[Senate Hearing 116-287]
[From the U.S. Government Publishing Office]
S. Hrg. 116-287
REMOTE ONLINE SALES TAX: EXAMINING
THE IMPACT ON SMALL BUSINESSES OF THE
SUPREME COURT'S DECISION IN
SOUTH DAKOTA V. WAYFAIR
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
AUGUST 28, 2019
__________
Printed for the use of the Committee on Small Business and
Entrepreneurship
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
39-545 PDF WASHINGTON : 2021
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED SIXTEENTH CONGRESS
----------
MARCO RUBIO, Florida, Chairman
BENJAMIN L. CARDIN, Maryland, Ranking Member
JAMES E. RISCH, Idaho MARIA CANTWELL, Washington
RAND PAUL, Kentucky JEANNE SHAHEEN, New Hampshire
TIM SCOTT, South Carolina EDWARD J. MARKEY, Massachusetts
JONI ERNST, Iowa CORY A. BOOKER, New Jersey
JAMES M. INHOFE, Oklahoma CHRISTOPHER A. COONS, Delaware
TODD YOUNG, Indiana MAZIE K. HIRONO, Hawaii
JOHN KENNEDY, Louisiana TAMMY DUCKWORTH, Illinois
MITT ROMNEY, Utah JACKY ROSEN, Nevada
JOSH HAWLEY, Missouri
Michael A. Needham, Republican Staff Director
Sean Moore, Democratic Staff Director
C O N T E N T S
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Opening Statements
Page
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire.......... 1
Hassan, Hon. Maggie, a U.S. Senator from New Hampshire........... 3
Witnesses
Moore, Mr. Dwight, CEO, Tradeport, Acton, MA..................... 4
Byers, Ms. Ailie, President, Alpenglow Benefit Auctions, North
Conway, NH..................................................... 10
Hennessey, Mr. John, President, Littleton Coin Company,
Littleton, NH.................................................. 20
Badger, Mr. Scott, Co-Founder, Lupine Pet Center, Center Conway,
NH............................................................. 24
Alphabetical Listing
Badger, Mr. Scott
Testimony.................................................... 24
Prepared statement........................................... 26
Byers, Ms. Ailie
Testimony.................................................... 10
Prepared statement........................................... 12
Hassan, Hon. Maggie
Opening statement............................................ 3
Hennessey, Mr. John
Testimony.................................................... 20
Prepared statement........................................... 22
Moore, Mr. Dwight
Testimony.................................................... 4
Prepared statement........................................... 7
Shaheen, Hon. Jeanne
Opening statement............................................ 1
REMOTE ONLINE SALES TAX: EXAMINING THE IMPACT ON SMALL BUSINESSES OF
THE SUPREME COURT'S DECISION IN SOUTH DAKOTA V. WAYFAIR
----------
WEDNESDAY, AUGUST 28, 2019
United States Senate,
Committee on Small Business
and Entrepreneurship,
Concord, NH.
The Committee met, pursuant to notice, at 2:30 p.m.,
Grappone Conference Center, Concord, NH, Hon. Jeanne Shaheen,
presiding.
Present: Senators Shaheen and Hassan.
OPENING STATEMENT OF HON. JEANNE SHAHEEN, A U.S. SENATOR FROM
NEW HAMPSHIRE
Senator Shaheen. Good afternoon, everyone. I would like to
officially open this field hearing of the Senate Committee on
Small Business and Entrepreneurship. I am Jeanne Shaheen,
Senior Senator from New Hampshire and I am pleased to be joined
by Maggie Hassan, who is New Hampshire's other Senator. I won't
call you the Junior Senator.
Senator Hassan. That is okay, I will take it. It's good.
[Laughter.]
Senator Shaheen. I wanted to start by explaining what we
think will happen today as part of this official Small Business
field hearing. This is an official hearing of the Small
Business and Entrepreneurship Committee. It is open to the
press and the public, and it will operate very much in the same
way that a hearing in Washington would operate, expect that
there will only be two of us here for this hearing. All
testimony and responses to questions will become part of the
Congressional record. And after my opening remarks, I will turn
it over to Senator Hassan for her opening remarks. And just as
in other committee hearings in Washington, although Senator
Hassan is not on the Small Business Committee, we often sit in
on other committee hearings and she will be doing that because
this is an issue that she has worked on as well as I have.
After the opening, our witnesses, representing the small
business community, will offer oral testimony in a five-minute
speech. After their testimony concludes, I will begin with my
questions. And while we do not have the usual yellow, red, and
green buttons that they have in Washington to try and limit
people to five minutes, we will try and keep our responses
within five minutes. After I do an initial round of questions,
I will turn it over to Senator Hassan, and she will do an
initial round, and we will go back and forth until we have
exhausted all of the questions.
Again, like hearings in Washington, there will not be an
opportunity for the public to ask questions. But if you have
comments or questions that you would like to raise, you will be
able to submit written testimony, and they will then go to any
of our witnesses and they will respond to your questions in
writing. I want to begin by thanking Jake Wenthouse, who is the
counsel for the Majority on the Small Business committee. He
works for Senator Rubio. Jake, where did you go? There is Jake.
This is his first visit to New Hampshire. I told him that we
made sure the weather was very nice for him. And also, with him
is Ron Surhoff, who is from the staff of Ranking Member Cardin,
who represents the Minority on the committee. So, thank you
both for being here.
Before I turn it over to Senator Hassan, I want to explain
briefly how we got where we are today in terms of this decision
by the Supreme Court on Wayfair and the internet sales tax.
Beginning in 1992, the Supreme Court had held that States could
not force sellers to collect sales tax if they don't have a
physical presence in their State. South Dakota, the State of
South Dakota, challenged this rule. They argued that it was out
of date due to advances in software and because e-commerce was
resulting in more lost revenue to States. Wayfair and other
online retailers argued, correctly I believe, that the burden
of remote sales tax collection would be significant for small
businesses.
Online retailers were not the only one sounding the alarm
about the potential burden. In fact, a Government
Accountability Office report that I along with Senator Wyden
from Oregon requested in 2017 highlighted the number of burdens
that small businesses would face if the internet sales tax went
into place. That included software costs, ongoing
administrative costs, complexity of thousands of different tax
jurisdictions, and the risk of out-of-State audits. Despite
these warning signs, the Supreme Court overturned a decade of
its own precedent in deciding South Dakota v. Wayfair. That has
ushered in a new era of significant compliance costs and
tremendous confusion for many small businesses, particularly in
States like New Hampshire where we do not have a sales tax and
we have not had a real infrastructure for dealing with a sales
tax burden.
Now since Wayfair was decided, many of the very risks that
were warned against have materialized. Thirty-seven States and
the District of Columbia now require remote sales tax
collection, according to the National Conference of State
Legislatures. And while some of these requirements are similar,
others vary dramatically from State to State, with different
implementation dates, the minimum Safe Harbor thresholds, and
definitions of products and services that are subject to
taxation, all of which increase the costs, the complication,
and the confusion for small businesses. And so far, the
argument that States are losing significant revenue to online
sales really has not materialized.
