[Senate Hearing 117-454]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 117-454

                        EXAMINING THE IMPACT OF
                        SOUTH DAKOTA V. WAYFAIR
                          ON SMALL BUSINESSES
                            AND REMOTE SALES

=======================================================================

                                HEARING

                               BEFORE THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 14, 2022

                               __________

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


            Printed for the use of the Committee on Finance

                               __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
55-648-PDF                  WASHINGTON : 2024                    
          
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                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

DEBBIE STABENOW, Michigan            MIKE CRAPO, Idaho
MARIA CANTWELL, Washington           CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey          JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware           JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland         RICHARD BURR, North Carolina
SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania   TIM SCOTT, South Carolina
MARK R. WARNER, Virginia             BILL CASSIDY, Louisiana
SHELDON WHITEHOUSE, Rhode Island     JAMES LANKFORD, Oklahoma
MAGGIE HASSAN, New Hampshire         STEVE DAINES, Montana
CATHERINE CORTEZ MASTO, Nevada       TODD YOUNG, Indiana
ELIZABETH WARREN, Massachusetts      BEN SASSE, Nebraska
                                     JOHN BARRASSO, Wyoming

                    Joshua Sheinkman, Staff Director

                Gregg Richard, Republican Staff Director

                                  (II)
                            
                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee 
  on Finance.....................................................     1
Crapo, Hon. Mike, a U.S. Senator from Idaho......................     2
Hassan, Hon. Maggie, a U.S. Senator from New Hampshire...........     4
Daines, Hon. Steve, a U.S. Senator from Montana..................     4

                               WITNESSES

McTigue, James R., Jr., Director, Tax Policy and Administration, 
  Government Accountability Office, Washington, DC...............     5
Hennessey, John E., president and CEO, Littleton Coin Company, 
  Inc., Littleton, NH............................................     7
Huie, Michelle, founder and CEO, VIM & VIGR Compression Legwear, 
  Missoula, MT...................................................     9
Johnson, Craig, executive director, Streamlined Sales Tax 
  Governing Board, Inc., Westby, WI..............................    10
Yetter, Diane L., president and founder, Sales Tax Institute, 
  Chicago, IL....................................................    12

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Crapo, Hon. Mike:
    Opening statement............................................     2
    Prepared statement...........................................    33
Daines, Hon. Steve:
    Opening statement............................................     4
Hassan, Hon. Maggie:
    Opening statement............................................     4
Hennessey, John E.:
    Testimony....................................................     7
    Prepared statement...........................................    34
Huie, Michelle:
    Testimony....................................................     9
    Prepared statement...........................................    37
Johnson, Craig:
    Testimony....................................................    10
    Prepared statement...........................................    38
    Responses to questions from committee members................    45
McTigue, James R., Jr.:
    Testimony....................................................     5
    Prepared statement...........................................    48
    Responses to questions from committee members................    60
Wyden, Hon. Ron:
    Opening statement............................................     1
    Prepared statement...........................................    61
Yetter, Diane L.:
    Testimony....................................................    12
    Prepared statement...........................................    62
    Responses to questions from committee members................    77

                             Communications

American Catalog Mailers Association.............................    79
American Institute of CPAs.......................................    85
Aqua Design......................................................    90
Center for Fiscal Equity.........................................    93
Erin, Meredith...................................................    95
Expedia Group....................................................    97
Fair Access to Interstate Remedies (FAIR) Coalition..............    98
Halstead Bead Inc................................................   101
National Taxpayers Union Foundation..............................   109
Rio Grande Inc...................................................   114
Spirit Pieces LLC................................................   115
Strybuc Industries...............................................   116

 
                        EXAMINING THE IMPACT OF
                        SOUTH DAKOTA V. WAYFAIR
                  ON SMALL BUSINESSES AND REMOTE SALES

                              ----------                              


                         TUESDAY, JUNE 14, 2022

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10 a.m., 
in Room SD-215, Dirksen Senate Office Building, Hon. Ron Wyden 
(chairman of the committee) presiding.
    Present: Senators Carper, Cardin, Hassan, Cortez Masto, 
Crapo, Grassley, Cornyn, Thune, Portman, Cassidy, Daines, and 
Young.
    Also present: Democratic staff: Grace Enda, Tax Policy 
Analyst; Rachael Kauss, Senior Tax Policy Advisor; and Tiffany 
Smith, Chief Tax Counsel. Republican staff: Lincoln Foran, 
Policy Advisor; Michael Quickel, Policy Director; Gregg 
Richard, Staff Director; and Jeffrey Wrase, Deputy Staff 
Director and Chief Economist.

   OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM 
             OREGON, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The Finance Committee will come to order. 
This morning the Finance Committee meets to discuss a major 
source of headaches and costs for small businesses across 
America--online sales taxes. Running a small business has 
always been a very big lift. These days the impact of inflation 
obviously makes it vastly more challenging.
    Small businesses are also dealing with the impact of the 
2018 Supreme Court ruling in the case South Dakota v. Wayfair. 
In the Wayfair decision, as it's known, the Court gave States a 
green light to force small businesses into becoming tax 
collectors when they sell online--collecting taxes for States 
even where businesses had no brick-and-mortar presence.
    Small businesses had never been responsible for this kind 
of tax collection before. Almost immediately after the ruling 
came out, States across the country began passing these tax 
collection laws. Small businesses in my home State of Oregon, 
which does not have a sales tax, were among the first to speak 
out about the costs and complexities they were facing for the 
first time.
    Speaking out alongside them were those in New Hampshire and 
Montana, also States without sales taxes. That's why Senator 
Hassan has been a leader on this issue, as well as Montana's 
Senator Daines.
    But it is not just a burden in States without sales taxes. 
It is a burden for small businesses everywhere. Let me repeat 
that: a burden for small businesses everywhere. Sales taxes in 
America are very complicated. Forty-five States and hundreds of 
localities have different laws for sales taxes; different tax 
rates; different regulations for who collects taxes; different 
rules and definitions for taxable products.
    Get this, folks: in Illinois, you will pay sales tax on a 
Snickers bar but not on a Twix. If you take up sewing in New 
Jersey, you are not going to be able to do your sewing, Senator 
Daines, without a hell of a lot of confusion. Yarn purchased 
for art projects will get taxed, but yarn for sweaters, that is 
tax-free.
    After the Wayfair decision, small businesses are on the 
hook for managing that complex web of laws. They are 
essentially forced into buying costly software and hiring 
consultants to get it all straight. My view is that as long as 
the Wayfair ruling stands, the Congress ought to step in and 
get some concrete, actual relief to these small businesses that 
are really hurting.
    That ought to start with exempting small businesses that 
have revenue under a certain threshold. Congress ought to 
create clear standardized rules that lay out what States can 
require of small businesses outside their borders. That is what 
Senator Hassan, Senator Shaheen, Senator Murphy, and I sought 
to accomplish when we introduced the Online Sales Simplicity 
and Small Business Relief Act.
    If Congress fails, it is my belief that you are going to 
see increasing numbers of Oregon small businesses chased and 
hassled by authorities from Texas, Florida, or California over 
tax liabilities that they cannot effectively dispute. This is a 
conflict that the Congress ought to help prevent. Otherwise, my 
view is, you are going to find that Oregon and other States 
will not be particularly interested in helping these actions 
against our residents move forward.
    The bottom line is that small businesses have plenty of 
challenges today just trying to keep their doors open. The 
family-owned furniture makers, tool and die shops, clothing 
boutiques, they should not be forced into spending big on sales 
tax consultants and software.
    This committee has a bipartisan interest in helping small 
businesses get ahead. This is an opportunity for us to lower 
the costs of small businesses and reduce their headaches.
    Again, I want to thank Senator Hassan for her leadership. 
She has discussed this issue with me many, many times, as has 
Senator Daines.
    And I want to thank our witnesses for joining the committee 
today. I look forward to our question and answer period.
    Senator Crapo?
    [The prepared statement of Chairman Wyden appears in the 
appendix.]

             OPENING STATEMENT OF HON. MIKE CRAPO, 
                   A U.S. SENATOR FROM IDAHO

    Senator Crapo. Thank you, Mr. Chairman, and welcome to our 
witnesses. Thank you for being with us today.
    The Supreme Court's 2018 Wayfair decision significantly 
changed the sales tax landscape for States and online 
businesses. Post-Wayfair, States can require online sellers to 
collect and remit sales taxes from residents of sales tax 
States.
    The decision highlights the challenges for both the public 
and private sectors to evolve with the rapid growth of e-
commerce. The share of commerce conducted online has grown 
dramatically in recent decades due to technological innovation.
    The COVID-19 pandemic and the resulting disruptions to 
normal life have further fueled its growth. The Internet has 
been a boon to both buyers and sellers. Sellers have gained 
access to new markets, while buyers are no longer limited to 
brick-and-mortar retailers in their vicinity.
    However, as Wayfair acknowledges, the growth of e-commerce 
puts traditional mechanisms for collecting sales tax at risk. 
The Government Accountability Office reported in 2017 that 
State Governments were losing out on billions of dollars of 
sales tax revenue as a result of online sales in the pre-
Wayfair environment.
    Many States and municipalities rely on sales tax revenues 
to fund essential services. In fact, 45 States and the District 
of Columbia impose taxes on remote sales that exceed economic 
nexus thresholds.
    The Tax Foundation notes that in 32 States, these sales 
taxes account for more than one-fifth of total State and local 
tax collections. In 11 States, general sales taxes account for 
more than one-third of total State and local tax collections.
    By giving States the ability to collect sales tax from 
residents even when a sale occurs remotely, Wayfair attempted 
to address the disparate treatment of brick-and-mortar stores 
and online sellers. Notably, it does not result in sales tax 
being imposed on residents of non-sales tax States.
    However, in light of States' expanded rights and sellers' 
access to new markets, online businesses, and small businesses 
in particular, face new responsibilities and challenges.
    The different standards and thresholds between States and 
localities can create a burdensome and complex system that 
makes compliance difficult for small businesses. Sellers now 
must either learn to comply with the rules of myriad tax 
jurisdictions where their customers reside, or hire specialized 
advisors.
    This compliance can be time-consuming and expensive, 
especially for small businesses and for merchants in States 
that do not levy sales taxes, but that must collect and remit 
sales taxes to other jurisdictions. While States and multistate 
organizations have taken important steps to attempt to ease 
these burdens, a comprehensive solution to this problem remains 
evasive. The right of States to levy taxes, and empower their 
municipalities to do the same, is well-founded on the principle 
of State sovereignty.
    On the other hand, as stated in Wayfair, ``States may not 
impose undue burdens on interstate commerce.'' Accordingly, a 
balance must be struck between ensuring States can collect 
sales taxes due and ensuring that business activity is not 
stifled, particularly as the risk of recession rises.
    Businesses should be able to determine the taxes that are 
due, collect them, and remit them to the relevant authorities 
with minimal headache and expense. A sales tax system with more 
consistent thresholds and standards would allow businesses to 
more efficiently comply, and provide tax certainty, reducing 
the risk of future audits and penalties.
    Our witnesses will share their important perspectives, 
including on the challenges small businesses are facing and how 
tax advisors are approaching the post-Wayfair landscape.
    I look forward to hearing what steps can be taken to ease 
the burdens facing small businesses, and how States, multistate 
organizations, and even Congress may have a role in creating a 
more efficient and less burdensome approach.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Crapo appears in the 
appendix.]
    The Chairman. Thank you, Senator Crapo.
    The first witness will be James McTigue. Mr. McTigue 
oversees GAO's audit of IRS on a range of issues relating to 
tax administration and tax policy, including State sales taxes. 
He first joined GAO in 1991, and we have appreciated working 
with him in the past.
    The second witness is John Hennessey, and I would like to 
recognize our colleague, Senator Hassan, to introduce him.

