will be able to collect it, and then at the end they will file 
their returns for us, and they will be the ones who will step 
up and defend us if there is any kind of issue with any 
individual State.
    Mr. Cicilline. And are there enough competitors in that 
space to offer different options and to help drive down the 
prices for what you just described?
    Mr. Sinewitz. There are three major guys right now. My best 
guess is if Congress does not jump in here and put a huge 
moratorium on this there will be 20 of them probably within a 
couple of months, because there is nothing that drives more 
companies to be in business than if the business is out there. 
If there is not right now--all these companies that are out 
there now, their main basis has been helping brick-and-mortar 
companies. They now see an opportunity to basically now be on 
the internet.
    Mr. Cicilline. And actually, my next question really 
relates to what you just said about the moratorium. In his 
written testimony, Mr. Moylan argues that without a moratorium 
established by Congress, I am going to quote, ``Businesses all 
across the country, particularly smaller ones that use the 
internet to help reach wider audiences, face daunting 
litigation risks and tax compliance responsibilities.'' How 
would you respond to that?
    Mr. Sinewitz. I would totally disagree with that. I mean, 
the bottom line is they are telling me between 2 and 3 weeks to 
implement and that they will register--you know, that they want 
to do what is called the nexus study, which will go in and look 
at all my sales for the past 12 months. As the senator said, 
you know, they are on a 90-day basis. These guys want to go 
back a year.
    They will break down all my products; they will find out 
what is taxable in every State and every district so that if 
clothes is not in one district, but it is not another, we will 
know exactly what the taxes are. And this is not an obligation.
    And if I might just say, you know, I have been listening; 
things like, you know, if there is a freight charge, you know, 
the bottom line here is that freight never cost 8 or 9 percent. 
And the answer very simply is that our customers, whether they 
are physically in Georgia or Florida, or whether they are 
anywhere else, they are customers. That is really what they 
are. It is not a customer because they live in that State or 
    They are all customers. They all expect to get the best 
deal that it is possible to get, and it really needs to be that 
the retailers that can survive and do the best job they can and 
offer the best solution from a price standpoint as well as a 
product standpoint, as well as customer service--that is the 
    Mr. Cicilline. Right.
    Mr. Sinewitz. Not who taxes.
    Mr. Cicilline. It would also seem to me, if you consider 
that when the Quill decision was decided in 1992, about 2 
percent of the country had access to the internet. You would 
think that the improvements in technology would now make it 
significantly easier to track sales across jurisdictions and 
reduce the burden on remote sellers to collect taxes as a 
    Mr. Sinewitz. I would doubt that there is a person in this 
room right now that does not have a smart cell phone that 
cannot do absolutely everything that a brick-and-mortar store 
can do.
    Mr. Cicilline. All right. Thank you. Mr. Crosby, I will 
turn to you. Prior to the Wayfair decision, critics of Federal 
legislation have said that any solution to the e-fairness 
problem would be a tax increase. My question is, is it not true 
that if a retailer does not withhold the sales tax at the point 
of sale, the consumer still owes the tax as a use tax in States 
with sales tax?
    Mr. Crosby. Mr. Congressman, absolutely. That has never 
changed. The liability is there. If the tax is due, it is 
simply a question of who is collecting and remitting it. It has 
been interesting to listen to this discussion, because so many 
of the folks who for years argued against Congress acting are 
now asking Congress to act, and I do find myself in the odd 
position of saying, ``Perhaps, but there is no urgency now, 
because the court has done the work for you.''
    Mr. Cicilline. And is there any legal support that you are 
aware of, Mr. Crosby, for the argument that the collection of 
taxes that are already owed constitutes a new tax?
    Mr. Crosby. No, not economic policy or legal or anything 
like that.
    Mr. Cicilline. Thank you. Madam Chair, I would ask 
unanimous consent--actually, Mr. Crosby, according to a 2017 
report by the GAO, third-party merchants collected taxes on 
less than a third of all sales in 2017. Do you think that is an 
accurate estimate?
    Mr. Crosby. That is probably accurate, yes.
    Mr. Cicilline. And are you aware of plans of Amazon and 
other commerce platforms that do not currently collect and 
remit taxes on behalf of third-party merchants to do so 
following the Wayfair decision?
    Mr. Crosby. I am sure all of them are evaluating the State 
laws in the wake of Wayfair and making determinations about 
when they will start collecting on behalf of marketplace 
    Mr. Cicilline. Thank you very much. Madam Chair, I would 
ask unanimous consent to enter into the record an article 
published earlier this month by David Dayen entitled ``Amazon 
Tax Ruling: Disrupting the Disrupters?''
    Mrs. Handel. Without--oh, you have more? Okay, go.
    Mr. Cicilline. And I would also ask unanimous consent that 
letters from the Streamlined Sales Tax governing board and the 
Coalition of Local Governments, the National Association of 
Counties, the National League of Cities, the United States 
Conference of Mayors, the International City and County 
Management Association, and Government Finance Officers 
Association be made a part of the record.
    Mrs. Handel. Without objection, they will be made a part of 
the record.
    Mr. Bramble. Congresswoman, may I respond briefly?
    Mrs. Handel. I think we are about wrapping up. Do you have 
more questions?
    Mr. Cicilline. No.
    Mrs. Handel. All right. That concludes today's hearing. 
Thank you so much to each of our distinguished members of the 
panel. Without objection, all members will have 5 legislative 
days to submit additional written questions for the witnesses 
or additional materials for the record. This hearing is 
    [Whereupon, at 12:10 p.m., the committee was adjourned.]