An analysis of official State revenue estimates by the
National Taxpayers Union found that since Wayfair, just two
States have collected more than the General Accounting Office
had estimated, and the total amount among all 32 States
surveyed represents an average of just 0.7 percent of general
fined revenue, so much less than States claimed they were
losing. So, the question is where do we go from here? New
Hampshire has taken some steps at the State level to try and
protect the State's small businesses. And I think these are
admirable efforts, but I think as we will hear from our
witnesses today, small businesses are already taking steps to
comply, and our State's efforts alone do not seem to be what it
will take to solve this problem. There are a number of pieces
of legislation at the Federal level to address the online sales
tax, one that would totally repeal and change the Wayfair
decision.
I have introduced legislation that would ban retroactive
taxation and would exempt small businesses with less than $10
million in sales from out-of-State sales taxes. I am hopeful
that some of these pieces of legislation might be taken up and
actually considered. So, at this point, I look forward to
hearing the testimony of our witnesses and let me turn it over
to Senator Hassan for her opening thoughts, and then I will
introduce the witnesses. Senator Hassan, thank you for being
here.
STATEMENT OF HON. MAGGIE HASSAN, A U.S. SENATOR FROM NEW
HAMPSHIRE
Senator Hassan. Well, thank you, Senator Shaheen, for
holding this important hearing and for including me in it as
this is a vital issue for businesses and people of New
Hampshire. It is vital that we come together in New Hampshire
to raise awareness about the Supreme Court's backward Wayfair
decision because of the major burdens it imposes on small
businesses. I would also like to thank the four witnesses who
are here to testify today. By sharing your experiences, you are
helping highlight the significant costs of the loan sales tax
collection for businesses all across New Hampshire, from Dover,
to Littleton, to Conway. I look forward to hearing from the
panel and to our discussion.
Before turning back to Senator Shaheen, I would like to
highlight two important points. First, it is essential that
Congress move as quickly as possible to protect small
businesses from the burdens and costs and heaps of red tape
imposed by out-of-State Governments following the Wayfair
decision. That is why along with Senator Shaheen, I helped
introduce the Online Sales Simplicity and Small Business Relief
Act, which would protect small businesses from owners
compliance burdens, ban unfair retroactive taxes, and delay tax
collection requirements. Congress should pass our common sense
bill immediately, and I applaud Senator Shaheen for her
continued leadership on this issue.
Second, hearings like the one we are having today are
crucial for raising awareness about the massive costs and
complexities of remote sales tax collection, which mostly hurt
small businesses that are the backbone of our economy. That is
why, as a member of the Senate's Finance Committee, which has
jurisdiction over tax law, I am pushing forward the Finance
Committee to convene hearings in Washington examining the tax
of the Wayfair decision.
This decision is not only unfair to businesses who are
forced to collect sales taxes for other States, it is unfair to
all small businesses across the country that are navigating the
thousands of tax and jurisdictions which will now force them
into the burdens and role of tax collectors. I am going to
continue working with Senator Shaheen to find a bipartisan path
forward, as well as pushing my colleagues on the Finance
committee and in the Senate to provide relief from remote sales
tax collection.
So, I look forward to working with everyone to make this
happen. And again, thank you for holding this hearing. Senator
Shaheen, back to you.
Senator Shaheen. Thank you. And thank you all very much,
all of the witnesses who are here today, for taking time to
come and share with us what you are experiencing as the result
of the Wayfair decision. I am going to introduce each of our
witnesses. First is Dwight Moore who is the CEO of Tradeport
USA and employs 30 people at its headquarters in Dover, New
Hampshire. And Tradeport is a small business center, Dwight
will tell us more about it, but it really resells products
returned by customers that would otherwise go to the landfill.
Ailie Byers is President of three companies based in North
Conway, including Centennial Auctions. She is also on the Board
of Directors of the National Auctioneers Association, so she
has a national perspective to share with us today.
John Hennessey is President of Littleton Coin, which
employs nearly 300 people in Littleton, and sells coins and
other collectible items online and by catalog. Thank you for
being here. And Scott Badger is VP of Sales and Co-Founder of
Lupine Pet based in Center Conway, which currently employs 65
people and manufactures and sells pet accessories. Thank you
all for being here. Before we hear testimony from our
witnesses, let me just recognize some of the Representatives in
the audience.
We have Representatives from New Hampshire's Chambers of
Commerce, including the Greater Salem Chamber, Souhegan Valley,
and the Greater Derry Londonderry Chamber. So, thank you all
very much for being here, and I want to also recognize Liz Gray
from the Small Business Development Centers and Greta
Johannson, who was the Director of the New Hampshire Small
Business Office, SBA office here. Thank you both for being here
as well.
And, finally, let me recognize the efforts, although I do
not think any of them have joined us, but we may have some
legislators joining us later who have been at the forefront of
trying to address this issue at the State level. With that, let
me conclude and turn the testimony over to our witnesses.
Mr. Moore, I am going to ask you to begin.
STATEMENT OF DWIGHT MOORE, CEO, TRADEPORT, ACTON, MA
Mr. Moore. Thank you so much, Senator Shaheen and Senator
Hassan. I appreciate the opportunity to be here today. Again,
my name is Dwight Moore. I am CEO and Partner of a company
named Tradeport USA. We recently relocated from Somersworth,
New Hampshire, to Dover, and the reason that we relocated is
because our services are much in need and we are growing as a
small business. But we are a small business, and among other
things we do sell products that are returned by consumers. The
majority of our sales are through online channels such as
Amazon, eBay, Newegg, Walmart, and others. And we primarily
sell to consumers in the U.S.
Repurposing returned products that have historically ended
up in landfills is both economically and environmentally
responsible. Tradeport was founded in 2001. We currently
provide over 30 jobs today, and with our growth we anticipate
we are going to be adding many more new jobs in Dover. This
testimony is very timely for me personally because just two
weeks ago, I met with my CFO--the reason is so timely for me is
because just two weeks ago my CFO and I sat down for an entire
day and tried to understand the new tax requirements that
resulted from the Wayfair case. You know, granted, we are a
little bit behind the curve here, but we knew we had to get
going so we spent the day doing that. Our goal was simple.
We set out to understand the requirements first, then we
wanted to lay out a plan that would bring us into compliance if
we met the individual State threshold levels. Granted, we are
just starting. So far, my experience and feedback is that
things are very convoluted and cumbersome. In order to gain an
understanding of the requirements, we performed a thorough web
search to find resources that describe the State-by-State
requirements. What we found was that in addition to the State
requirements, we would also have to navigate many local
jurisdictions.
Once we felt that we had our arm somewhat around the
overall tax requirements, we then created our own sales tax
requirements document that describes the compliance rules to
the best of our ability. As I sit here today, I am not 100
percent confident that we have got it completely right. We then
created a computer program, internally into our computer, into
our company, and using our computer systems, we generated some
sales reports from 2018 to 2019. And we tried to determine what
our sales were on a State-by-State basis.
So, our thinking was that by comparing the requirements to
our sales reports, you would have a basic understanding of
where we have to, or where we have a State obligation. And what
we found was that there are about 12 States that we believe we
have an obligation. We still have not quite figured out the
local jurisdiction piece yet, and we are going to be continuing
to work on that. As I testified earlier, we mainly sell online
using these large channels such as Amazon, eBay, Newegg, and
others. We then researched what, if any, support the channels
provide to help small companies and sellers like us comply with
the tax requirements. What we discovered so far is that they
all do it a little bit differently. This really complicates the
task of collecting sales tax, registering in the States, and
file. We are hopeful that the sales channels would provide some
support and relief from our administrative burdens associated
with sales tax compliance rules.