           OPENING STATEMENT OF HON. MAGGIE HASSAN, 
               A U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Hassan. Well, thank you, Mr. Chairman, Ranking 
Member Crapo, for holding the hearing today, and I would like 
to welcome a Granite Stater who is with us today to testify 
about the impact of the Supreme Court's Wayfair decision on 
small business.
    John Hennessey is the CEO of Littleton Coin Company, which 
has been in Littleton, NH since 1945. Littleton Coin is a 
retailer of collector coins. It sells into all 50 States.
    The company employs 275 people in the community, and is 
100-
percent employee-owned through an employee stock ownership 
plan.
    John has been with the company for 15 years and, as we will 
see from his testimony, has seen firsthand the significant 
burdens that out-of-State governments have imposed on small 
businesses following the Wayfair decision.
    John, I would like to thank you for being here, and I look 
forward to hearing from you today.
    The Chairman. Thank you, Senator Hassan.
    The third witness is Michelle Huie, and I would like to 
recognize Senator Daines to introduce her.

            OPENING STATEMENT OF HON. STEVE DAINES, 
                  A U.S. SENATOR FROM MONTANA

    Senator Daines. Chairman Wyden, Ranking Member Crapo, thank 
you. It is my distinct honor to introduce Michelle Huie, who is 
the founder and CEO of VIM & VIGR Compression Legwear based in 
Missoula, MT.
    Ms. Huie spent over 15 years in the pharmaceutical industry 
before she founded VIM & VIGR in 2013. In 2018, VIM & VIGR was 
named one of the fastest-growing private companies by Inc. 5000 
and has sold over 750,000 pairs of compression socks globally.
    She is currently working on a new venture called ShopDot, a 
platform that enables independent retailers to partner directly 
with brand suppliers to scale their e-commerce business. She 
earned a B.A. in economics from the University of Chicago and 
an M.B.A. from the Kellogg Northwestern School of Management.
    Ms. Huie, we are proud to have you here. Thanks for being 
here. I know we all very much look forward to your testimony.
    The Chairman. Thank you, Senator Daines.
    Our fourth witness is Craig Johnson. Mr. Johnson has been 
an executive director of the Streamlined Sales Tax Governing 
Board since January of 2013. In this position, Mr. Johnson is 
the chief operating officer for an organization currently made 
up of 24 different State Governments. Mr. Johnson has been 
involved with the Streamlined Sales Tax project since 2006.
    Our fifth witness will be Ms. Diane Yetter. She is 
president of Yetter Tax, a sales tax consulting and tax 
technology firm. She is also the founder of the Sales Tax 
Institute, which offers live and online courses to educate 
business professionals about sales and use taxes. Prior to 
founding the company in 1996, Diane was a tax professional for 
Arthur Andersen, Quaker Oats, and the Kansas Department of 
Revenue.
    Our witnesses obviously have very significant experience in 
sales tax policy. We are very glad they are here.
    Mr. McTigue, it is your turn to start us off. I would like 
each witness to take 5 minutes or so. We will put your prepared 
remarks in their entirety in our congressional transcript, and 
go ahead, Mr. McTigue.

 STATEMENT OF JAMES R. McTIGUE, JR., DIRECTOR, TAX POLICY AND 
 ADMINISTRATION, GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, 
                               DC

    Mr. McTigue. Chairman Wyden, Ranking Member Crapo, and 
members of the committee, thank you for the opportunity to 
discuss GAO's work on remote sales tax collection, including 
States' and businesses' experiences.
    Sales taxes are an important source of revenue for States, 
accounting for about one-third of all State tax revenue. Forty-
five States and the District of Columbia have a statewide sales 
tax.
    Following the Supreme Court's decision in South Dakota v. 
Wayfair, States moved quickly to put in place legal 
requirements for remote sellers. Our current work has confirmed 
that all 45 of these States and the District have adopted 
requirements governing sales tax collection by remote sellers 
based on economic nexus, such as the amount of sales into a 
State.
    However, these requirements vary in numerous aspects, 
including effective dates, exemptions for smaller businesses, 
whether certain categories of products are taxable, and whether 
local taxes apply. These variations add to the compliance 
burden for businesses.
    For example, businesses have to keep track of effective 
dates for collection and remittance requirements that vary 
considerably, ranging from the day Wayfair was decided, to 
future dates as far out as January 1, 2023. In fact, more than 
a dozen States had adopted requirements in the months leading 
up to the Court's decision, and these laws went into effect 
immediately or soon after.
    Another variation that businesses needed to and still 
contend with is that States have established different dollar 
and transaction thresholds that exempt many small businesses 
from remote sales tax requirements. Significant differences 
also exist in the type of sales that are included in threshold 
calculations, as well as reporting frequency and periods.
    Local sales taxes add an additional layer of complexity. Of 
the 45 States with a statewide sales tax, 37 also have local 
sales taxes. And while Alaska does not have a statewide sales 
tax, it has local taxes. In some States, only certain 
jurisdictions may impose a sales tax, while in others a broad 
range of jurisdictions such as counties, municipalities, and 
various local authorities can impose a sales tax. It is 
estimated that about 30,000 jurisdictions have the authority to 
impose sales taxes, and that between 10,000 and 12,000 actually 
do so.
    In 2017, we estimated that, if given expanded authority, 
States could gain an average of about $200 million annually in 
revenue, with larger States getting more than a billion dollars 
annually. This spring, GAO surveyed revenue departments of all 
45 sales tax States and the District of Columbia.
    We asked respondents to provide the amount of revenue 
attributable to remote sellers with economic nexus. Thirty 
States reported remote sales tax collections totaling about $23 
billion for 2021, of which 20 States reported collections from 
marketplace facilitators of about $9.5 billion, representing 
about 41 percent of collections under the new laws.
    In our prior work, GAO identified three categories of costs 
that businesses encounter with remote sales tax collection. 
These are software-related costs, audit and assessment costs, 
and costs associated with research and liability. In our 
ongoing work, businesses confirmed that they incurred costs in 
each of these areas.
    Regarding the first category--software-related costs--
businesses told us that purchasing or developing software is 
essential for navigating the legal complexities of multistate 
tax collection. Businesses use software to track the amount of 
sales into a State, map merchandise to product categories, 
apply tax rates, collect and remit taxes, and manage exemption 
certificates. Businesses know that available software is not 
perfect, but they as the sellers are generally liable for any 
errors.
    Regarding the second category--audit and assessment costs--
businesses confirm that State-level sales tax audits are taking 
place, and that they have spent substantial resources 
responding to these audits. As we noted in our earlier work, 
State revenue departments have many low-cost enforcement tools 
such as compliance letters and informational questionnaires 
that create burden for businesses, especially those selling 
into multiple States.
    Lastly, regarding the third category--research and 
liability costs--businesses have stated that they incur 
considerable costs to stay current with legal requirements 
across multiple jurisdictions, but are still exposed to risks 
including liability for past sales.
    In summary, today's remote sales tax laws have resulted in 
more revenue to States and localities, but at a cost to 
businesses. GAO will expand on these issues as we complete our 
ongoing review to inform the committee's deliberations.
    Mr. Chairman, this concludes my prepared statement, and I 
look forward to answering any questions the committee may have.
    [The prepared statement of Mr. McTigue appears in the 
appendix.]
    The Chairman. Thanks very much, Mr. McTigue.
    Ms. Huie?
    Ms. Huie. Good morning, Senate Finance Committee----
    The Chairman. Excuse me. I misread. Our second witness will 
be Mr. Hennessey, followed by Ms. Huie. Excuse me.

