[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


               SOUTH DAKOTA V. WAYFAIR, INC.: ONLINE SALES 
                 TAXES AND THEIR IMPACT ON MAIN STREET

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                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

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                              HEARING HELD
                              MARCH 3, 2020

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[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


            Small Business Committee Document Number 116-075
             Available via the GPO Website: www.govinfo.gov
             
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                    U.S. GOVERNMENT PUBLISHING OFFICE                    
39-857                      WASHINGTON : 2020                     
          
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                 NYDIA VELAZQUEZ, New York, Chairwoman
                         ABBY FINKENAUER, Iowa
                          JARED GOLDEN, Maine
                          ANDY KIM, New Jersey
                          JASON CROW, Colorado
                         SHARICE DAVIDS, Kansas
                          JUDY CHU, California
                           MARC VEASEY, Texas
                       DWIGHT EVANS, Pennsylvania
                        BRAD SCHNEIDER, Illinois
                      ADRIANO ESPAILLAT, New York
                       ANTONIO DELGADO, New York
                     CHRISSY HOULAHAN, Pennsylvania
                         ANGIE CRAIG, Minnesota
                   STEVE CHABOT, Ohio, Ranking Member
   AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
                          TROY BALDERSON, Ohio
                          KEVIN HERN, Oklahoma
                        JIM HAGEDORN, Minnesota
                        PETE STAUBER, Minnesota
                        TIM BURCHETT, Tennessee
                          ROSS SPANO, Florida
                        JOHN JOYCE, Pennsylvania
                       DAN BISHOP, North Carolina

                 Melissa Jung, Majority Staff Director
            Justin Pelletier, Majority Deputy Staff Director
                   Kevin Fitzpatrick, Staff Director
                            
                            
                            
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Andy Kim....................................................     1
Hon. Kevin Hern..................................................     3

                               WITNESSES

Mr. Jamie Yesnowitz, Principal, Grant Thornton, LLP, Washington, 
  DC, testifying on behalf of the American Institute of Certified 
  Public Accountants (AICPA).....................................     5
Mrs. Linda Lester, Vice President, K-Log, Inc., Zion, IL.........     7
Mr. Kevin Mahoney, President and Founder, FindTape.com, North 
  Brunswick, NJ..................................................     9
Mr. Brad Scott, Financial Director, Halstead Bead, Inc., 
  Prescott, AZ...................................................    10

                                APPENDIX

Prepared Statements:
    Mr. Jamie Yesnowitz, Principal, Grant Thornton, LLP, 
      Washington, DC, testifying on behalf of the American 
      Institute of Certified Public Accountants (AICPA)..........    24
    Mrs. Linda Lester, Vice President, K-Log, Inc., Zion, IL.....    37
    Mr. Kevin Mahoney, President and Founder, FindTape.com, North 
      Brunswick, NJ..............................................    54
    Mr. Brad Scott, Financial Director, Halstead Bead, Inc., 
      Prescott, AZ...............................................   115
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    Statement of Matthew Behnke, President of Orthotic Shop Inc..   146
    Letter from Engine...........................................   149
    Statement of Jason Chow, President of Chowren Toys LLC.......   151
    Halstead Bead, Inc...........................................   154
    Mommy Makeup.................................................   158
    National Auctioneers Association (NAA).......................   163
    Statement of Kurt Frome, President, Roelz Frome, Inc.........   182
    Statement of Dean Sweberg, Managing Member of BBD Sales LLC..   183
    Sovos Compliance LLC.........................................   185
    U.S. Toy Company.............................................   189
    Rio Grande, Inc..............................................   190
    Buyer's Point................................................   191
    Statement of Chris Holt, CEO Campman.........................   193
    Philadelphia Media Exchange..................................   195
    Steiner Strategic Inc........................................   199
    Statement of Wendy Kelly, Owner & Sole Operator of Kellyww...   202
    Statement of Helen Kinson, Small Business Owner..............   204
    Etsy.........................................................   206
    MO Vender Tax Aqua Design Appendix...........................   208
    Nina Designs.................................................   258
    Brann & Isaacson Attorneys and Counselors at Law.............   259
    American Catalog Mailers Association (ACMA)..................   261
    Aqua Design High Performance Apparel.........................   275
    Bikes, Trikes and Quads......................................   279
    Catching Clouds..............................................   281
    Jenson Online Inc............................................   319
    Statement of Joyce Latimer, Majority Member, SML Marketing 
      LLC........................................................   323
    Hanalei Beauty Company.......................................   335
    Darn Good Yarn...............................................   337
    Drone Speed LLC..............................................   339
    Flashback Limited............................................   341
    CQC Boutique, LLC............................................   347
    Bedford Camera & Video.......................................   352
    Quick Ship Electronics.......................................   353
    Crazy Dog T-Shirts...........................................   355
    US-Mattress.com..............................................   357
    MCR Medical..................................................   359
    MacKinney Systems............................................   360
    National Conference of State Legislatures (NCSL).............   362
    Fiona MA, CPA, State Board of Equalization...................   364
    Letter to Gov. Newsom from Fiona MA, CPA.....................   366
    Marketplace Facilitators Letter to US Committee on Small 
      Business...................................................   371
    MBW Northwest Incorporated...................................   373