Although our research is still very much a process, please
let me describe briefly what we found out while researching
channels. Amazon has a software tool that will calculate the
sales tax for the States and local jurisdictions for the States
that we tell them that we think we comply or that we meet the
thresholds for. Of course, Amazon charges a fee for that. It is
2.9 percent on the sales tax liability. Amazon will collect the
sales tax and provide us a report. Once we receive the report,
then we are responsible for registering and filing in each
State and local jurisdiction. eBay takes a slightly different
approach. They have a free software program that will collect,
register, and file in States on our behalf in 21 States. It
seems like we are on our own for the remaining States and we
have go to figure that all out.
Newegg is still like eBay in that they would collect,
register, and file for us but they only do that for 19 States.
Like eBay, Newegg's tool is free, but again, we are on our own
to comply with the States that Newegg does not address. As a
result, we at Tradeport have come to the conclusion that we
cannot do this ourselves. We are going to need some help. So,
we are in the process of obtaining quotes from third-party
companies that claim to have built integrations with the online
channels and that will help facilitate the sales tax compliance
requirements.
The purpose of my testimony today is to share with you the
experience that we have had and the frustration of the process.
We want to be in compliance, but as you can see from my
testimony, it will be both administratively and costly
burdensome. For a company like Tradeport with under $10 million
in sales, this is a significant drain on our resources. From a
personal standpoint.
I believe new laws that exempt small businesses would be a
huge help in maintaining a vibrant community of smaller and
online sellers that do not have all the necessary resources to
navigate the complex rules.
[The prepared statement of Mr. Moore follows:]
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Senator Shaheen. Thank you very much.
Ms. Byers.
STATEMENT OF AILIE BYERS, PRESIDENT, ALPENGLOW BENEFIT
AUCTIONS, NORTH CONWAY, NH
Ms. Byers. Senator Shaheen, thank you for inviting me to
testify today on the impact of the Wayfair decision here.
Senator Hassan, thank you for being here as well. My name is
Ailie Byers and I am the President of Alpenglow Benefits and
CFO of Scofield and Centennial Auctions. I also have a master's
degree in public administration. My family company was founded
40 years ago. We now service clients all over the United States
and we are based primarily in New Hampshire.
In 2018, I was elected to the National Auctioneers
Association Board of Directors, and in that capacity, I engaged
in weekly calls about the Wayfair decision and its impact on
our profession. The NAA has just under 4,000 members and
represents around 2,000 companies. Over 67 percent of our
members work with companies that have 4 or less full-time
employees, and about 92 percent have over 20 employees. Auction
professionals collectively facilitate commerce in America on a
massive scale, selling billions of dollars of assets each year.
Auctioneers have built their business models on a physical
presence rule pre-Wayfair. We now face an overwhelming tax
environment charged with financial burdens and legal
uncertainty. While large retailers may be able to meet the
burden of complying with multiple State and local taxing
systems, many auction companies do not have the resources to
absorb the costs of such compliance. Each auction is unique
unto itself in terms of the items we are selling, the number of
items we auction, the makeup of the buyers, as well as location
of the sale. We have learned that all of our options, be they
live, online, or simulcast, are all affected by this decision.
A significant difference for our industry versus retails at
large is that auction companies do not typically own the goods
we sell in auction. Instead, we are acting as agents of the
sellers, and an overwhelming majority of assets we sell are
non-consumables, so we do not have repeat buyers. We sell a
broad range of products, from pots and pans to large commercial
machinery. Auctions are open to the public so anyone from
anywhere can show up and register to bid at an auction. Since
the Wayfair decision, depending on definitions, about 42 States
have enacted legislation similar to South Dakota.
One of the hardest problems with compliance is the lack of
standardization, both the thresholds each State has established
as passible is not standardized. With customers across the
country, these new tax laws mean auction professionals face the
overwhelming task of determining the correct taxing authority
and the tax rate for each customer, as well as the proper
classification of each item in nearly 10,000 jurisdictions in
the United States. There is no national clearinghouse for this
information. Not only are States unaware of all the
jurisdiction exemptions within their State, there are also
State situations like Home Rule in Alaska, where the State
itself does not collect sales tax; however, municipalities
within inside the State do. These thresholds include economic,
marketplace, click through, and affiliate nexuses. They are all
unique, and with at least one State, Kansas, having a threshold
that is only one dollar for one transaction.
During the arguments of the case, ease of compliance
proffered. However, while basic versions of tax software may be
available for low monthly fees, substantial fees apply for
premium services. Additionally, the cost and staff time of
integrating software into existing systems, which can be
particularly challenging as all the items and prices vary
significantly from auction to auction with minimal overlap,
this even before any tax liability is factored in.
Lastly, the most troublesome is the retroactive tax
liability for prior sales that is now allowed in some places.
How one is supposed to go back to prior year buyers and collect
sales tax for those items is an interesting intellectual
exercise, but it is practically impossible. The argument for
the collection of sales taxes by remote sellers is usually
characterized as a means of fairness between small main street
shops and massive online companies. However, the financial,
logistical, and staffing requirements necessary to comply with
the myriad of taxing jurisdictions does just the opposite. Main
Street shops are the ones that cannot afford to meet these
requirements. If anything, an undo consequence of these
regulations is forcing small companies out of business. In
Kansas, there is a 50-year-old auction company that has four
full-time employees.
As of last month, they have crossed the threshold in three
States. They forecast that in 18 months they will be out of
business due to compliance issues and costs. At the Federal
level, the Senate Bill 2350, sponsored by Senator Shaheen, as
well as HR 1933 over in the House are bills designed to
mitigate the impact of the Wayfair decision on small businesses
as I have outlined. Finally, the number one misunderstanding of
the South Dakota v. Wayfair ruling is interstate versus online
commerce. It does not matter if you sell a product through e-
commerce in the internet or if an individual comes into your
store and buys the product and pays for it on-site, the final
destination of the items sold is determined as tax liability as
we have been informed by multiple State taxing agencies.
Therefore, it is not a matter of online merchants selling their
wares across State lines. Any product crosses the State lines
is classified as interstate commerce, and thus the seller is a
remote seller.
We in the auction world do not want to die a death by a
thousand cuts. We facilitate an open, transparent, and
competitive market where all have the ability to buy and sell.
The Wayfair decision is an existential threat to us. I would
like to thank you for the opportunity to testify today. I look
forward to responding to your questions.
[The prepared statement of Ms. Byers follows:]
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Senator Shaheen. Thank you very much, Ms. Byers.
Mr. Hennessey.
STATEMENT OF JOHN HENNESSEY, PRESIDENT, LITTLETON COIN COMPANY,
LITTLETON, NH
Mr. Hennessey. Senator Shaheen, Senator Hassan, thank you
for the opportunity to testify today. I am John Hennessey of
Littleton Coin Company. We are a small business of 275
employees located in Littleton, New Hampshire, which is our
only physical business location. We have been in operation
since 1945 when our founder Maynard Sundman started the
business after returning from service in the U.S. Army during
World War II.