 STATEMENT OF JOHN E. HENNESSEY, PRESIDENT AND CEO, LITTLETON 
               COIN COMPANY, INC., LITTLETON, NH

    Mr. Hennessey. Chairman Wyden, Ranking Member Crapo, 
Senator Hassan--my home State Senator--and members of the 
committee, thank you for the opportunity to speak with you 
about this matter of great importance to small businesses.
    Littleton Coin Company's mission is to bring the joy of 
coin collecting to as many Americans as possible. We serve 
collectors in all 50 States by mail order, directly to their 
homes from our single physical location in New Hampshire.
    Prior to the Wayfair ruling, we had never been subject to 
collecting State and local sales taxes. The ruling immediately 
required us to become the tax collector for up to 12,000 
different State and local jurisdictions, with no way to 
calculate and collect the taxes from our customers, leaving us 
liable to pay the bill ourselves.
    We rushed to become compliant, incurring costs totaling 
$225,000 to purchase software, hire outside tax and legal 
experts, pay third-party software developers, and devote our 
internal IT team to rewriting our computer systems.
    We became compliant to the best of our interpretation of 
each State's laws by January 1st of 2019. Even after getting up 
and running, we continue to spend $50,000 per year in third-
party costs for software licensing, registration fees, tax 
filing, accounting services, and legal advice.
    On top of that, we spend hundreds of hours of our own 
finance, IT, and customer service time annually to remain in 
compliance. In addition, we are now subject to a laundry list 
of non-sales taxes in many States, including franchise 
business, commercial activity, and business and occupation 
taxes. These taxes we pay out of our own pocket, totaling 
$40,000 per year. In total, we have paid over half a million 
dollars in company funds since 2018 to comply with the taxation 
requirements imposed on us by States as a result of the Wayfair 
ruling.
    Regarding needed simplification, we have registered, 
regularly filed, and paid tax to 45 States, and owe tax to over 
1,500 individual jurisdictions with individual tax rates. We 
sell over 10,000 different products, and each State has its own 
laws for product classification and exemptions.
    While we have purchased and customized a commercial 
software package to assist us, the sheer complexity is a risk 
to our business. Just last month, a routine software update 
caused an error taking us 100 hours to resolve and $5,000 of 
expense that we are unable to collect from the customers and 
nonetheless owe to States. Despite tools like software, the 
volume of requirements, changes, and legal updates is 
overwhelming.
    Regarding needed protection from State reach beyond sales 
taxes, just last month we experienced what we believe is the 
tip of the iceberg of States reaching beyond sales taxes into 
an unlimited number of new taxes and fees.
    The State of California sent us notice demanding we pay 
income tax, based on doing business in California, despite 
having no physical presence and Federal law specifically 
protecting us from this liability. Despite our strong belief we 
have no legal obligation, we must now incur time and legal fees 
to defend ourselves. If we are forced to go to court, legal 
fees alone will likely exceed $100,000.
    A second example: another State announced a new 27-cent 
retail delivery fee on any remote retail sale delivered to a 
customer in its State. We must now rewrite our computer systems 
and understand a full new administrative process. Until we can 
divert resources to complete the work, we will bear the burden 
of this tax of $5,000 a year. If this State is permitted to 
impose this fee, what other new fees and taxes could be coming 
from other States in the future?
    Regarding retroactive taxation, we have received notices 
demanding payment for periods as far back as 2018. Since we are 
not able to collect tax from customers for these historical 
periods, we are forced to pay the bill ourselves. Whether we 
agree or not, the legal cost to defend against these demands 
simply exceeds the tax liability. And as a result, we have 
settled with three States totaling $140,000.
    Regarding State and local audits, going forward we are 
subject to 45 separate annual State audits and countless county 
and local audits. Each one will take time to prepare documents 
in support of our compliance. If there is a question as to 
whether we have interpreted law correctly, we will have to pay 
significant legal costs to support our position. If we are 
unable to, we will be forced to foot the bill ourselves.
    In conclusion, 4 years after the Wayfair ruling, State and 
local tax landscapes for remote sellers continue to be overly 
complex, expensive, and burdensome. And the future outlook is 
even more troubling.
    The Supreme Court left the door open for Congress to act, 
and we need Congress to level the playing field and help small 
businesses collect these taxes while continuing to operate and 
grow our businesses. We need your help, and I urge you to find 
a bipartisan solution to this issue as quickly as possible.
    Thank you for the opportunity to testify today. I look 
forward to responding to any questions you may have.
    [The prepared statement of Mr. Hennessey appears in the 
appendix.]
    The Chairman. Thank you, Mr. Hennessey.
    Ms. Huie?