 
 SOUTH DAKOTA V. WAYFAIR, INC.: ONLINE SALES TAXES AND THEIR IMPACT ON 
                              MAIN STREET

                              ----------                              


                         TUESDAY, MARCH 3, 2020

                  House of Representatives,
               Committee on Small Business,
                   Subcommittee on Economic Growth,
                                   Tax, and Capital Access,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:05 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Andy Kim 
[chairman of the Committee] presiding.
    Present: Representatives Kim, Davids, Schneider, Delgado, 
Hern, and Stauber.
    Chairman KIM. Good morning. The Subcommittee will come to 
order.
    I thank everyone for joining us this morning. I want to 
especially thank the witnesses for being here today.
    America's small businesses are a catalyst for creating 
employment opportunities and driving growth in the U.S. 
economy. That is because the 30 million small firms in the U.S. 
represent over 99 percent of all employers and support nearly 
56 million jobs. That is why we need to be enacting policies 
that help small businesses deliver the products, services, 
jobs, innovation, and income that Americans rely on.
    One way for Congress to support small businesses is through 
well-conceived and targeted tax policy. In my short time in 
Congress and on this Committee, I have heard that small firms 
need tax policy that is simple and certain along with policies 
that level the playing field and create opportunities not just 
for Wall Street, but for Main Streets across the country to 
thrive.
    The Federal government plays an important role in the 
setting tax policy, and I have seen firsthand back home now the 
change in the SALT deductions has negatively impacted 
homeowners in my district in New Jersey. However, tax laws 
enacted by states and local jurisdictions also have an impact 
on small businesses, especially as economy becomes more 
interconnected.
    New Jersey has a fairly simple sales tax system. The state 
charges a uniform state sales tax of 6.625 percent, and we do 
not have local sales taxes. Other states choose to do things 
differently. Texas, for example, has 1,594 sales tax 
jurisdictions. Nationwide, according to the Tax Foundation, 
there are 10,769 state and local tax jurisdictions.
    This is a critically important issue for small businesses 
selling their goods and services online and for millions of 
others that are engaging in interstate commerce. In the U.S. 
Supreme Court's landmark 2018 decision in South Dakota v. 
Wayfair, the Court determined that the states could collect 
sales taxes from out-of-state sellers. The decision overruled a 
51-year-old precedent which established that states could only 
collect sales taxes from businesses that had brick-and-mortar 
locations in the state.
    Even the businesses that sell on Amazon, which collects and 
remits state sales taxes for small businesses, do not collect 
local sales taxes, leaving small businesses to collect and 
remit local taxes in thousands of jurisdictions across the 
country.
    While sales taxes are an important source of revenue for 
the state and local governments to build roads, maintain parks, 
and pay teachers, police officers, and firefighters. But small 
business owners should not be the collection arm for thousands 
of taxing jurisdictions. Small businesses simply do not have 
the time and the resources to do so.
    Let's also be clear, this is not a tax avoidance issue. 
Small business owners want to follow the law, but they need 
clear rules of the road. The landscape post-Wayfair is that 
millions of small businesses are unfairly faced with 
overwhelming and expensive compliance burdens. These burdens 
unfairly limit the ability of small business owners to offer 
their products and services across state lines.
    I have heard from numerous companies in my own district 
about the heavy financial burdens that they faced in the 
aftermath of the Wayfair decision. One company I would like to 
highlight today is the International Products Corporation, a 
small company that manufactures precision cleaners and assembly 
lubricants in Burlington, New Jersey. William Herbert, the CFO 
of the company who has submitted written testimony for today's 
hearing, has spent thousands of dollars just to account for the 
many different tax jurisdictions within which they sell their 
products. Not only this, but he has had to personally spend a 
couple days each month calculating and filing the returns in 
each state. Despite the significant cost his company incurred 
for compliance, they ultimately paid only $958 in total taxes 
to other jurisdictions last year. It seems downright unfair to 
put such burdens on our small businesses.
    That is why today's hearing is so important. This the first 
hearing in Congress to solely focus on the small business 
impacts of the Wayfair decision. We need to shed light on the 
problems that the Wayfair decision has created for small 
businesses and explore some actions that Congress can take to 
bring much needed relief. It should be possible for state and 
local governments to collect the revenue that pay for the 
public services we rely on without imposing excessive 
compliance costs on small businesses.
    It is my hope that this hearing will allow the voices of 
small business owners to be heard. I also hope that this 
hearing will serve as a springboard for members of Congress to 
work together to solve this issue together. This is not just an 
issue in my state but is an issue for all small business owners 
across the country.
    I would now like to yield to Ranking Member Hern for his 
opening statement.
    Mr. HERN. Thank you, Mr. Chairman. Thank the witnesses for 
being here today.
    As a small business owner for the last 35 years, and 17 
years on bank boards, small community banks, 13 years as 
McDonald's Leadership Team representing over 3,500 franchisees 
that pay multiple taxes in multiple jurisdictions. Even in my 
own organization, 23 restaurants, 23 different communities, 
multiple tax issues from city to state to county and the feds, 
and all the different things that go on, it is a challenge.
    Five years on the Systems Economic Team, I got to see this 
firsthand, the impact; 5 years on the McDonald's Tax Policy 
Team; and many years on the McDonald's Insurance Company Board. 
So, I am in sort of a unique position to be on this Committee, 
and the Ranking Member to know what happens to small business.
    Again, multiple businesses across multiple jurisdictions, 
it is always a challenge for the small businessmen and women 
who are trying to put their ideas to work, find capital, and 
create jobs and put Americans to work.
    The Chairman and I work well together to ensure small 
businesses operate in an economic and tax environment that 
allow them to grow and expand and create jobs. Beyond my 
background though, I am also a firm believer in our 10th 
Amendment. The Constitution says the states can do it better 
than we can in Washington, D.C., and so I think it is also that 
we find that right balance to have a vitally important, 
thriving democracy.
    This hearing will combine many of these elements together. 
With the explosive growth of the Internet in this country, 
small businesses are building the next great product and 
creating the next great service in ways that prior generations 
have never imagined.
    Being connected to the Web has also introduced novel ways 
to reach new customers. And while catalogue companies started 
to chip away at proximity barriers, the Internet and ecommerce 
sites have completely leveled any roadblocks. With new 
customers in new locations, the question of taxes has become 
instrumental not only for businesses but also states across the 
country. For years, sales tax jurisdiction questions were 
answered by U.S. Supreme Court cases, including Bella Hess v. 
Illinois in 1967, and Quill v. North Dakota in 1992. These 
cases which focused on companies' physical presence were the 
long-held standards for decades.
    As ecommerce grew and matured, sales tax jurisdictional 
questions became even more instrumental.
    At today's hearing, we are going to be discussing the 
impact of the Supreme Court's most recent decision, South 
Dakota v. Wayfair. Specifically, we are going to be hearing how 
the Wayfair decision has impacted and infected small businesses 
across this country. Our Nation's smallest firms create nearly 
70 percent of new private sector jobs in America. Small 
businesses, entrepeneurs, and startups are transforming 
neighborhoods and communities from my state of Oklahoma to 
Minnesota and beyond. And while driving the country's economic 
engine forward, these small businesses often operate with 
limited staff and resources.
    This hearing will explore how these job creators have 
reacted to the duly rights of states to enact sales tax 
requirements for remote sellers after the Wayfair decision.
    Again, I want to thank each of you for being here today to 
join us in this conversation. And as I mentioned earlier, we 
know that you have limited staff, so we appreciate you for 
taking your time to be here today to talk to us about this very 
important issue. Your thoughts and comments on this matter and 
all matters within our economy are instrumental.
    And with that, Mr. Chairman, I yield back.
    Chairman KIM. Thank you. Thank you, Mr. Hern.
    I always have to say, it is been great being able to do 
this in a partnership with the Ranking Member, having the 
opportunity for us to work together across the aisle. Very much 
committed together on just trying to do what we can to help 
small businesses cut through some of the bureaucracy and the 
red tape and the difficulties that they have had while pursuing 
a level of just fairness across the board. And that is exactly 
what he just said in his statement. You know, what we are 
trying to figure out here is that right balance, that right 
fairness. And I am glad to be able to continue to work on that 
together with you.
    I just wanted to take a second here. If other Committee 
members have an opening statement prepared, we would ask that 
they be submitted for the record.
    I would like to just take a minute to explain the timing 
rules. Each witness gets 5 minutes to testify and the members 
get 5 minutes for questioning. There is a lighting system to 
assist you right in front of you. The green light comes on when 
you begin, a yellow light comes on when you have 1 minute 
remaining, and a red light comes on when you are out of time. 
And we ask that you stay within that timeframe to the best of 
your abilities.
    I would now like to just introduce our witnesses here.
    Our first witness, Mr. Jamie Yesnowitz. Mr. Yesnowitz is a 
principal at Grant Thornton, and also serves as the state and 
local tax practice and national tax office leader. He is a 
recognized leader in the state corporate income and sales tax 
legislation and policy, state tax conformity to Federal tax 
provisions and state corporate income tax apportionment rules. 
He holds an LLM in Taxation and a JD from the University of 
Miami School of Law.
    Welcome. Thanks for coming.
    Our second witness is Ms. Linda Lester. And I would like to 
yield to my colleague, Representative Schneider, for this 
introduction.
    Mr. SCHNEIDER. Thank you, Chairman. And I want to welcome 
all the witnesses. I am grateful you are here to share your 
stories.
    It is my great privilege and pleasure to introduce our next 
witness, Ms. Linda Lester, who lives in my district. Ms. Lester 
is the vice president of K-Log, a family owns business in Zion, 
Illinois, that distributes quality, affordable, commercial 
furniture across the country. I am proud that K-Log and its 30 
employees call Zion home. She holds a BA from the University of 
Illinois, Urbana-Champaign, and has worked at K-log for the 
last 10 years. She has been an invaluable resource for my 
office, in particular in understanding the impact of the 
Wayfair decision that it has on real day-to-day businesses in 
our community and beyond.
    Linda, thank you for joining us today.
    Chairman KIM. Great. Thank you.
    Welcome, Ms. Lester.
    Our third witness today is Mr. Kevin Mahoney. Mr. Mahoney 
is the founder and president of Findtape.com. Findtape.com is 
an ecommerce business that sells tape, glue, adhesives, and 
dispensers, located in North Brunswick, New Jersey. Mr. Mahoney 
holds an M.S. in Information Systems from NYU Stern School of 
Business and a B.S. in Finance from Penn State. So welcome, Mr. 
Mahoney.
    I would now like to yield to our Ranking Member, Mr. Hern, 
to introduce our final witness.
    Mr. HERN. And our final witness is Brad Scott. Mr. Scott is 
the financial director of Halstead Bead, Inc., a jewelry 
component wholesale company located in Prescott, Arizona. With 
30 employees, Halstead Bead is a second-generation, family-
owned small business that has been in operation since the early 
1970s. With nearly 20 years of service at Halstead Bead, Mr. 
Scott directs the company's accounting operation and all tax 
matters. You are a busy man.
    Mr. Scott, we appreciate you taking the time away from your 
business, and thanks for coming today to talk to us.
    Chairman KIM. Yeah. Thank you so much. It is a real honor 
to have all of you here, and it means a lot that you came here 
to share your experience, your knowledge, and expertise with 
us.
    With that, why don't we jump right in.
    Mr. Yesnowitz, you are recognized for 5 minutes. Over to 
you.