Our mission is to bring the joy of coin collecting to as
many people as possible, and we serve coin collectors in all 50
States primarily through the mail. As a New Hampshire company,
we have never previously been subject to collect State and
local sales taxes, nor have we needed to implement any
administrative processes, software, computer systems, or in-
house expertise to do so. The June 2018 Supreme Court decision
requiring us to become the tax collector for up to 12,000 State
and local jurisdictions created an immediate and significant
risk to our business. Most concerning, the decision provided no
implementation period for us to become compliant, immediately
exposing us to up to $100,000 of tax liability per month with
no way to calculate and collect the taxes from our customers,
leaving us liable to pay the bill ourselves.
Our best-case scenario was to become compliant by January
2019, which was no small feat. Now, meeting this timeline meant
incurring significant costs to purchase software, hire outside
tax and legal experts, hire outside software developers, devote
our internal IT developers to changing our computer systems,
and focus our entire employee base to redesign our
administrative processes to understand, calculate, explain to
customers, and collect sales tax in all States and up to 12,000
total jurisdictions. To date, we have spent $275,000 to become
compliant to the best of our interpretation under each State's
laws by this January 2019 date.
Unfortunately, that time and money spent would have
otherwise been devoted to growing our business and maintaining
and creating jobs in New Hampshire. Even more significant costs
and risks to our business still exist going forward. The
biggest risk and potential costs loom as States begin to
attempt to collect retroactive taxes from us for periods prior
to January 2019. They start their audits of our sales and use
tax collection reporting, and even expand their reach to
additional taxes such as income tax. We are already beginning
to receive notices from the States, and every one of them
requires time for my staff and often a consultation with our
tax advisor and attorney, both at significant costs.
Worse further will be one, two, or three years from now
when each State begins sending us audit notices. We will be
subject to 45 separate annual State audits, and we cannot
estimate how many countless county and local audits as well.
Each one will take a lot of time and effort to document and
improve our compliance, and if there is a question as to
whether we have interpreted the law correctly, we will pay
significant legal costs to support our position. And if
unsuccessful, we are forced to foot the bill ourselves despite
our best efforts at understanding and complying with the laws.
I will provide one brief example of why this is such a
significant risk. There is the tax law on just one State for
just one of the coins that we sell. If the coin is legal
tender, it is not taxable. If it is not legal tender, then if
its value is determined by fluctuations in the gold bullion
market, it is not taxable. If its value is determined by its
rarity, it is taxable. In fact, the value of this coin is
determined by both and I must choose either one or the other.
Further, if the coin is taxable, and a customer purchases three
of them in separate transactions, they are taxable. If the
customer purchases those same three coins in a single
transaction, they are not taxable. However, if that customer
returns one of the coins, the remaining two then become taxable
again.
I sell thousands of products and I must attempt to
correctly apply the laws of 45 States and 12,000 jurisdictions
to every one of them. The Supreme Court left the door open for
Congress to act and we need Congress to level the playing
field.
One, we need a reasonable time period to have to become
compliant and be protected from retroactive taxation. Two, one
audit from one's home State, for example, will provide a
reasonable administrative burden. And three, limit the reach to
sales and use tax and not expose us to have to defend against
overreach into income and other State taxes. This new State tax
requirement is complex, distracting, and extremely costly. We
are doing our best effort to comply; however, without
reasonable simplification and protection, this will continue to
hurt our business and divert resources that would otherwise be
used to invest in our business and our employees.
Thank you for the opportunity to testify today. Look
forward to responding to any questions you have.
[The prepared statement of Mr. Hennessey follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Senator Shaheen. Thank you very much.
Mr. Badger.
STATEMENT OF SCOTT BADGER, CO-FOUNDER, LUPINE PET, CENTER
CONWAY, NH
Mr. Badger. Thank you, Senator Shaheen and Senator Hassan
for giving me this opportunity and thank you to the other
members of the committee. My name is Scott Badger. Lupine's
small business started in 1991 with 65 people. We do our own
production here in New Hampshire and most of our sales are to
retailers across the country. We also sell to consumers via our
own website and through Amazon primarily. Since the Wayfair
decision last year, we have spent literally hundreds of hours
researching to put in place the systems necessary to continue
our sales, both retail and wholesale and be tax compliant in
other States. Beyond the time we have invested, and we will now
continue to invest, financial costs will be in excess of
$20,000 a year just for the annual software fees.
Additionally, we will be paying the service company that we
use for every filing at $50 per filing 4 to 12 times per year
per State. In fact, in some States we will be paying more to
file than taxes collected. In fact, that happened last month in
two States. As problematic as the financial cost is, we found
the software companies seem to be as unprepared as anyone for
this Wayfair decision. After spending a couple months
researching developers and providers, it then took us five
months after signing on to one to get set up so that we could
start collecting sales tax. It took so long partly because the
company was swamped with new business prompted by the Wayfair
decision, but also because the conflicting answers and
information that we were getting from that company staff not
just about sales tax but even as to how their own systems work
because of the complexities of the landscape.
We realized that, with the exponential rise in online
shopping and most States' dependency on sales tax revenue,
taxing online sales is probably inevitable. But the problem is
that suddenly laws written for intrastate taxation are now
being applied to interstate taxation, and the resulting
compliance costs to any business are not only greatly out of
scale for the taxes collected, but also sound prohibitively
expensive for small businesses. So that online small business
development is not significantly restricted, at least two
things need to happen. First, requirement of interstate online
taxation should be paused, as was mentioned, for a reasonable
period while everyone, States, software companies, and
businesses, or online sellers have a reasonable opportunity to
prepare.
Second, interstate taxation needs to be made far less
complex and costly for online sellers to be compliant. There is
already an initiative called the streamline sales tax, SST,
where 24 States have joined, and it streamlines the rate
structure, registration process, and financing, and also pushes
the cost of collection services needed on to the States. It is
only fair that States wanting to collect sales tax on online
sales do so in a way, like with the SST program, that isn't an
undue burden or cost to online businesses.
In the end, online taxation should be simplified in ways
that allow businesses to take care of without the necessity of
costly software services, like it is for in-State regular
businesses. Fifty dollars probably is not a reasonable amount
for charges for a filing, but just as it seems crazy for us to
pay $50 to remit $39 in one State last month, and so it doesn't
make any sense for that State to pay $50 plus additional fees
to get $39.
There are two things that would allow businesses to handle
the collection of remittance on their own, a single rate per
State, not variable by county, burrow, district, side of the
street, etc. And common registration--final forms. If online
sales tax collection and remittance were simplified in these
ways, not only would small businesses benefit by not having to
incur the very burdensome costs, as have been described by
everyone here, in time and money to be compliant, but the
States could probably benefit as well by the increased
participation in online tax collection.
If though there is no change, online small business
development would be significantly restricted not just by the
cost itself, but also by the advantage the current scale of
sales tax compliance gives large retailers. Now I have one
particular story. We just started collecting sales tax in July.
And so, we did our first filing a couple weeks ago. And once
one State said thank you very much, what about June? And I get
to the retroactive thing.
And so, we paid $100 in sales tax, remitted $100 in sales
tax, to the State in July. June would probably be about the
same. Our provider kindly offered to do an expedited filing for
$750.
Thank you for this opportunity. I look forward to your
questions.