    STATEMENT OF MICHELLE HUIE, FOUNDER AND CEO, VIM & VIGR 
               COMPRESSION LEGWEAR, MISSOULA, MT

    Ms. Huie. Good morning, Senate Finance Committee. Thank you 
for the opportunity for me to share my experience and journey 
with sales tax compliance.
    I founded VIM & VIGR in 2013, mainly through a personal 
need. I need to wear compression socks, but nothing reflected 
my personal style, and they were all extremely uncomfortable. I 
was determined to solve this problem and bring everyday 
wellness to more people.
    A few years after launching my company, I quit my corporate 
job and went 100-percent to building and growing VIM & VIGR. 
Any business owner can tell you the journey of entrepreneurship 
is not linear. It is met with many ups and even more downs, 
from looming recessions, impact of COVID on my staff and 
business, supply chain and managing cash flow--and over the 
past 4 years, trying to understand and comply with sales tax 
regulations.
    I became aware of the Supreme Court decision over the South 
Dakota v. Wayfair case from my accountant. I read through the 
ruling and quickly understood the impact this would have on my 
business, and thousands of e-commerce sellers. But I live in a 
State without sales tax. Most of my revenue comes from outside 
the State of Montana.
    I started to look into what I needed to do to comply with 
these new regulations. And the more I learned, the less I knew, 
and the more complicated it all became. There are several 
challenges that make determining, collecting, and remitting 
sales tax extremely difficult.
    For starters, there are varying threshold criteria per 
State, all with different threshold limits. The criteria range 
from revenue, transaction volume, storage of physical product--
including Amazon warehouses--to other more nuanced criteria 
like how a product is used. What makes things even more 
complicated is that all States have varying sales tax rates, 
and many States do not have just one, they have hundreds that 
vary per jurisdiction. You can imagine that this all became 
overwhelming. I did not start my business to be a sales tax 
expert, but I wanted to be compliant, so I looked for a 
consultant with deep expertise in sales tax to help with this 
process.
    They determined that I was at nexus for 22 States, which 
was a surprise because at the time, most of my revenue came 
from wholesale and resellers, and e-commerce only accounted for 
30 percent of my business. I was triggering nexus for these 
States based on my gross receipts even though e-commerce only 
accounted for a small percentage of that.
    From there, the administrative costs and time continued. I 
then had to register with the Department of Revenue for each of 
those States, which is no small feat. I started to collect 
sales tax from customers purchasing product in those States and 
began remitting payment to each State at varying time intervals 
because the States had different filing schedules. And this is 
what I've been doing for several years.
    In total, I spend close to $50,000 in out-of-pocket 
technology cost and labor to comply with sales tax legislation. 
I know many e-
commerce business owners, and I am part of a forum of thousands 
of e-commerce sellers. We want to be compliant and pay our 
taxes accordingly. But the current conditions make it 
excessively complicated and add major costs and administrative 
burden as well as fear that we're not doing something 
correctly. I know of businesses that have had to close because 
the administrative complexities and costs were just too much 
for some business owners.
    I am not here to challenge the payment of sales tax. It is 
a major revenue stream for States, and the shift to online 
commerce has changed the dynamics that do not work for 
preexisting regulations. I am here to ask to simplify the 
process for e-commerce businesses.
    There are a few things that can be done to make it easier 
for e-commerce sellers. The first is to create some uniformity 
around the criteria used to calculate sales tax nexus. This 
will make things much more transparent for businesses.
    The second is for States to provide one sales tax rate for 
e-
commerce sales. This will make calculating sales tax amounts 
much easier and can help reduce the reliance on expensive 
technology. For example, one particular State has hundreds of 
sales tax rates and recently allowed sellers to use one 
averaged sales tax rate when calculating the remittance amount.
    The third is to create a centralized clearinghouse for 
registering and paying sales tax. It will save businesses and 
States a lot of time. You may hear people say that there are 
technology platforms that help with this. That is a costly 
band-aid for a problem that will continue to grow. These 
platforms can help but they also cost tens to hundreds of 
thousands of dollars and do not solve all of the administrative 
costs associated with the process.
    COVID pushed consumers to buy things online, and as a 
result, shopping behaviors have changed--forever. Online sales 
have been the lifeline for many small businesses, especially as 
consumers retrenched from physical storefronts.
    Here is the reality: e-commerce is a $1-trillion industry 
growing at around 16 percent annually. Complexities around 
sales tax compliance limit the growth of e-commerce businesses, 
especially for small business owners. This is the time to help 
simplify the sales tax process.
    Simplifying the sales tax process will help free up time 
and dollars that could be reinvested in their people and their 
businesses. This will also help business owners become more 
compliant, which will generate more dollars for your State.
    If you would like more information, please reach out. I am 
also available to collaborate in any way possible.
    [The prepared statement of Ms. Huie appears in the 
appendix.]
    The Chairman. Thank you, and that was very instructive.
    Our fourth witness is Mr. Craig Johnson.