STATEMENTS OF JAMIE YESNOWITZ, PRINCIPAL, GRANT THORNTON, LLP; 
   LINDA LESTER, VICE PRESIDENT, K-LOG, INC.; KEVIN MAHONEY, 
  PRESIDENT AND FOUNDER, FINDTAPE.COM; BRAD SCOTT, FINANCIAL 
                 DIRECTOR, HALSTEAD BEAD, INC.

                  STATEMENT OF JAMIE YESNOWITZ

    Mr. YESNOWITZ. Thank you, Chairman Kim, Ranking Member 
Hern, and members of the Subcommittee. Thank you for the 
opportunity to testify on behalf of the AICPA.
    In 2018, the Supreme Court expanded the states' right to 
require out-of-state sellers, commonly referred to as ``remote 
sellers,'' to collect and remit sales tax by modifying the 
longstanding nexus test.
    With this ruling, the Court endorsed a South Dakota statute 
requiring remote sellers to register, collect and remit sales 
tax if they meet at least one of two economic thresholds--
either gross revenue from sales delivered into the state over 
$100,000, or engaging in at least 200 transactions involving 
items delivered into the state.
    So how have the states responded? As a whole, they 
responded quickly but not consistently. About half of the 
states adopted the same economic thresholds as South Dakota. 
The other half adopted variations, such as different sales 
thresholds or requiring that both the transaction and sales 
thresholds are met. In at least one state, the rules apply once 
the first sale is made to an in-state customer.
    There is also a lack of uniformity in determining how and 
when the economic thresholds apply. For example, some states 
count only taxable sales while others use gross sales. So how 
does this impact small businesses?
    Businesses that traditionally maintained a physical 
footprint in just one or two states now must consider whether 
their sales to customers in a national marketplace subject them 
to the newer rules. Nexus standards, threshold calculations, 
rate determinations, and filing compliance are only some of the 
burdens on remote businesses, and especially small businesses 
that do not have the resources, revenue, or time to accurately 
comply with the various rules across the Nation.
    There are also situations where businesses have to register 
even when their sales are tax exempt and file zero-dollar tax 
returns. In that case, a business spends time complying with 
the law even though the state will not get any additional 
revenue. Similar problems arise when states use a threshold 
based on the number of transactions. For example, a business 
selling a product valued at $10 to 200 customers with an 8 
percent sales tax must collect a grand total of $160. The 
compliance cost clearly exceeds this amount.
    Taken as a whole, there are often prohibitive costs 
attached to ensuring that the compliance is performed 
correctly. If left unchecked, the lack of uniformity in which 
the states have reacted could impair small business growth, 
result in a loss in productivity, and hamper their accountants' 
ability to efficiently and effectively serve them.
    So how can we help small businesses? If Congress decides to 
address these small business issues, we have a few suggestions. 
To start, small businesses need more consistency between sales 
and income tax nexus rules. Businesses are faced with a 
challenge when it comes to the question of nexus. Are they 
subject to sales tax, income tax, or both? The answer in many 
cases is unclear.
    While it is impossible to completely align all sales and 
income tax rules, it is possible for Congress to address the 
minimum standards for which these rules apply. A natural 
starting point is the standard established by the Multistate 
Tax Commission [the MTC] back in 2002. It provides a safe 
harbor to determine if businesses are subject to business 
activity taxes. However, it is time to modernize the approach 
since the MTC has not changed the amounts for almost 20 years.
    We recommend a uniform three-part test. If you exceed one 
part, you have nexus in the state. First, for sales, there 
should be one dollar threshold applicable for all of the 
states. The threshold should apply to taxable sales for the 
sales tax and gross sales for the income tax. The second part, 
for property located in the state, we would suggest a $100,000 
threshold for sales and income tax. And finally, the third 
part, for payroll, we also suggest a $100,000 threshold.
    There are several approaches to determining what is the 
right dollar threshold for sales. Some states use the $500,000 
amount from the 2002 MTC standard. However, if inflation is 
taken into account, that amount would be roughly $750,000. 
Finally, a $1 million threshold would ensure that more small 
businesses are covered under a safe harbor.
    I don't have time to get into all of our other suggestions, 
but I want to note one area of growing concern. Small 
businesses selling both directly and through a marketplace 
facilitator must deal with even more complicated and 
inconsistent rules. In order to simplify compliance and avoid 
situations in which double collection of sales tax may occur, 
businesses need consistent and clear definitions, including 
what constitutes a marketplace facilitator.
    Thank you for the opportunity to testify, and I am happy to 
answer any questions.
    Chairman KIM. Great, thank you.
    Well, why do we not get through all the witnesses first.
    So, Ms. Lester, over to you for 5 minutes.

                   STATEMENT OF LINDA LESTER

    Ms. LESTER. Good morning Chairman Kim, Ranking Member Hern, 
and distinguished members of the Subcommittee and staff. Thank 
you for inviting me to testify here today.
    My name is Linda Lester and I am the vice president of K-
Log, a family-owned small business with 30 employees in Zion, 
Illinois. Our company sells furniture primarily to public 
agencies, the majority of which are tax exempt.
    Let me say right from the start, I am not opposed to 
collecting and remitting sales taxes in all states. My struggle 
is with the chaotic manner in which remote sales tax has been 
mandated, as well as the expense and time, money, and energy 
these mandates have imposed.
    I am here today as someone who has actually gone through 
the process of registering for nationwide sales tax collection 
to try to convey to you just how difficult it really is. It has 
taken us a year to comply and register in 42 states, even 
though the majority of our sales are tax exempt. I estimate 
that we have spent well over 1,500 hours so far at the cost of 
$75,000.
    I have heard many times that there is a streamline process 
with free software available to handle this. I am here to tell 
you that it is not streamlined, and it is not free. First of 
all, only 24 states have joined the Streamlined Sales Tax 
Coalition where uniform standards have been set. The biggest 
states did not join because they are too complex and could not 
meet the requirements.
    Secondly, while the streamlined states might pay for the 
filing fees, they do not pay for the cost of tying the software 
into our systems, exemption certification collection, training 
our staff, nor reconciling data. All of these expenses are much 
higher than the miniscule filing fees paid by the states.
    Here is the bottom line. If compliance were as easy as just 
implementing free software, I would not be here today. If it 
were easy, Illinois would have far more than only 5,000 or so 
remote sellers currently collecting and remitting to the 
Illinois Department of Revenue. Let that sink in. Out of the 30 
million businesses in the U.S., only 5,000 have registered as a 
remote seller in Illinois. I did a FOIA request for that one. 
That tells me that there are a lot of businesses nationwide 
struggling to comply.
    I know very small businesses in compliance. Some are still 
unaware, and when I discuss it they look at me like I am crazy 
or just plain wrong, while others are trying to comply and 
failing miserably. The majority it seems are hoping that they 
can keep under the radar and wait it out until the Federal 
government steps in and comes up with a comprehensive solution 
because this simply cannot be the way things will be from now 
on.
    I fear that when all the states start notifying businesses 
that they owe thousands of dollars for taxes on past sales that 
they never collected in the first place, companies will start 
shutting down and jobs will be lost, all because of a tax due 
that they did not even know about in the first place. This is 
already happening to Fulfilled by Amazon sellers.
    I am here today to ask for your help in bringing order to 
the marketplace, but I am not the only one asking. The state 
legislatures of Arizona and New Hampshire have both passed 
resolutions asking the Federal government to help with this. 
When I first spoke to congressional staffers about this in 
October of 2018, I felt like the canary in the coal mine trying 
to warn of impending doom. While people listened 
sympathetically, the universal support that I had hoped for 
just was not there. But it is now.
    We need a simple, straightforward system that will not 
impose an undue burden on businesses leading to increased 
compliance and thus, increased revenue to the states. Any 
proposed solution for a remote sales tax collection must 
include one rate per state, a single filing point for all 
states, time to implement free of penalties, and a 
comprehensive program to educate businesses and consumers of 
the change.
    I have some ideas on how to make this happen, and I am 
hoping that now is the time to bring everyone to the table to 
start working on sensible solutions to this complex problem.
    There is far more to this than I can cover in just 5 
minutes, but I am going to give you just a few of the 
complexities while time permits.
    Colorado sales tax form is over 2,000 pages long and is 
filed monthly. We had to compose a sales tax exemption booklet 
that is 248 pages long that has all the exemption certificates 
from all of the states. Connecticut has 43 different tax 
exemption certificates, so we have to look up on every 
transaction which one applies to this specific customer and 
make sure we got the right one.
    While Alabama collects local sales tax for its counties and 
cities, a remote seller is required to register for accounts 
with the state, plus four different private collection agencies 
and over 100 self-administered counties and cities.
    And now, when I thought I was finally compliant, having 
registered in the 42 states where we have nexus, I am starting 
to realize that we have to address a franchise tax in Texas, a 
gross receipts tax in Ohio, an income tax in Pennsylvania, and 
I do not know how many other tax obligations the states are 
demanding. I am asking, no, begging you, to please work with me 
and the others here to pass legislation that will fix this 
before more companies go out of business and people lose their 
jobs. Thank you.
    Chairman KIM. Thank you.
    I appreciate your testimony there, and it helps me. I was 
wondering what those binders were about, so it is good to see 
in person. I was not sure if it was a revised testimony or 
something.
    Ms. LESTER. I mailed them. I did not bring them on the 
plane.
    Chairman KIM. Well, thank you for bringing those in.
    Mr. Mahoney, over to you for 5 minutes.