[The prepared statement of Mr. Badger follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Senator Shaheen. Thank you very much, Scott, and thank you
all. You have certainly pointed out the challenges that this
decision presents. I have to say there were numerous pieces of
legislation in Congress to try and impose legislatively what
the court has done, and unfortunately all of those were
defeated.
So, it is unfortunate that the court did not listen to some
of those debates in Congress. I think most of you have referred
to the challenges of compliance and the cost, but can I ask for
the entire panel whether you have got a total up-front cost of
compliance, whether you have broken that down by what you think
it will be annually, and have you figured in the hours that are
included as well, and do you have an overall estimate, each of
you, on what this is going to mean for your business? I will
ask you to go first.
Mr. Moore. Sure. Since we started recently, I have done a
back of the napkin calculation on that, and it looks like it is
going to represent 1 or 2 percent of sales.
Ms. Byers. For our personal coin business, coin auction, I
have not calculated that out because I usually do not have any
impressions since our sales rely on in-person sales happening
in-State. We would not fall under this auspice. Right now, it
is going to be most likely in the thousands of dollars but as
an option, we do not know what we are selling or when we are
selling it. That can change any given time because I can sell a
coin for $100,000. And I will go from not being inside the
threshold of any State to crossing the thresholds within a
matter of seconds, and not knowing at that time.
Senator Shaheen. And so, one of the things you pointed out
is that you are acting on behalf of a seller. Is it your
understanding that the seller also has to pay a tax on that
item or how does that break down?
Ms. Byers. No, the most guidance we have gotten from
different revenue agencies in different States has been that
since we are the agent just, we are the fiscal agent for the
seller, that it is our responsibility because we are the ones
actually producing the sale, so it would be under the auspices
of our companies. But since we don't own the product, our
margins are very small. So, a 2 percent mark, you know, percent
of what our sales are on a margin where we are billing three or
four, like that is why the company in Kansas has said, they hit
one more State threshold, or they maintain the current
thresholds and they cannot afford to maintain their position
and shut down.
Mr. Moore. If I could add to that, most of our business is
also on consignment and I asked the experts what they could
find on this and they said no, it is our obligation since we
are selling the product.
Senator Shaheen. And then you pass that along? I assume you
will try and pass that along to a subgroup that you are
representing because it will be difficult to absorb all of
those costs once and so that will have an impact on the
business going forward in that respect.
Mr. Moore. Yes, it would really change the business model.
Senator Shaheen. Yes. John, you were very good about
pointing at what your compliance costs have been to date. Will
that be an annual amount, or do you know?
Mr. Hennessey. Yes, the initial cost was $275,000. The
ongoing cost will be, or the known costs are friendlier
software costs, which will run around $20,000 per year. It is
the unknown costs that are most significant and anytime that we
find out we have not programmed our software correctly or new
States come online or new local jurisdictions, we will have to
spend significant money to either use internal resources or
hire outside expensive software consultants to come in and
tweak the software for us. And we know that we have gotten some
things wrong, we just do not know which things. So, it will
continue to be very expensive as well as just simply filing
costs. We pay $30 every time we file any monthly tax return.
Senator Shaheen. And can I ask, what tax jurisdiction had--
in the anecdote that you gave us about the challenges?
Mr. Hennessey. Yes. There are many very similar to that so
I would not pinpoint it to any one State. I had a whole book
full that I could have used, and I just chose that one.
Senator Shaheen. I just thought that would be really
helpful in terms of testimony on the floor of the Senate to
talk about the challenges that small businesses are facing. It
would be nice to go back to the Senators from that State to
talk about why that is so challenging.
Mr. Hennessey. Yes. I will be happy to share that with you.
Senator Shaheen. Good. And Scott, you talk about some of
the particulars that look at costs overall.
Mr. Badger. Yes, like John from $20,000 a year just for the
annual software fees. It is $20 for filing every time. Per
year, per State it is $400. And then, perhaps naively, but I am
hoping that once things settle out a bit at least, that we
maybe look at only 10 to 20 hours a month in-house work.
This is also not counting at all the retroactive liability
that we incur for compliance at time. And then, quite frankly
we cannot properly, completely be compliant. We are going to
have to subsidize some of the taxes ourselves, particularly
with Amazon because there just isn't a solution that overlaps
with the SST program that allows us to pass through the taxes
to Amazon collections in some States. So, we are going to have
to subsidize some of the taxation ourselves.
And a more general point is that through all of this, when
we asked the software companies for help or advice, they
purposely did not want to give us that kind of opinion. They
pointed us to tax professionals. We asked the tax professionals
and they said, well those software companies are the ones that
really the ones doing it, you should talk to them. There really
isn't anyone you can go to get all the answers.
Senator Shaheen. Thank you.
Senator Hassan.
Senator Hassan. Thank you. And again, thank you to all four
of you not only for being here but for very illuminating
testimony. I have one question that I wanted to direct to Mr.
Hennessey and Mr. Moore, and then another question to Ms. Byers
and Mr. Badger. We will cover the four people that way and then
get back to reassessing expenditure.
So, Mr. Hennessey, I wanted to start with following up on
the issue that I have heard from all of you about the
inadequacy of software options here. It is clear from your
testimony that even after having spent thousands of dollars on
compliance software, significant risks and costs still remain
for small businesses required to collect taxes for other
States. You mentioned that you are already receiving sales tax
collection notices from other States, which requires staff time
and consultation with tax professionals, as Mr. Badgers points
out.
Can you tell us more about the staff time and monetary
costs that you are incurring since these notices despite having
compliance software? I think that there is this assumption that
if you just get the software, right, it is going to take care
of it. And do you expect the cost to rise in the future years?
Just a little bit more following up on what Senator Shaheen
just asked.
Mr. Hennessey. Yes, Senator. The first offer that States
made was recently and each of them was offering their own
version of free software, and that would be far more expensive
than the software I am purchasing because of the implementation
complexities.
So, we chose one of the Nation's leading software packages
to calculate taxes for State and local use. And despite that,
with our specific products, they have unique State laws to
themselves and therefore this national tax software was not
equipped to handle the nuances in each State for our products.
Therefore, we had to hire experts to help us interpret each
State law and then program this national software package to
correctly calculate the tax to these places.
And much like Scott was saying, we know that there are some
things we just could not physically program correctly and we
have been footing the bill for some of the tax ourselves
because we could not properly charge our customers. So in
addition to that, when we receive the notices of the audits,
not only will we I am sure find things that they would
interpret us to have done incorrectly.
But it takes us a lot of time to gather the documentation
and confirm with our experts who are charging us expert rates
to give us advice to interpret these laws, which we have never
had to interpret in the past. So very difficult for me to
quantify a cost for those. I will be able to retrospectively
and unfortunately, but staff time internally is significant as
well, primarily when interacting with our customer base. They
are learning these texts for the first time related to our
product as well.
Senator Hassan. Thank you. And Mr. Moore, I would like to
go to a little bit of the same issue with you. I am really
looking at whether there is adequate existing software options
for relieving small businesses of the burden here that is the
tax collection burden.
In your testimony you discussed the support services
offered by various online sales tools for collecting sales
taxes. You make the important point that regardless of the help
of these services, you are still ultimately responsible for
accurately determining sales tax liability. It is another
example of the unfair burden that Wayfair has placed squarely
on the shoulders of small businesses.