  STATEMENT OF CRAIG JOHNSON, EXECUTIVE DIRECTOR, STREAMLINED 
          SALES TAX GOVERNING BOARD, INC., WESTBY, WI

    Mr. Johnson. Chairman Wyden, Ranking Member Crapo, members 
of the Senate Finance Committee, thank you for the opportunity 
to testify today regarding the South Dakota v. Wayfair 
decision, and allowing me to share with you what our member 
States have done to make implementation of this decision easier 
for remote sellers nationwide.
    My name is Craig Johnson. I am the executive director of 
the Streamlined Sales Tax Governing Board, also referred to as 
SST. SST is made up of 24 member States committed to 
simplification and uniformity.
    SST represents a long-term and successful collaboration 
between the States, local governments, and the business 
community to simplify the sales tax systems throughout the 
country, and level the playing field for all types of sellers. 
The result of this collaboration is the Streamlined Sales and 
Use Tax Agreement, a voluntary agreement that represents a 
blueprint for all States to follow to substantially reduce the 
burden of tax compliance.
    In 2016, South Dakota enacted legislation to require remote 
sellers who engaged in 200 or more transactions, or had 
$100,000 or more in gross revenue in a calendar year, to 
collect and remit its tax. In 2018, the Supreme Court in the 
Wayfair decision determined that remote sellers who exceeded 
South Dakota's thresholds had substantial nexus in the State. 
All of the SST States have also followed and adopted similar 
economic nexus thresholds.
    States recognize that the Wayfair decision brought about 
significant changes for remote sellers nationwide, so we work 
to assist them in complying with their collection and 
remittance obligations. As we have done since 1999, we are 
committed to continuing to work with the business community to 
resolve issues that may arise.
    When the Supreme Court issued its Wayfair decision, it 
determined three features of South Dakota's law which it 
indicated, and I quote, ``appear designed to prevent 
discrimination against or undue burdens upon interstate 
commerce,'' end quote.
    Those features were that first there was a safe harbor to 
protect businesses with only limited activity in South Dakota. 
Second, the law could not be applied retroactively. And third, 
South Dakota had adopted the Streamlined Sales and Use Tax 
Agreement.
    All of the SST member States have voluntarily enacted the 
simplification and uniformity provisions contained in the 
agreement. The Supreme Court, though, also specifically 
recognized in the Wayfair decision some of the key provisions 
from the agreement.
    Some of those include, first, a single State-level 
administration of State and local taxes imposed. Second, 
uniform definitions of products and services. And third, 
simplified State and local tax rate structures.
    Among other things, though, SST States offer the following 
items: a free and simple online registration system that any 
seller can use to register in any of our member States; 
taxability matrices that indicate what is taxable or exempt in 
each State; and uniform exemption rules.
    The Court also formally recognized SST 's certified service 
provider, or CSP, program that allows remote sellers to 
substantially reduce their compliance burdens by outsourcing 
their sales and use tax collection and remittance obligations.
    Operating successfully in the SST States for over 15 years, 
and based on contracts SST has with each CSP, the CSP program 
covers the software and services necessary to integrate the CSP 
's tax engine with the seller's system, calculate the tax due 
on transactions at the time of sale, prepare and file each of 
the State's returns, make the necessary remittances, and handle 
any notices from or audits conducted by the member States.
    CSPs are compensated by the SST States, not the remote 
sellers, for providing these services to remote sellers making 
sales sourced to their respective States. Over 18,000 active 
sellers are currently registered through SST. This number 
continues to increase by 150 to 300 sellers every month.
    SST 's success, though, is about more than the number of 
sellers registered and the tax dollars collected. It is about 
making the sales tax system simpler and more uniform throughout 
the United States. It is about providing adequate guidance to 
remote sellers so they can comply.
    The SST States have developed various materials to make 
remote sellers aware of and remove the burdens of sales tax 
collection in any of our member States. I would encourage you 
to visit our website to review some of those materials.
    In conclusion, the SST States want sellers to be successful 
and are committed to making their State's sales tax system 
simpler and more uniform so that businesses can more easily 
comply. The simplification and uniformity provisions enacted by 
the SST States make this process easier for sellers, and our 
member States will continue to implement the remote seller 
collection authority they were granted in the Wayfair decision 
in a fair and reasonable manner.
    I thank you again for the opportunity to testify and 
explain what the Streamlined Sales Tax Governing Board has 
developed and accomplished over the last 20-plus years in 
partnership with the business community. We are proud of the 
Streamlined Sales Tax program, and I know it is helping 
thousands of businesses in our 24 member States. Thank you 
again, and I am happy to answer any questions you may have.
    [The prepared statement of Mr. Johnson appears in the 
appendix.]
    The Chairman. All right; thank you, Mr. Johnson.
    Ms. Yetter?