                   STATEMENT OF KEVIN MAHONEY

    Mr. MAHONEY. Good morning. My name is Kevin Mahoney and I 
want to start off by saying what an honor it is to be given 
this opportunity to testify at today's hearing.
    I am the president and founder of Findtape.com, a specialty 
retailer founded in 2004. Including myself, we have eight full-
time employees and are based out of Montgomery Township, New 
Jersey. Our company sells tape, glue, and dispensers throughout 
the U.S., and we currently ship to over 50 countries worldwide. 
Besides our website, we also sell on marketplaces, such as 
Amazon, Walmart, eBay, and Newegg.
    After the Wayfair decision, many felt compliance for small 
businesses like mine would be made relatively easy by using 
software to handle this new burden or by selling through a 
marketplace like Amazon.
    I am here to tell you that my experience has been anything 
but easy. In reference to selling on marketplaces, we are 
currently undergoing an audit by the State of Washington. The 
state's claim is that because Amazon transshipped our products 
between their own interstate warehouses, the transshipping gave 
us physical nexus, even though we never shipped anything 
directly into an Amazon fulfillment center in the state.
    Washington State retroactively claimed sales taxes from the 
prior 5 years going back to 2013. Back in 2013, FindTape was 
only a two-person company who never shipped direct into one of 
Amazon's Washington fulfillment centers, but they still came 
after us. If you look at Washington State's own law regarding 
consignees, it fits Amazon's FBA's (Fulfilled by Amazon) 
program to a tee. Amazon solely controls the entire buying 
experience, yet Washington State is claiming we meet the old 
school definition of quill or physical nexus even though we did 
not transfer the goods or make the sale ourselves.
    This has been going on for over a year, and we have not 
received back our final assessment. Since their sales tax rate 
can be as high as 10.4 percent in some localities, the 
assessment will most likely be in the tens of thousands of 
dollars. Washington State has now even created a remote seller 
relief program, which we signed up for because they say they 
will waive penalties and interest. This program must have been 
created because there is a plethora of other small businesses 
like ours that they are retroactively going after. If we get 
assessed the full amount, we may have to lay off some 
personnel, unfortunately.
    Many states now have marketplace facilitator laws in place 
which require marketplaces such as Amazon to collect and remit 
sales taxes directly to the state. However, the economic nexus 
laws do not provide any clarity if companies like mine are able 
to use a separate threshold for our direct orders; rather, they 
get lumped in with the orders that marketplaces are 
facilitating tax collection on. And from a volume perspective, 
Amazon currently makes up about 90 percent of the orders we 
get.
    FindTape sells adhesive tape, not high-end jewelry or 
electronics. When we sell 200 of our best-selling item on the 
Amazon marketplace, we make roughly $140 in profit. Because of 
the 90/10 split between Amazon and our website, those 
additional 20 Findtape.com transactions would have brought in 
an extra 28 dollars in profit. Therefore, for a total of $169 
in profit, we have now hit the economic nexus threshold of 200 
transactions and would be required to file in the state.
    Just to be clear, we are not underestimating our 
transaction numbers. If we look at all nonmarketplace orders in 
2019, we had 15 transactions in Wyoming, 21 in South Dakota, 
and 35 in West Virginia. We use the services of a company 
called TaxJar to calculate our sales taxes owed and to file and 
remit them to the state. We pay them just over $2,100 per year 
to get access to these services. Primarily, the service allows 
us to request rates on which of the 10,000-plus taxing 
jurisdictions the customer is shipping into. We also pay TaxJar 
$20 per state filing they make for us. So, if we are in a month 
where we have to file all 30 returns, since Wayfair we are now 
currently registered and collecting taxes in 30 dates, that 
additional cost for the month is $600. While those costs are an 
issue, the bigger challenge is the time it takes me to 
reconcile the filings, plus I have to go through the daily 
correspondence of sales tax related letters we receive from the 
states. It is incredibly stressful to open up your mail and see 
a stack of letters from a state you have no real presence in. 
This all typically takes me 1 to 2 days per month.
    As a small business owner, my scarcest resource is time. 
Even if economic nexus thresholds are altered to something more 
reasonable, at the end of the day they end up being irrelevant 
since states like Washington and Massachusetts are going after 
Amazon FBA sellers for having physical, not economic nexus. All 
states already have the ability to enact marketplace 
facilitator laws which will allow them to receive tax dollars 
for the majority of online owners anyway.
    Back in 2018, Amazon already had a 49 percent share of the 
U.S. ecommerce market, and if you threw eBay and Walmart into 
the mix, that would have gotten states up to a 60 percent 
share.
    We opened our first brick-and-mortar store in 2019 in New 
Jersey. I understand how hard it is to compete with the likes 
of Amazon and Walmart, and it would not be fair for brick-and-
mortar retailers to have to collect sales tax while an online 
order company would not. But when someone comes into my store, 
I do not have to ask them which of the 10,000-plus tax 
jurisdictions they live in. Plus, I get the benefit of police 
and fire protection, roads are plowed and repaired, good 
schools exist to supply talented employees and so forth from 
the taxes I am paying. If the local portion of the sales tax 
rate could be eliminated for online sellers, that would greatly 
simplify things.
    Thank you for your time, and I look forward to your 
questions.
    Chairman KIM. Thank you for your testimony there.
    Mr. Scott, we are going to turn to you now. You are 
recognized for 5 minutes.