So, can you tell us how Tradeport is managing all of that
uncertainty regarding whether you accurately determine the
right amount of sales tax to collect in so many different
jurisdictions?
Mr. Moore. So that is a great question. And when we did our
research on the channels to see what kind of support we were
going to get, I will use Amazon as an example, they made it
perfectly clear that even though they will provide all the
reports, they are not going to guarantee the accuracy of laws
and we are still ultimately responsible. They are there to--and
you pay them to use it, right. So, we are still very early in
the process.
When I went out into my network and started interviewing
some so-called experts, I was just so sticker shocked at some
of the fees because of course the first thing that they have to
come in and do is this whole assessment that was just a crazy
endeavor. I am fortunate enough to have one of my partners who
owns an accounting firm that specializes in small business tax.
Unfortunately, he does not have many clients that are online
sellers. So, he and his team have to spend hours and hours
doing the research to come up with the requirements document
that we spoke about.
Senator Hassan. So, I am taking from your comments that it
would be helpful if Congress could ensure that there was some
leniency for small businesses who are being forced to act as
tax collectors and doing their best in good faith but may not
get everything right?
Mr. Moore. Absolutely.
Senator Hassan. I have a question for both Ms. Byers and
Mr. Badger, and then turn back to Senator Shaheen. Ms. Byers,
in your testimony you point out that one of the hardest
problems with remote sales tax collection is the lack of
standardization across State tax laws.
States have different thresholds, we have heard that from
all of you, for whether small businesses have to collect sales
taxes as well as different standards for what is and is not
taxable, and there is not even a national clearinghouse for all
of this information.
If States had to meet a Federally developed minimum
threshold for accessibility or ease of filing in order to
collect from out-of-State sellers, would that reduce some of
the burdens imposed by Wayfair?
Ms. Byers. If there was standardization across all the
taxing jurisdictions, I think we would all agree with
definitely reduce overhead costs both in terms of what the
thresholds were to be crossed, and I think the other thing that
would be really important is getting everyone on board with
what is taxable was not. As Mr. Hennessey talked about, the
coins are a moving target, and as they talked about in the
case, you know, you get in situations in New Jersey where a
skein of yarn you buy, if it is going to be used for craft, it
is taxable, but if it is going to be used to make a sweater, it
is not. It would not be that surprising to most people as
someone selling it if I then ask you what you are going to use
this for.
Most people don't want to tell me what they are using it
for because it is none of my business. So, trying to comply
with a State saying well, you know, what is it being used for,
I am not the one using it. I am the one who sold it. So, I
think that is one of the problems with standardizations, not
only getting just 45 States to agree on what the threshold is,
but then all those 45 States all agree in like the Twix bars,
is it a candy bar or is it piece of food.
Those kinds of standardizations would be very helpful. It
would not alleviate the problem, but it would make it a lot
more manageable and reasonable.
Senator Hassan. Thank you. And Mr. Badger, I will just
follow up. You talked about the importance that streamlining
would have if States had to meet a Federal development
threshold for accessibility or ease of filing in order to
collect from out-of-State sellers. Would that reduce some of
the burdens that you are facing?
Mr. Badger. Certainly. And from my part, we agree if we
sell one product, then there is no question if it is taxed so I
do not think I face some of the complexities that are described
here. But, you know, as I said, really, I think what would make
all this work a lot better is to not require these types of
expensive services that are needed to be compliant.
A single rate per State, and it could be a different rate
for each State, but just one rate per State, and, you know,
similar filing and registration forms. And then we can take
care of it internally without the need for the services, and
that would certainly reduce costs and probably be less time on
our part than it will be using the services.
Senator Hassan. Thank you very much.
Senator Shaheen.
Senator Shaheen. Thank you. One of the things that I think
is admirable is the fact that each of you, as business owners,
is spending the time and money to try and fly with this new
position.
I have heard anecdotally, however, that there are a number
of small businesses that either do not know about the decision
or are not sure that they really need to comply, and I just
wondered if, without naming names, whether you have had any
conversations with any of your business colleagues who have
commented on compliance, and whether this is something that
they need to do, and whether you have heard that this is
something that businesses do not know about or they do not know
how to comply and they are not sure they are going to? It is
fair to say.
Mr. Moore. I can make a comment. Again, in our business
model, we have hundreds of customers that provide inventory to
us, and consign it, and then sell them on their behalf. And
there is a wide variety of types and sophistication, but
anecdotally, some of them absolutely want to understand and we
will do some of that research.
Then there are others that just said, you know what, it is
so complex, and rules seem to be changing so they are just
going to wait.
Ms. Byers. Yes, I would say that a majority of business
owners in this group I talk to are unaware of it, and also
because of the media constantly when they are referring to it
refer to it as an internet sales tax. I know in talking with
businesses in New Hampshire, since they do not sell on the
internet, they assume it does not apply to them, so they are
not going to worry about it. And then the ones that are aware
of it, I would say a fair amount just put their head in the
sand because it is impossible to comply with all of them, so we
are not going to bother about any of them.
Mr. Hennessey. Yes, I think what I have seen is that other
companies that are in States that have sales tax have to be
compliant for that State and can be a little further ahead of
the curve because it is just familiar territory, but I have
talked to a lot of businesses that are unaware or have said
that they are going to wait for the State to come to them. It
is probably not going to work out very well. Probably more so
not really getting on it.
Mr. Moore. From the few businesses I have talked to
throughout the country, the other three businesses here are far
ahead of the curve and still facing the complexities that they
have described. There are many businesses that I agree simply
are overwhelmed and do not know where to begin.
Senator Shaheen. Well, Ms. Byers, you pointed out the
auction house that anticipated they might be out of business if
they had to continue to comply. Have any of you considered any
decisions about the future of your businesses that will be
affected by this decision, or have you talked to any other
business owners who have seen this as an impediment to growing
their businesses? You are nodding your head.
Ms. Byers. For my personal company, last year my plan was
to radically increase the amount of sales we did, use the
internet to facilitate a lot more coin sales. And as soon as we
kind of got wind of the Wayfair decision or that the Supreme
Court was taking the case, knowing potentially what would
happen, I just had to pump the brakes on it and then once the
decision came down in June, I basically decided I am not
touching that business model and using that to increase us at
all because the compliance costs will override any benefit the
company would make so the potential that I was seeing to
potentially have some more employees and grow the business has
just been pushed down and kind of pushed aside.
And I know for other auction companies, they are modifying
their business plans moving forward and either are not growing
at the rate they were dissipating because they figured, as the
other gentleman talked about, that their 10 percent they had
kind of banked way to increase and put back into business, they
are now using for compliance or really what they are doing,
they are holding it aside for when that order comes and knocks
on the door because they know it is going to be nasty, but they
just do not know how nasty. So, we are not going to hire any
person to kind of grow the side of it, we are just going to put
that money aside and wait for the auditor.
Senator Shaheen. That is a sad commentary. Anybody else
have any----
Mr. Badger. Yes. I think the most aspiring new businesses
and who are not even aware of the decision, let alone aware of
the complexities and costs that they are facing. And certainly,
many warned that it would result in such change of their plans.
It may result in some changes in how we sell in Amazon.
One of the small things, is not big in terms of the dollars
for sales, but you know just for helping things out is that we
have a program where nonprofits can purchase our products and
because they are nonprofits, they do not have to pay sales tax.