STATEMENT OF DIANE L. YETTER, PRESIDENT AND FOUNDER, SALES TAX 
                     INSTITUTE, CHICAGO, IL

    Ms. Yetter. Thank you, Chairman Wyden, Ranking Member 
Crapo, and members of the committee, for the opportunity to 
talk with you today. I am Diane Yetter, the president and 
founder of the Sales Tax Institute and Yetter Tax, a woman-
owned small business. We provide sales tax education, 
resources, and consulting to businesses of all size in 
virtually every industry from around the world. My entire 
professional career of almost 38 years has been spent 
exclusively in the sales tax field. I am a licensed CPA and a 
board member of the Business Advisory Council of the 
Streamlined Sales Tax Governing Board.
    My remarks today are my own and not on behalf of any client 
or association. I have long been a proponent of rules that 
result in equitable collection responsibilities of sales tax by 
sellers. True equity requires greater uniformity, with clear 
requirements and guidance by the States, which will foster 
compliance and reduce burden on all sellers, whether local or 
remote, to promote reasonable enforcement.
    It is inherent in our subnational sales tax structure that 
the rules will vary by State. However, States should make every 
effort to reduce the complexity and variations of the laws that 
can create avoidable burdens on sellers.
    An obligation of business owners is complying with a 
variety of tax and regulatory requirements. The cost related to 
the collection of sales tax is not dissimilar to these other 
costs, but together they all do create a significant cost of 
being in business.
    I have three key points to share with you today.
    First, the economic nexus rules enacted as a result of the 
Wayfair decision have made it harder for some businesses to 
comply with sales tax. Second, compliance burdens still exist 
for all businesses. And third, there are actions that Congress 
and States can take to further reduce the burdens on business.
    Economic nexus has made it harder on some small businesses, 
particularly those with limited physical presence in multiple 
States, and even more so on those businesses located in one of 
the States without a general sales tax--Delaware, Montana, New 
Hampshire, and Oregon.
    For these businesses, they may have never had to understand 
or comply with sales tax calculation and compliance, or may 
have only dealt with it in their home State. For these 
businesses, the challenges to comply have been hard. I have 
clients in this situation, and they have shared their 
frustrations with me.
    But we have also seen simplification efforts by States, 
including better taxpayer services to support the significant 
increase in registrants in the wake of the Wayfair decision. 
The decision and State law changes have helped to clarify when 
sales tax collection is required.
    In addition, the adoption by all States of the Marketplace 
Facilitator Collection provisions has reduced the burden on the 
smallest online sellers that utilize these platforms by 
shifting the burden of tax collection to the larger marketplace 
businesses. Some States have also adopted beneficial tax rate 
structures that minimize local tax jurisdiction compliance 
challenges.
    However, there are still burdens that impact small 
businesses and remote sellers. Pre-Wayfair physical presence 
nexus standards still exist, and States continue to enforce 
them against taxpayers who fall below the sales thresholds. For 
example, inventory held in a third-party warehouse on the 
seller's behalf to facilitate faster delivery can create nexus 
even if the seller is below the sales threshold. This can 
result in significant retroactive assessments against small 
sellers.
    The lack of uniformity across the States on everything from 
economic nexus thresholds and registration requirements to 
definitions of compliance creates a significant burden on 
businesses of all sizes. Local taxes, particularly in the 
States with local home rule authority, create confusion and 
chaos for businesses.
    There are actions this Congress can take in conjunction 
with the States to further reduce the burdens on businesses. 
Focusing on uniformity across the States while protecting State 
sovereignty through widespread membership in the Streamlined 
Sales Tax project would have the greatest impact on minimizing 
burdens for sellers. To date, there are 24 member States 
actively participating in the Streamlined Sales Tax agreement. 
However, none of the largest States in the country participate.
    Efforts to encourage participation by these large States 
and other non-Streamlined States should be evaluated. For the 
States that are already members of Streamlined, efforts for 
uniformity on nexus thresholds as well as expansion of common 
definitions and a centralized administrative function should be 
supported and/or required.
    And finally, the elimination of archaic physical presence 
nexus standards in conjunction with more uniform economic nexus 
standards will eliminate barriers to business growth by 
eliminating registration requirements for the smallest 
businesses.
    Thank you for the opportunity to share my experience with 
you. I welcome your questions.
    [The prepared statement of Ms. Yetter appears in the 
appendix.]
    The Chairman. Thank you all. Let's begin by trying to put 
ourselves in the shoes of small businesses, say in New 
Hampshire, and Oregon, and across the country. Here you are. 
You are getting clobbered by inflation right now. You have 
supply chain challenges and the like, and you listen to 
something like this. And you are told you basically ought to be 
an accounting Houdini and figure out some kind of system to 
collect taxes for most of America.
    Now, I cited the example that shows how bizarre this is. In 
the center of the United States you pay a tax on a Snickers but 
not on a Twix. Anybody who can unpack the nuances of chocolate 
policy ought to come and tell me how that exactly works.
    So I will start with you, Mr. Hennessey. What you have said 
is not unlike what I hear from my folks in Oregon, and they 
usually are somewhat more salty than the statements here. They 
usually start with, ``How the hell did Oregonians become tax 
collectors for most of America?''
    They understand why people in other States would want them 
to do it. They would want New Hampshire and Oregon to do it, 
but they say, ``How is that fair for us to be in the tax 
collection business?''
    So you said, Mr. Hennessey, you have spent over half a 
million dollars just on accurately collecting and remitting 
sales tax since the Wayfair decision. That sounds like a big 
financial crunch in the middle of rising expenses that small 
businesses are telling everybody they are faced with due to 
inflation.
    So how do you navigate this? I mean, what do you do in 
terms of having to take that money for sales tax compliance and 
you cannot have it for other things that are going up in this 
time of inflation?
    Mr. Hennessey. About half of the $500,000 we spent in 2018 
alone becoming compliant, and the other half, $250,000, is 
still representing ongoing costs that we face. So that is a 
significant burden for our business. In total, that represents 
about half of what we collect and remit on an annual basis. 
Those funds we would otherwise invest back into our business 
for the benefit of our employees; particularly, as a historical 
print-based catalogue company, we are constantly trying to 
modernize our business and remain competitive in today's online 
environment. Every dollar we divert to spending on compliance 
for sales tax is a dollar we cannot invest into remaining 
competitive in this new business landscape we face.
    Particularly as an employee-owned company, every dollar 
that goes to reduce our profit also serves to reduce the 
retirement accounts of our employee owners. So, it remains a 
significant burden on our business.
    The Chairman. So, you had challenges beforehand, and 
inflation in effect just makes this even more treacherous.
    Mr. Hennessey. Yes. It is a compounding effect.
    The Chairman. Okay, so we have heard Senators supportive of 
Wayfair, and that raises the question of whether you are going 
to be able to go back to the way things were before Wayfair.
    Tell us, if you would, the top couple of steps that you 
would like to see this committee, working on a bipartisan 
basis--what are the steps that you would like to see the 
committee take that would make your life easier, reduce your 
costs? You are very representative of a big chunk of America, a 
big chunk of Oregon, a small remote seller trying, as I say, to 
perform this function that, again to me, really defies common 
sense, to turn you into a tax collector for America. But that 