                    STATEMENT OF BRAD SCOTT

    Mr. SCOTT. Chairman Kim, Ranking Member Hern, and members 
of the Committee, thank you for inviting me to testify.
    My name is Brad Scott, and I am the finance director at my 
wife's family-owned small business, Halstead Bead. My wife, 
Hillary, is the president of the company.
    To date, our small business has spent more than $183,000 to 
collect less than $80,000 in sales tax. Breaking that down, we 
are spending $2.31 for every dollar we collect. We have 
diverted more than 3,800 hours away from our business 
operations to act as unpaid surrogate staff to 30 departments 
of revenue where we are currently filing. If we fail to 
deliver, the consequences are grave.
    Halstead is a second generation, privately owned, small 
wholesale business that was started in the early `70s by my 
wife's parents. Over the years, their two-person side hustle 
has grown into the team of 27 employees we have now. Today, 94 
percent of our sales originate from our website. We distribute 
raw materials and supplies to silver jewelers around the world. 
Our clients include the smallest microbusinesses selling 
through sites like Etsy, as well as traditional brick-and-
mortar jewelry retailers.
    We have spent decades developing an independent website and 
IT infrastructure to maintain full control over our business 
model. We do not sell on any marketplace facilitator websites 
because we are unwilling to pay their commissions or cede 
control of our operational independence. Prior to the Wayfair 
decision, we had no sales tax software in place.
    Through our experience, we see four key issues to address, 
which I have detailed in my written testimony.
    Registration and filing, which is the obvious hurdle; 
software requirements, which are the misunderstood hurdle; 
exemption certificate management, which is the unknown and 
underestimated hurdle; and finally, the unprecedented liability 
and lack to due process.
    The Wayfair decision is often described as a court case 
aimed at major online retailers, but that is misleading. The 
majority of states are using gross sales as their threshold 
metric. This encompasses all forms of businesses across state 
lines, not just Internet retail activity. What's more, in 2018, 
Wayfair, the defendant in the case, reported approximately $6.8 
billion in revenue. They are more than 1,000 times bigger than 
us. A company like Wayfair has the resources to staff a state 
and local tax department. We are trying to navigate this new 
landscape with a single accountant. The expectation is that one 
person can bring a company into compliance as effectively as an 
entire SALT department at a major corporation. I am that one 
person, and I can tell you it is not possible.
    The sales tax solution that is so often discussed was and 
is not free. There were substantial integration costs and there 
are monthly filing transactions for non-streamlined states. The 
software is also inadequate. In 2019 alone, I received 36 
notices from 12 streamlined states that the filings and/or 
remittances that our certified software provider is contracted 
to submit on our behalf were, in fact, not submitted. It took 
months to get these addressed, though some are still not fully 
resolved.
    One cannot stress enough the anxiety caused by receiving 
one notice from a Department of Revenue, let alone 36. One of 
those notices from the State of Tennessee, was over $38.22 in 
penalties and interest due to a failure to report by our 
software company.
    In February, concurrent memorials passed through both the 
Arizona House and Senate with unanimous approval. These 
memorials are entitled ``Urging the United States Congress to 
enact uniform national legislation for remote sellers to 
collect and remit sales taxes.'' We are grateful to our state's 
elected officials for recognizing the challenges facing 
constituent small businesses and for making this formal request 
for Federal intervention.
    At Halstead, we have a successful, profitable small 
business. We have prospered in our 47 years, but nothing has 
shaken us like Wayfair. We have considered closing our doors 
because of the stress and liability. We could literally lose 
everything.
    We urgently need Federal intervention. In our opinion, 
there are two suggestions that stand above the rest. First, due 
process is beyond our reach because of the Tax Anti-Injunction 
Act. Allow a small business to use their home state's court 
system or Federal courts to fight assessments. And second, a 
single statewide remote seller sales tax rate should be the 
standard. Penny parity causes unnecessary complexity and 
burden. Our written statement includes additional 
recommendations.
    We ask the Subcommittee to please elevate this issue to 
legislation for uniformity to relieve this tremendous burden on 
small businesses.
    Thank you, and I look forward to taking your questions.
    Chairman KIM. Thank you, Mr. Scott.
    Your testimony was very strong, and as you were talking 
about having to even make that thought of having to close the 
doors because of this type of problem, that is exactly why we 
are here today and trying to figure out what we can do to 
provide relief and consistency to across the board.
    I am going to start by just jumping in with a few questions 
here. You know, most states have adopted that similar economic 
nexus levels following the Wayfair decision where businesses 
reaching certain revenue levels or numbers of transactions in a 
given state are subject to tax collection by that state. Each 
of you have run through that in terms of how it has affected 
you of other businesses that you know.
    I want to sort of establish sort of a baseline across the 
board, so I would love to go across the panel here and just get 
your sort of baseline assessment here.
    Do you think that the most common standard of the $100,000 
in sales and $200,000 in transactions is a reasonable standard? 
And if not, what do you think would be a reasonable threshold 
just so that we have sort of clarity across all four of you?
    Mr. Yesnowitz, why do we not start with you and then we 
will move down the line.
    Mr. YESNOWITZ. Sure. As noted in the testimony, regarding 
the $100,000 and 200 transaction thresholds that were adopted 
by South Dakota and adopted by about half the states, the AICPA 
does not think that would be a sufficient level. The Multistate 
Tax Commission set forth the $500,000 sales standard for factor 
presence nexus. I believe they use the $50,000 standard for 
payroll and property. So, if you had a little bit of physical 
presence in the state, that would be protected. I think with 
the new economy and over the past 20 years, changes in the 
pricing and the like, we think that from the perspective of 
sales, $500,000 might not be sufficient to protect the small 
businesses out there. And so, we have suggested as 
possibilities a $750,000 standard or $1 million standard to 
cover even more small businesses and to increase the payroll 
and property factor, or the payroll and property levels from 
$50,000 to $100,000 each.
    Chairman KIM. Okay, great.
    Ms. Lester, what are your thoughts on this?
    Ms. LESTER. I have kind of a different approach to this in 
that I think it is complicated and hard to do whether you are a 
$10 million company or a $100 million company. We sell 
furniture, office furniture and school furniture. We sell stuff 
like this here, as well as cafeteria furniture in a school. So, 
we may have one transaction of cafeteria furniture into 
Nebraska and it is a $40,000 sale. So, I think it is kind of 
misleading to just go on numbers. We may have two or three 
sales into one state, and we hit the nexus just because of the 
nature of our transaction.
    What I really think we need to do, as long as you are 
asking, is make this simple enough that a nexus is irrelevant. 
If you have one rate per state and one place to file, then 
anybody can do this. You could do this with no nexus. Just as 
in now, I know that my own Illinois rate is 7 percent. If I had 
a list that here is the 50 states and here is the rates and you 
pay it here, you would not even have to mess with a nexus. 
Everybody would know what to do.
    But if I had to answer your question and I have to set a 
nexus level, I would agree that $1 million sounds like the 
minimum it should be. If you are going to go through all this, 
you have to have a substantial amount of business into that 
state to make it worthwhile.
    Chairman KIM. Okay.
    Ms. LESTER. That would be my opinion.
    Chairman KIM. Thank you for that.
    Mr. Mahoney, where is your head on this?
    Mr. MAHONEY. I think, number one, having a number of 
transactions threshold should be eliminated. What primarily 
sells online is inexpensive goods. I mean, we sell adhesive 
tape. That is not expensive. I am not going to make a lot of 
money selling 200. But for us, economic nexus really is 
irrelevant because the states are coming after us as an Amazon 
FBA seller for having physical nexus.
    I have had several conference calls with Washington State 
during the audit, and I have asked them, I mean, in the Wayfair 
ruling I think it mentioned having substantial nexus. And when 
I bring that up they say, well, we are not coming after you for 
economic nexus. Even if Amazon transshipped one item, that is 
now giving you physical nexus in the state. So, for an Amazon 
FBA seller, the economic nexus thresholds are not really 
relevant.
    And if you look at Amazon's 49 percent of U.S. ecommerce in 
2018, and that number is just growing so there is a lot of 
Amazon FBA sellers out there.
    Chairman KIM. Mr. Scott, over to you.
    Mr. SCOTT. Thank you.
    So based on the transactional threshold, I think those 
should be eliminated altogether. They make no sense based on 
small sales.
    If you want to talk about a threshold, I think a national 
threshold makes more sense than a state-by-state threshold. And 
going by the Small Business Administration's definition of what 
a retail small business is, $30 million and less is a small 
business. So, if you are going to set a threshold, I think that 
is the starting point at the bare minimum. Or you could also 
use the threshold that South Dakota used, which is $100,000, 
and if it is adjusted for GDP across all the states amounts to 