Unfortunately, when we get the work from Amazon, there is no
indication that it was made by a nonprofit, and then we see
this taxed and we think, there is no tax on it and we think
there should be, then we can try to find your way into the
Amazon system.
If you have never tried that, I cannot tell you how
incredibly complex it is. But we would try to get into the
system and find the certificate that was filed with the order
that was then attached to the transaction, then we edit it in
the software to remove the tax that we at that point aligned.
Senator Shaheen. Mr. Hennessey, do you have anything----
Mr. Hennessey. Yes, I think more significant will be a
couple years from now when States come knocking on small
businesses doors who do not realize what they needed to be
doing to comply, or could not figure it out, and we will hear
some really sad story then.
Senator Shaheen. Let me just recognize two legislators who
have come into the room. Representative Almy and Representative
Meigs are here and I know that you have both worked, or trying
to, mitigate in the State legislature the impacts of the
Wayfair decision. So, thank you both for your efforts.
Clearly, we have a lot more work to do. I want to go back
to the conversation that a number of you have made
recommendations on and that is, what could be done to help
address this in a way that makes it easier for businesses? We
talked about standardization, we talked about some sort of a
pause on when the legislation becomes effective, a minimum
level of sales for businesses to exempt certain businesses.
Are there other recommendations that you all would have
that we should be thinking about in Washington as we think
about how do we take this court decision and make it work
better for small business?
Mr. Badger. One tax rate per State would be extremely
helpful, and also one audit nationally, or at the very least
one audit per State.
Senator Shaheen. Okay. One audit nationally is----
Mr. Badger. Would be really great. And just the
simplification overall, really. And again, the States will
benefit nothing, I don't think--the simpler it is, the more
businesses will comply, and to a point where we need to comply.
Senator Shaheen. Anything else?
Mr. Hennessey. You know, just standardization of
thresholds.
Senator Shaheen. Senator Hassan.
Senator Hassan. Well, thank you. And again, this has been
really helpful. I wanted to start this question with Ms. Byers,
but then ask everybody to comment. Ms. Byers, your testimony
rightly emphasizes that compliance burdens imposed by the
Wayfair decision are far more likely to hurt small businesses
than major companies, and this is going to impact businesses in
every State, including those with sales taxes.
And I think that is really important because there has been
a little bit of a focus on the few States that don't have sales
taxes, and everybody thinks we are just concerned because we do
not have sales taxes. But as your testimony makes clear, you
mentioned an auction company in Kansas, for example, that is
struggling with the sales tax collection burdens. And I know
you closely track these issues as chair of the sales tax task
force, which is a mouthful, for the National Auctioneers
Association. So, can you tell us how Wayfair is hurting small
businesses and States with sales taxes so that we can convey
this to our colleagues in the Senate as we continue to push
forward?
Ms. Byers. Sure. I would say there are 45 States that have
sales tax, and a majority of the members of the NAR in those
States, a few hang out here in New Hampshire. So, and I this
has been alluded to by the other gentleman is that we have that
first case where we actually had a person reach out to us and
tell us the actual numbers which is lovely too. It is nice to
have facts to respond, it is horrible to say going out of
business, but a lot of the auction companies they kind of all
feel it coming down the road, but we don't actually have cases
yet because the States have been very good about not sending
the auditors out.
There was a paper that came out saying that last year
Hawaii was going to start sending out the audit letters to
everyone and the rest of the State's revenue groups kind of
went to Hawaii and were like, don't, just hold the line,
because we're getting money coming in that we were not getting
before, and as soon as you remove the carrot and bring out the
stick, everyone is going to run to the edges. So, we know it is
coming down the pipe and there are companies that are not
feeling it, but it is hard because no one has actually gotten
the official letter shipment from the different States.
And the companies that are in compliance because they are
trying to find out about it, they are just still trying to wrap
their brains around it. Like, you know, we have spent $20,000
dollars this year. We think we are in compliance, but that
could change because the State legislators also are changing
their rules. You know, California is a good example that
everyone kind of worried about. You know, they have set three
thresholds over the course of three years that will change the
numbers.
Some States used to have higher thresholds and are lowering
them down because they want to get more income. So even if you
build a software program and it is perfectly acceptable, on any
given day and usually in the spring, those numbers are changing
or what is taxable is changing. So, you are kind of trying to
run ahead of a wave that you can never get out of the way of.
That is--we know it is coming but it is hard to kind of get
anyone to be like, you know, my seven-year-old company is going
to be gone in a year.
Senator Hassan. Right. Mr. Moore, what about you? Are you
hearing from other businesses and States that have sales taxes?
Mr. Moore. Yes. Our customers are all across the United
States to supply inventory and one of the challenges that they
have is that a lot of these are resellers or they are buying
product with someone else, and then they are reselling it and
then what we get are their returns. So, returns historically
and years ago were not that important but now it is really a
difference between profitability and how profitable you are as
a company. So, the recovery that we can get in repurposing
those products is really, really important to them. I know it
pass through 1 or 2 percent, and on really thin margins to
begin with, is huge.
Senator Hassan. Mr. Hennessey.
Mr. Hennessey. You know, an example would be a company
similar size in the Midwest that is in a taxable State and
being a taxable State with only one physical location simply
provides you that slate head start because you are collecting
in that one State, but you still must learn the remaining 44
States and local jurisdiction. So, it is just a small step in
the right direction. But it is just as daunting for companies
elsewhere.
Senator Hassan. Mr. Badger.
Mr. Badger. I do not really have much to add to that but a
couple points that have not come out. One is that the way
people purchase products, from when they purchase products,
they start to matter. They instead make it become determined by
who is charging taxes and who is not charging tax.
And so, for a small company, they actually enjoy some of an
advantage to the point where they need to start collecting tax
because they can offer product up to 10 percent less than a
company that is charging tax. And the other point that really
has not come up is that while this is the additional money is
going to States who collect tax, it is based on added taxation
of their own citizens. So, it is a new tax.
Senator Hassan. Thank you. I have one other topic to ask
about it. So and again I will start with Ms. Byers because it
seems to be that the other thing you mentioned in your
testimony that is a particularly difficult and perplexing issue
to deal with is that there are so many different kinds of the
so-called nexus requirements that States have passed following
the Wayfair decision, including economic marketplace, click
through, and affiliate nexus. All of you mentioned this at some
level, so starting with Ms. Byers, could you just give us an
overview of these different requirements and how the
complexities of determining nexus makes promoting a sales tax
collection so burdensome for small businesses?
Ms. Byers. Sure. So, the old rule of thumb that we had with
Quill was physical presence which basically meant the employee
and inventory--there was something physical in a State and that
was what everyone worked of which is very easy to conceptualize
something in the State. Economic nexus is the next most common
one most States are using and that is saying that they need to
have a certain number of transactions or a certain number of
sales, and we are usually using gross sales, to determine that
you have economic viability in that State and therefore you owe
money to that State for the sales part of it. We also have a
situation which is the economic plus nexus, which has to do
with cookies.
Massachusetts has in the legislature a cookie nexus, so if
any transaction between me and anybody else, for some reason
there was to be a cookie placed on any physical computer inside
the State of Massachusetts, even if I was selling from New
Hampshire to Maine, but the server went through Massachusetts,
technically in Massachusetts law, that is a cookie nexus and I
have therefore transactions on their State which is a little
hard to get your brain around. You have to track the digital
footprint for that.