closer to $40 million. So a national exemption would make this 
simpler in the sense that instead of having to comply with 
states piecemeal, you either have to comply or you are under 
that threshold, period, in which case you can focus on your 
business at hand.
    Chairman KIM. Okay, great. We will likely have a couple 
rounds here for questions here, but I want to give the Ranking 
Member an opportunity.
    So, Mr. Hern, over to you.
    Mr. HERN. Thank you.
    Mr. Yesnowitz, you talked about the marketplace facilitator 
legislation. Could you walk us through how that works? I could 
ask Mr. Mahoney, but let's just go with you since you are on 
the tax side here.
    Mr. YESNOWITZ. Sure. With respect to marketplace 
facilitators, they are operators of online malls. They are 
intermediaries to transactions. They set up sellers and 
purchasers. So, they are not a party to the transaction itself 
that is taking place, but they facilitate the transaction in 
one of several different ways.
    The states decided after Wayfair (and Wayfair did not 
address this fact pattern), but after Wayfair, the states acted 
with respect to remote seller legislation and then with respect 
to marketplace facilitators, they required that if they have a 
little bit of economic presence in the jurisdiction, they were 
well placed enough to require the facilitator to collect and 
remit sales tax with respect to that transaction.
    Mr. HERN. So they are supposed to be the one that 
identifies all these 10,000 different tax jurisdictions and 
collect the approrpite tax and then remit those back. I think 
Mr. Mahoney, you had mentioned it was like a 90/10, 9 percent, 
or how do they get paid?
    Mr. MAHONEY. For our website, 90 percent of the volume of 
orders are on Amazon, and then just 10 percent on our website.
    Mr. HERN. Okay. So how do these facilitators get paid for 
doing that service? Or is it just part of their monthly 
marketplace fee?
    Mr. MAHONEY. There are a variety of different ways in which 
they get paid. There are some fee exchanges and the like. I 
think that from the perspective of the marketplace facilitators 
that end up being--some of them are very large, sure, the 
Amazons of the world. But with respect to some they are small 
businesses and they may feel like they are doing a little bit 
of facilitation in some jurisdictions. And to be required to 
comply with all the states once they reach a minimal economic 
threshold, a couple of activities in each of these states seems 
somewhat onerous.
    Mr. HERN. Mr. Mahoney, you had mentioned 90/10. So, I think 
what you were trying to describe or did describe earlier was 
the 90 percent that were sold through your marketplace would be 
charged at a gross rate currently because of the taxes applied 
locally through the marketplace. And the 10 percent would be 
some other price based on trying to determine what those taxes 
would be. So, somebody buying form two different jurisdictions 
would say why is this same product more expensive here at a 
retail price or at a sticker price, if you will, because the 
tax is included and the other side it is not. Is that----
    Mr. MAHONEY. I mean, for us, if it is selling on the Amazon 
Marketplace and it is a marketplace facilitated state, it is 
pretty easy. TaxJar just automatically imports those orders and 
remits, so we do not really have to worry about it. For us, for 
the 10 percent of orders that come on the Findtape.com website, 
I use that TaxJar service and it tells me, you know, which of 
the 10,000 jurisdictions I am shipping into and it gives me the 
tax breakdown. And then we remotely send that order to TaxJar 
and at the end of the month they file it.
    Mr. HERN. Okay.
    Mr. MAHONEY. So.
    Mr. HERN. Mr. Scott, given that small businesses have 
limited resources and limited staff, knowing the rules of the 
road is paramount to growing, expanding, and creating jobs. Do 
you believe that small businesses are aware of the rules and 
requirements on collecting and remitting sales tax? And what 
resources are available to help you better know?
    Mr. SCOTT. Well, anecdotally speaking, in all of the 
companies that we have had conversations with surrounding sales 
tax, unless they are in this room currently, they are usually 
not aware. Or they are aware but they are also aware of how 
expensive it is to comply and the fact that they are so far 
behind the starting date at this point in time they are 
unwilling to put themselves out there because when you do 
register, if you are delayed at your registration point you 
typically get a call from that Department of Revenue expecting 
an immediate audit.
    Mr. HERN. You say people, if they know, and they are 
learning as they go along here, they just say catch me if you 
can, basically?
    Mr. SCOTT. I do not think it is catch me if you can so much 
as this is a hurdle that there is no way for us to 
realistically get over. And so what we are hoping for is that 
Congress will act and force some degree of uniformity and 
protections for small businesses so that when we do come 
forward in good faith, because most of us do, that we are not 
going to be punished just because of a court decision that 
happened 2 years ago that we were not made aware of until, you 
know, potentially 3 hours ago.
    Mr. HERN. Yeah. Yeah, so it does create the problem we have 
here with the Federal government interacting with states; 
right? I mean, I get it. Obviously, as you heard me say in my 
introduction, the Federal government trying to identify single 
tax per state, I mean, I get the ease of that. But that would 
be a statewide sales tax; right? But every jurisdiction inside 
the state also has a particular county tax or city tax that 
also has to be collected somehow or the other if it is sold 
within a metropolitan area.
    I will get that on the second round because I have some 
more clarity, I want to talk to you about, Mr. Lester.
    Chairman KIM. Yeah, we want to make sure we kind of dive 
into this.
    So, Mr. Mahoney, I wanted to return to you. In your opening 
statement you were talking about sort of the issues with nexus 
that you had with Washington State, and I thought that was very 
powerful just to hear how difficult that was.
    I wanted to ask you if you have had any other states 
contact you about additional nexus? I am just curious. Beyond 
Washington State in terms of the difficulties that were 
provided. Have you experienced that elsewhere as well?
    Mr. MAHONEY. Yeah. Right now, the only audit we have had is 
Washington State. We have received letters. Arizona has sent us 
a letter. We actually received a letter from California, but we 
registered back in 2009, so they just had our account number 
wrong, so they thought we were not paying but we have been 
paying for a while.
    But we tried to, in good faith, as soon as Wayfair got 
announced, we went from collecting in five states to 30 pretty 
much right at the end of 2018. So, I feel like the companies 
that tried to do the right thing and immediately collected, we 
have this burden on us. And there are a lot of companies that 
just are not aware of the competition. And they are not 
incurring the same costs we are.
    Chairman KIM. Mr. Scott, I wanted to just get your thoughts 
on this in terms of, you know, states that have contacted you 
about nexus. Just want to get your feel for this.
    Mr. SCOTT. So the decision came down on June 21st almost 2 
years ago, and to date we have received a single notification 
from the State of Pennsylvania that we may have an obligation 
to collect and remit sales tax. The other 44 states and 
District of Columbia, nobody has ever reached out to us. I 
should say 43 because we already knew about Arizona.
    What is more, we also are now aware that we have a topline 
tax requirement with some of these states. California has a 
franchise tax and Washington has a business and occupation tax. 
We voluntarily disclosed that we were unaware of those and were 
assessed back taxes in those regards as well.
    Chairman KIM. Okay. I wanted to turn over to Ms. Lester. I 
wanted to ask you a question just from your own experiences. 
What states are the easiest to comply with and why? And what 
states would say are the most difficult to comply with and why? 
I just want to sort of set--so it is the boundaries, left and 
right limits here.
    Ms. LESTER. It is a great question. It is hard to keep them 
all straight, so I am going to refer to my notes here.
    Chairman KIM. Sure.
    Ms. LESTER. Indiana, Kentucky, Michigan, New Jersey, and 
Rhode Island get high marks in my opinion because--but I think 
it is more important to focus on why they get high marks. And 
that is because they have one rate per state, and it is an EZ 
filing form.
    The other two that I would say that we found to be helpful 
are Texas and Louisiana. Both take a unique approach in that 
they are complicated states; however, they allow remote sellers 
the option of doing one rate per state. When you register with 
them you get your choice. You can either do one rate per state 
or you can follow all the jurisdictions for remote seller. 
Louisiana calls it----
    Chairman KIM. That was Texas and which?
    Ms. LESTER. Louisiana. Louisiana calls it their direct 
marketer form.
    So, if I was selling a type of a product that had a lower 
tax rate than the statewide they presented, then I could maybe 
choose to do that for my customers, or I can choose the other 
one. So that was a good approach in my opinion.
    As far as the worst, Colorado. That is one month's form. 
They require you to submit it electronically for obvious 
reasons. I printed it just to bring it here today to show you. 
All the rest of the states are right here. This is all the rest 
of the states we do.
    I would say that Colorado's problem is that they have 682 
taxing jurisdictions that they collect on behalf of the local 
jurisdictions, and there are three pages for each one of those 
jurisdictions, which is why the book is so big. We had actually 
four sales into the state that month and had to produce a 
document this big.
    My concern with this is that our software generates the 
report, but I obviously cannot read it to see if it is 
accurate. I have to sign off on a report that I can proof the 
total, but I cannot go through it.
    Some of the other complicated states are all the ones that 
have lots of taxing jurisdictions. Alabama requires us to file 
two forms, an Alabama state form and a local tax form. And on 
the local tax form, the first time we did not know we have to 
file it, we had zero taxes due and they assessed us a $100 
penalty for not filing our zero tax report because we did not 
know we had to do it. And then the following month, once we did 
do it, we realized we had to get tax ID numbers. For about half 
of the local jurisdictions you had to contact someone else to 
get your Tax ID Number because they did not use the state one. 
It is insane what they do.
    The bottom line is one rate per state with an EZ filing 
form is not too much to ask because a lot of states already do 
it.
    Chairman KIM. Thanks for that.
    I still have a few more questions, but I am going to turn 
it over to the rnaking member for his second round.
    Mr. HERN. Actually, I am just going to continue on. Went 
down the same line of thinking.
    I appreciate what you said about having no thresholds 
because my experience is that anytime any government applies a 
threshold to anything there is always gaming of that system. 
And sometimes that is not good. Curtailing growth of a small 
business, when we talked about--we could talk about the 
Affordable Care Act on small business not going beyond 49 
employees. The list goes on. It is a truth that is out there. 
Anytime you put a threshold, people will figure out how to stay 
under that. Even going to the extent of creating another 
business with dissimilar ownership so that you can stay under 
that. It is just a fact. I mean, that is what businesspeople 
do. They figure how to make the amount of money out of current 
law. You tell me the rules, I will play the game.
    So, I appreciate you saying that. That is a true 
entrepreneur that understands. I understand what you are saying 
about the one rate. I do want to ask you that because I 
appreciate you pointing out that two states do that, or maybe 
more, but you specifically called out Texas and Louisiana. Why 
do you think they do that, have one rate? You have the ability, 
the option, the choice as a businessperson doing business in 
their state to either go through and fill out all the forms or 
just do one rate. And I am assuming the one rate is 
encapsulating all the rates, the highest rates, and they 
distribute those to the local municipalities where you do 
business in those states. Why do you think those two states do 
that?
    Ms. LESTER. I do not know. I did not ask them. But my 
assumption would be because that is an easy way for people to 
then comply. I will say that Mr. Scott and I met in November at 
a similar forum and I asked him what state do you think is the 
most complicated and he said one of his most complicated was 
Louisiana. And I said, oh, really? Did you know they have the 
direct marketer form that you can pay one rate? And he said, 
no, I did not know that. So even when it is simple, not 
everybody knows that the options are available. We had several 
states where we filed and had to redo it a different way. So, I 
can only assume it is because they feel that, well, I will get 
more people to comply.
    Mr. HERN. Or encourage you to do more business there 
because it is easier to do business there possibly.
    Ms. LESTER. Possibly. In our case, we mail catalogues. We 
sell office and school furniture, and we mail catalogues all 
over the country. So, we do business in every state. We 
actually cater to governments that we mail to the Department of 
Revenue in every state which is one of the other reasons why we 
have now signed up in every state.
    Mr. HERN. Just for the record, and I think someone said it, 
just for the record, nobody that is in business is opposed to 
collecting tax and remitting tax to the proper jurisdiction. It 
is just the complications that are required to do that and the 
risk that you have if you miss. Like you said, just not even--
and trust me, I have been where you have been, and it is 
extraordinarily frustrating. I did not owe you anything but now 
I do.
    Ms. LESTER. Well, and we had six states where we did not 
meet the $100,000 threshold, but some of the states say, as 
soon as you meet the threshold, that month you have to 
register. Or there are a few states that I am sorry I cannot 
name which one says on the day you meet threshold you have to 
register. So, we thought, am I going to have to like every week 
say did I meet the threshold yet? Did I meet it yet? Did I meet 
it yet? So, to me if I was going to do 36 states, I might as 
well do 42 and be done with registering everywhere.
    Mr. HERN. Not that I am proposing this but would an 
acceptable solution be that encouraging states to have a single 
tax that encapsulates all of their tax, deal with this 
franchise tax, income tax, whatever it may be, sales tax, a 
singular rate, do you think that would be acceptable to online 
retailers?
    Ms. LESTER. I would not go there. I do not feel that, you 
know, in Texas, for example, has said that we have to pay a 
franchise tax, and it is probably going to cost us $2,000 to 
$3,000 this year. We have no employees there. No assets there. 
No nothing there other than our customers happen to reside 
there. And yet we would be subject to all these other taxes. I 
am also concerned that once we get one tax, they are going to 
throw other ones in, too.
    I personally believe that sales tax makes sense. The 
customer is there. It is a sale. That is the only thing that is 
happening there in that state. So yes, I will collect the sales 
tax on your behalf, and I will send it. But having to answer to 
all of these other taxes does not make sense.
    Mr. HERN. Mr. Chairman, I yield back.
    Chairman KIM. I wanted to turn to Mr. Yesnowitz for a 
question here.
    Even though this hearing has been focused in on sales 
taxes, are there now income tax implications as well from 
states that small firms must worry about? I just want to get 
your thoughts on this.
    Mr. YESNOWITZ. There definitely are because of the fact 
that when Wayfair came out, Wayfair required all these new 
businesses to come into the state for sales tax purposes. It 
does not prevent the states from reaching back and looking to 
see, well, have you done stuff in the state in the past that 
would require you to pay corporate income taxes? And so, we 
have already seen some activity in that area where states are 
now more interested in the income tax. There are a few 
jurisdictions in 2019 that decided to throw on an economic 
nexus threshold for purposes of their corporate income taxes. 
And so that is definitely a level of concern. In addition, with 
respect to looking at financial statements, you have to make 
adjustments with respect to corporate income tax liability, 
things that have changed. And so when a company recognizes that 
they were in a state, and from an economic nexus threshold, 
they were in a state and it did not matter that they did not 
have physical presence, companies have to reevaluate that from 
a financial statement perspective. And so, the accounting firms 
have certainly had to deal with that.
    Chairman KIM. Okay.
    Mr. MAHONEY. We paid over $5,000 in income tax in 
California just last year. Last time we shipped direct into a 
California Amazon warehouse was probably over 3 years ago. So, 
we pay income tax. I have no presence in that state. I cannot 
vote in that state. I mean, taxation without representation. 
You know, I am paying income tax in a state I do not even have 
any presence there, so.
    Chairman KIM. Yeah. No, thanks for that.
    Actually, I would like to stay with you, Mr. Mahoney. When 
I was going through your testimony, the written testimony, you 
mentioned the marketplace facilitator laws. Are the states that 
have marketplace facilitator laws in place easier to sell in, 
file with, or pay taxes in?
    Mr. MAHONEY. You know, for us it does not really make a 
difference. I mean, one thing, when we collect sales tax, the 
other thing I do not think we mentioned, you know, it is a 
credit card fee. So, I am losing 2-1/2 to 3-1/2 percent if it 
is an Amex card right off the bat on that. One thing I like 
with marketplace facilitated, when Amazon is collecting, at 
least I am not losing the credit card swipe fee. But at the end 
of the day it does not really make that much of a difference 
for us.
    Chairman KIM. And Mr. Scott, I wanted to turn to you. What 
resources have you used to work your way through this? And 
particularly, was the Small Business Administration helpful at 
all? Just trying to get a sense of what tools are and what 
approaches you have taken.
    Mr. SCOTT. Well, I mentioned earlier in my testimony that 
we have spent more than 3,800 hours on this, and a lot of that 
has been time by my wife, the president of the company, and 
myself, plowing through different departments of revenues 
websites trying to understand the legalese, the threshold 
terminology, and the requirements that have been put on us in 
the last year and a half.
    So, are there any resources? Not really. There are places 
where you can get little bits of information here and there 
that span more than a few states, but by and large, most of our 
research had been from the Department of Revenue websites 
themselves primarily because the information changes with such 
regularity that looking at online resources, collecting all of 
that information in our opinion is not really fully 
trustworthy. And maybe that is not fair. But in a sense, you 
know, just being overly concerned about our own liability we 
prefer to see these things for ourselves. With the Small 
Business Administration, this is not really something that is 
under their purview as of right now. The Office of Advocacy has 
been helping us to a degree in the sense that they are letting 
us know that, yeah, things are moving forward in slow 
methodical ways, but they are an office of resources 
financially or of statistics, but not with assistance as far as 
determining what we can do with the states.
    Chairman KIM. Mr. Mahoney, just going off of what you were 
talking about earlier, I just wanted to kind of clarify. Does 
Amazon collect the local tax? And if not, what has been your 
experience through that process?
    Mr. MAHONEY. Amazon typically collects both the state and 
local. Sometimes there are issues. I think Illinois this last 