And affiliate nexus has to do with having a business that
is tied to that State in some way. So maybe one of your major
supply partners is in that State so therefore you have an
affiliate nexus, which again, is not a direct correlation
between the customer and the buyer and seller has to do with
how the business models work. The click-through nexus has to do
with links on a website, again, kind of like the cookie nexus
but slightly different. So, if someone wanted to buy something
and they clicked through a site, then click through to another
site, to your site, since then clicked to those two initial
sites, those are nexus inside those other States where those
sites are being posted.
And then the marketplace facilitator law, which is kind of
the one that everyone heard about this year again with
California because there are so many businesses out there, is
the one that conceptualizes eBay. So, although I might be doing
sales inside New Hampshire to someone else in New Hampshire,
eBay as a facilitator of me selling it, they are going to kind
of keep track of what I am doing and how to do it. So again, a
gentleman selling a coin in Missouri to someone in California,
even though that transaction itself probably did not cross the
threshold, eBay as a company since it is going through the eBay
site is going to cross that threshold so they are going to
collect taxes on all those smaller transactions because the
State has said the facilitator, once you cross our thresholds,
you have to collect taxes on all those transactions.
So even though the seller is only doing $10,000, $5,000 in
business, eBay is doing 10 million in business, so they are
going to cross the threshold and then that contact makes click.
Senator Hassan. To say that business owners have to learn a
lot about a lot of different things is an understatement right
there, so thank you. Does anybody else have anything to add on
those issues?
Mr. Moore. I will just dive into it. I am with nexus,
because if within that, there is--the standard is a 100,000
sales, 200 transactions. Some States it is 4, some States is
10, and some States is retail only, some States is wholesales,
freights included in some States and in other States, etc. And
so even within that single component, there are layers and
layers of complexity.
Senator Hassan. Thank you.
Mr. Hennessey. That is what I was talking about, the
standardization and that should apply also. The only thing I
would also add that is another level of complexity is we are
selling on Amazon, geographic nexus gets complex because when
you add inventory into the FBA program, they can put it in any
one of their warehouses around the United States, and that
comes the nexus for you.
Senator Hassan. Thank you very much.
Senator Shaheen. Thank you. I just have a final couple of
things. Mr. Badger, you talked about the SST initiative. Do you
know who is heading that up? Is that something that----
Mr. Badger. There is an SST board. I believe it is made up
of all the States that are--just, there are several levels,
there are advisors, etc. As I said, it is sort of the right
start to things, but it really needs all States to be involved.
There are a couple of things about it though that really need
to be modified. One is that part of the program you have to
work with one of the certified compliance services.
It is a very short list and at least a couple we could not
use because of the software we use for our accounting, etc.
Ones that don't want any more SST clients because their filing
rate has been negotiated down. They would rather take on non-
SST and get more for filing. So, then one other last thing is
that through the SST program, those client service companies
are the ones liable for any audit, which in turn makes them
somewhat paranoid about what advice they give. But also, how
they handle things.
That is where we had a problem with Amazon SST because we
are working with a company that is not the company that does
the calculation for Amazon. So, our company does not trust that
company. Our company does their own calculation and we will
only remit that calculation even if it is less than or more
than what we charge the customer. If it is more than, that is
okay, we can just subsidized the difference. If it is less
than, then technically you should be sending out a refund check
to that customer. And at that point you collected taxes that
were not remitting. And yet the one paying is not a big deal.
All those checks are something of a big deal. Having all those
checks and never cashed is a huge deal.
Senator Shaheen. I am just trying to think about where else
there might be help in responding to the decision.
Mr. Badger. And I think SST, that is the right direction.
It just needs to be cleaned up a little bit. But really that is
the direction it needs to go in. And again, it needs to go
further to the point where those service providers aren't
necessary to the business to take care of things on their own
if they choose and right now, that is not possible.
Senator Shaheen. Can I ask the committee staff, is the
committee familiar with the SST initiative?
Mr. Wenthouse. Yes. We have been monitoring its progress.
Senator Shaheen. I would suggest that we ought to think
about bringing them in along with some of the other folks who
are working on compliance for a hearing, for a Small Business
hearing. I know we have got representatives from the chambers
who are here, and I assume that they are here partly to find
out how they can be helpful with questions that small
businesses may ask them. Are there any initiatives that you all
have been part of on the part of the Chambers of Commerce or
any associations that you are part of, obviously the Auctioneer
Association is one of those, who are trying to provide help to
small businesses and dealing with this decision?
Mr. Badger. I do not know if anybody out there. The closest
we can find is there is sort of this almost like a vending
machine type setup for legal advice where you go online, put in
your credit card, you are given a one-hour appointment, and
then you get some advice. Sort of--like five cent----
[Laughter.]
Senator Shaheen. Kind of like an 800 network.
Mr. Badger. Beyond that, you know, as I said, if we ask the
client service companies, they say they do not want to be
liable for that. Tax professionals, they say ask the software
company because they do not want to tax you for doing it. I do
not think there really is that type of resource out there.
Mr. Hennessey. We are historically a catalog mailer and
there is an organization called the American Catalog
Association that has done a considerable amount of work to help
small businesses like us understand and advocate for our
interests. So, they have been a very good resource for us.
Their assistance goes so far, and then when you get into more
products specific, business specific, we hire our own experts.
Senator Shaheen. Anybody else has had any luck with having
outreach?
Ms. Byers. Well our Association, obviously, has been
entirely involved. We actually filed an amicus brief on behalf
of Wayfair kind of to make the point of small businesses, and
then also in the coining world, there is the Industry Council
on Tangible Assets, which has done some work. Being that they
are focused solely on coins, they are usually doing work at the
State level in terms of making the exemptions for bullion, the
exemptions for collector coins that is very specific to asset
class.
Besides that, most chambers I have interacted with either
are unaware or just, you know, they think that they only can
control potentially what is in their jurisdiction in their
State. They are working inside their State, but after that it
is going to the Federal Government to talk to them, welcome
that lobbying in you guys' part.
Senator Shaheen. I also have no further questions, so can I
just ask the panelists if there is anything else that any of
you would like to raise before we close the hearing?
Mr. Moore. I don't have any questions. I just really
appreciate your efforts in this area.
Mr. Hennessey. Yes, absolutely. Thank you for having the
hearing.
Senator Shaheen. Thank you all very much. I am hopeful that
as Congress learns more about the challenges that small
businesses are facing, there will be more opportunity to pass
some legislation spun in a way that could be really helpful.
Mr. Badger. And pushing that is really all small
businesses, not just in taxed States.
Senator Hassan. That is right. And I think that is one of
the tasks in front of us is to engage Senators and tell them
that this really does impact their State, you know. And
certainly, one of the tasks that I have on the Finance
committee, so we will continue to work on that.
Senator Shaheen. Well, again, thank you all so much for
being here. To everyone in the audience, thank you all very
much. Anyone who would like to submit written testimony, we
have two weeks. So, two weeks from today, we can accept written
testimony. And we would appreciate any comments that any of you
have.
Thank you all. I will close this hearing at this point
officially.
[Whereupon, at 3:48 p.m., the hearing was adjourned.]
[all]