month there was an Amazon--actually, I have received several 
emails from Amazon. They did not calculate, and Linda may know 
more about what changed in Illinois, but they only set the 
state taxes in and did not calculate on the local. So, there 
was a lot of back and forth. And then they sent a correction 
email out. So, there was some complexity. But typically, they 
collect all sales tax taxes for us.
    Chairman KIM. Ms. Lester, did you have anything you wanted 
to add to this?
    Ms. LESTER. We do not sell on Amazon, so this is not first-
hand experience. But 2 weeks ago, my accountant called me and 
said, I have a customer who sells on Amazon, and since you know 
so much about this maybe you can help. Apparently, what Amazon 
does is it collects the 6.25 percent state tax but does not 
collect the local tax in Illinois, which is another, for where 
I am, another .75 percent. And so, my accountant was asking how 
do we collect this extra money? Amazon did not collect it from 
the customer, but we know we still owe it. I do not even know 
how to report it on the form. Amazon has sent a notice to its 
sellers in Illinois telling them we do not do the local tax. 
Sorry, we will get to it. At some point, hopefully, we will 
have it solved.
    I actually reached out to the tax authority at the Illinois 
Chamber of Commerce asking them what to do and he said, that is 
not right. And he contacted Amazon directly and came back and 
said, yeah, you are right. They do not do it and we are stuck 
right now, so.
    Chairman KIM. Thanks for sharing that.
    I want to turn it back to the Ranking Member.
    Mr. HERN. Yeah, just a question for you, Ms. Lester. And 
just as a point of clarity, I was asking counsel this, and we 
are not sure of the answer. You have a book there. I think you 
said it was 182 taxing jurisdictions in Colorado.
    Ms. LESTER. Actually, it is 682.
    Mr. HERN. Six hundred eighty two.
    Ms. LESTER. Times three pages each.
    Mr. HERN. So a question for you, and you may not know this 
answer, but it is something that we need to find out the answer 
to. If you are an online retailer in Denver and you sell across 
the state, inside the state, so you are required as that 
retailer in the state to collect the state, the city, each one 
of those jurisdictions and remit to each jurisdiction within 
the state?
    Ms. LESTER. Well, 682 of them you just file with the state 
and the state does it on their behalf. Okay? However, the form 
is three pages for each jurisdiction. So, it is only one point. 
But I will say there is an additional 97 jurisdictions that the 
state does not do on their behalf. And you would have to 
register with each one of those individually and do them. 
Denver is one of them, as well as Colorado Springs. So, for 
those I have to check every month and say did we hit Denver 
yet, a nexus? We are kind of up in the air to be honest with 
you what we are supposed to do with the other 97 jurisdictions. 
It is bad enough dealing with this one.
    Mr. HERN. But it does create a little bit of an awkward 
scenario for us as far as authority from the Federal government 
going inside of a state and telling a state how they are to 
collect their own taxes in their own state when the business 
resides in the state. And this is sort of the predicament we 
are in. That is why we are here collecting a lot of information 
from you all and to get a better understanding of how this 
process is going to have to work going forward.
    Mr. Scott, I can see you wanted to say something so badly.
    Mr. SCOTT. Yes, sir. Thank you.
    Colorado is a special state. We are a wholesaler 
predominantly.
    Mr. HERN. Some would agree with you.
    Mr. SCOTT. Right. Right.
    We are a wholesaler predominantly, and there are reasons 
why we do collect retail sales tax on some transactions. But if 
you look at the nature of our sales, we are a wholesaler. And 
Colorado is a state where we have prohibited any sales into the 
state that are not wholesale. Meaning, we have to have an 
exemption certificate for them. And we are also limiting sales 
into that state, too stay below a threshold because we do not 
want to run afoul of their Department of Revenue.
    Mr. HERN. Okay.
    Mr. Miller, did you want to say something to that or no? 
Okay.
    Mr. MILLER. We find with Colorado.
    Mr. Yesnowitz, what are your thoughts on that being in the 
tax business?
    Mr. YESNOWITZ. Well, I mean, with regard to states and 
localities and the Federal government being able to intervene, 
the Federal government does have the ability to do that. They 
have acted in the area of corporate income tax, for example. 
Sixty years ago, you had Public Law 86-272, and that protects 
companies that do limited solicitation activities within a 
state from taxation if they are selling tangible personal 
property and take the orders outside the state. So, the 
government has acted in the past. So, understanding that there 
is a sensitivity to trying to deal with a state issue here, I 
think Congress does have that power. With respect to this 
particular issue, I think that Congress needs to be concerned 
about the fact that in the 18 months since Wayfair, you have 
all these states acting independently and in a nonuniform 
manner, and it makes it really difficult for small businesses 
like these to be able to handle all that in such a short period 
of time and that is why the AICPA is recommending some level of 
uniformity here.
    Mr. HERN. So is AICPA also recognizing of states' ability 
to call back use tax when individuals go to states that have a 
lower use tax and buy high-ticket items and take them back to 
their state and then the state goes after these particular 
individuals from circumventing use laws?
    Mr. YESNOWITZ. Well, the AICPA wants compliance.
    Mr. HERN. Okay.
    Mr. YESNOWITZ. They understand the fact that the use tax is 
an important component of the sales tax.
    Mr. HERN. Okay.
    Mr. YESNOWITZ. I know that we had a recent experience where 
my daughter wanted to buy something online, in the state of 
Maryland. The company was based out in California and she 
really wanted it and bought it. And no sales tax applied to it. 
I am like, you realize what I have to do now. And she said, 
what do we have to do? I said, we have got to pay the use tax 
on this, clearly. I am not going to get myself into trouble 
over it. So, she did not get it [the use tax concept], but a 
lot of people do not. And understandably, the states really do 
need to do more in the area of use tax enforcement. They put 
line items on the income tax returns for folks to self-report. 
But yes, there is a tax gap there. I understand that.
    Mr. HERN. Any thoughts? I mean, I know this is not your 
area because you are more policy than you are in the 
competitive world. Do you see any states that would take this 
as an opportunity, especially higher populated states that 
would take this as an opportunity to make this more compliant 
easy, if you will, so that online retailers would do business 
in their state more regularly than elsewhere?
    Mr. YESNOWITZ. I am not sure from a competitiveness 
standpoint that one state would go over another. I know that 
some of the states have applied these new economic thresholds 
using a market threshold. For example, South Dakota is a much 
smaller market than California. So, California is putting in a 
higher standard than South Dakota. So, we are seeing some of 
that. The advantage there is, well, for small businesses, it is 
much easier to trip a threshold in a big market state if 
everything were the same. From the simplicity standpoint it is 
a little bit difficult when you have got to deal with all these 
different numbers and using a market amount for that might be 
problematic.
    Mr. HERN. Mr. Chairman, I thank all the witnesses that have 
obviously done a lot of work in this area. It is near and dear. 
That is where you get your best thinking, from the people who 
are actually experiencing the issues. I appreciate your time, 
being away from your businesses, and from what you do, and 
thanks for giving us suggestions of what to look at here so we 
can work on this as we go forward.
    And Mr. Chairman, I would yield back my time except I have 
none. So, thank you.
    Chairman KIM. I just want to echo what the Ranking Member 
just said. As we have gone through a number of different 
hearings over the time to just continue to have small business 
owners and experts and others take time to be able to come to 
our humble chamber here and talk to us about what it is that we 
can try to do to help small businesses. It really means a lot. 
The stories you have told are not just compelling in terms of 
the facts, in terms of the numbers and the information, the 
recommendations, but we can really see in each of you just the 
frustrations that you have had, but the real passion that you 
bring to try to get this done, to try to have something that is 
going to be fair for small businesses. So, I just wanted to say 
thank you for taking time out of your busy schedules to come.
    As we started out at the beginning of this hearing, we said 
that one way for Congress to support small businesses is 
through well-conceived and targeted tax policy. As we heard 
today, small businesses need tax policy that is simple and 
certain, not everchanging. Small businesses also need tax 
policy that levels the playing field and creates opportunities 
for their businesses to thrive.
    Following the Wayfair decision, many small businesses are 
facing compliance costs and burdens that are hurting their 
businesses' abilities to succeed. This calls upon Congress to 
try to take steps to think through this thoughtfully and try to 
find some solutions to these problems that you have presented 
to us today.
    I look forward to working with my members on both sides of 
the aisle to solve these issues for America's small businesses.
    With that I would ask unanimous consent that members have 5 
legislative days to submit statements and supporting materials 
for the record.
    Without objection, so ordered.
    And if there is no further business to come before the 
Subcommittee, we are adjourned. Thank you so much.
    [Whereupon, at 11:14 a.m., the subcommittee was adjourned.]
                            
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