is the Court's decision.
    So what are the couple of things that can reduce your costs 
best?
    Mr. Hennessey. The first is simplification in a number of 
areas, including simplifying rates to be no more than one rate 
per State. Very important is uniform product classification and 
definitions across the States. That is an extremely high burden 
for our business. And protection from retroactivity--as I 
mentioned, we have already paid $140,000 trying to comply with 
retroactive demands from States. And then prospectively, audits 
will become a severe burden for our business, and we would 
propose that we simply are subject to one audit that 
encompasses all the States on an annual basis.
    And then finally, protection from reach beyond sales tax. 
It is very burdensome that not only do we have to pay sales 
tax, but States are now contacting us and asking for taxes that 
are far-reaching--beyond sales tax--into new areas even that we 
haven't heard of before.
    The Chairman. My time has expired. I just want to make one 
point on the days ahead. I am very interested in working with 
you five to see if we can find some common ground, working with 
Senator Crapo and our colleagues, to really do what Mr. 
Hennessey is talking about: to simplify this, to make these 
transactions something that does not just take such a toll on 
small businesses across America.
    Everybody is going to have to dig in and try to find some 
common ground, because going back to the days when I wrote the 
Internet Tax Nondiscrimination Act, we have been hearing that 
this was going to get done, and it was going to get simplified. 
So we are all going to have to dig in and try and find some 
ways to actually get this simplicity in place. And it was 
important before the pandemic. It is even more important now 
when we are dealing with COVID still and we are dealing with 
inflation.
    Senator Crapo?
    Senator Crapo. Thank you, Mr. Chairman. And you actually 
followed the line that I was going to pursue with Mr. 
Hennessey, so I want to pursue it a little further. But before 
I do, let me go to you, Ms. Huie.
    Are there any things that Mr. Hennessey said we really need 
to see happen? Is there anything more to his answer that you 
would like to add as to what we should focus on?
    Ms. Huie. Yes, I completely agree with what Mr. Hennessey 
has said in terms of his proposals. I would further add the 
unified single tax rates for States. And the reason for that 
is, that would help reduce the reliance on expensive 
technology.
    We spend a lot of money on technology to calculate 
sometimes hundreds of various taxes for each jurisdiction per 
State, and that is one of the main reasons why that is 
oftentimes used--it becomes impossible to calculate, especially 
as they change all the time. And so, I would further emphasize 
that point.
    And then I had mentioned in my testimony a more centralized 
clearinghouse in order to register per State, and also remit 
payment. Right now, if you hit nexus per State, you have to 
register with a department of revenue for every one of those 
States. And that is something that technology cannot really do 
for you. It is something you have to do individually on your 
own. And so, I would add that.
    Senator Crapo. So let me just follow up, again with both of 
you. And I want to get at least to Mr. Johnson with a question 
too, but for the issues you have raised, would those issues be 
resolved if all 50 States were a member of Streamlined and 
working in the system that Mr. Johnson is working in?
    Ms. Huie. So I appreciate all the efforts that Mr. Johnson 
and his team have been putting towards working on this issue. 
There is, based on what I have heard from the testimony and out 
of the research I had done, the fact that States can have 
many--you know, various tax rates. I mean, that is something 
the Streamlined SST is able to kind of make transparent and 
create kind of those boundaries and those rates, which is 
really, really helpful. But there still tends to be a lot of 
sales tax rates per State. And also, there is still the 
reliance on the technology itself, and we mentioned that that 
is an expensive burden for a lot of small businesses.
    Senator Crapo. Mr. Hennessey, any more on that? I want to 
get to Mr. Johnson, so if you could be quick, if you would.
    Mr. Hennessey. Many of the provisions are sound. One 
additional would be to uniformly classify and define products 
across States and not just within States as well.
    Senator Crapo. Well, thank you.
    And, Mr. Johnson, I am looking here at the map on your 
website which States are member States, and my State of Idaho 
is an advisory State, I understand, but why are those States 
that are not members resistant to joining?
    Mr. Johnson. Well, let me say this. First, I cannot speak 
for the States that are not participating with us. I can tell 
you that we have reached out to all of the States. We have 
tried to encourage them to participate with us, to join the 
organization. We feel there are great benefits to having all of 
the States involved.
    You know, some of the things that Mr. Hennessey and Ms. 
Huie had mentioned as far as simplification of the uniform 
definitions, that is something that we have. And we continue to 
work with the business community on those types of uniform 
definitions when the business community brings them to us.
    That is an extremely important piece for us: getting the 
input from the business community and realizing what is causing 
those burdens. Central registration system--we have that.
    So for example, in Ms. Huie's situation, if she is 
registered through Streamlined and she needs to add additional 
States, for any of our member States, it is a matter of logging 
back into her account, checking a box, and we take care of 
transmitting, and the States come in and get that information 
from us once she elects to register for them.
    And I will tell you that we are working on a central filing 
portal. It is a concept that we have just started to have some 
discussions about, but we also believe that that is something 
that could be helpful to remote sellers as well.
    Senator Crapo. All right; thank you.
    And my last question--I will go to you, Ms. Yetter. It 
relates to this discussion here.
    This is not the first time we have faced an issue here in 
Congress with regard to the complexity that can be imposed on a 
particular industry--and in your case on an entire part of the 
world--because of the complexity of States and local 
jurisdictions, and not just with regard to taxes, but with 
regard to licensing, with regard to permits, and so forth.
    And I always run into the difficulty that we live in a 
republic, which has 50 different States, each of which have 
sovereignty. And guys like me like to protect my State's 
sovereignty.
    So the question that comes up here in this hearing is, is 
there a role, a proper role, that respects the right of State 
sovereignty that Congress should engage in? Should Congress 
enforce some kind of a minimum standard? Should Congress pass 
any laws that actually interfere with the State's sovereignty 
on this? Or should we continue to try to incentivize States to 
voluntarily join into a State compact, or into a system like 
Streamlined?
    Ms. Yetter. Well, one of the benefits of the Streamlined 
Sales Tax Agreement is States retain their State sovereignty. 
With the coordination of having common definitions--the example 
that Chairman Wyden used of the candy bars--those are a defined 
term within the Streamlined Sales Tax Agreement.
    So all 24 States define food the same. Now each State can 
still decide whether to tax it fully, to tax it at a reduced 
rate, or to exempt it. But at least if I am a seller of a Twix 
bar or a Snickers bar, across these 24 States I will classify 
it the same way. And that retains that State's sovereignty 
while providing some consistency of definitions, which both Mr. 
Hennessey and Ms. Huie referred to as one of the big 
challenges.
    Senator Crapo. Thank you very much.
    The Chairman. Thank you, Senator Crapo.
    Senator Carper is next.
    Senator Carper. Thanks, Mr. Chairman. Let me say to our 
witnesses, welcome. Thanks so much for joining us.
    I do not know if our colleague from New Hampshire had the 
extensive feeling of deja vu, but I am reminded of all those 
years--I was Governor for 8 years, from 1993 to 2001, and I 
remember more NGA meetings where we talked about sales tax and 
how it was being collected or not collected.
    So, I feel like I have seen this movie before. Delaware is 
one of the five States that have no sales tax. We have a whole 
lot of folks who work in our big State we have across the 
Delaware River. We have New Jersey. We have Pennsylvania to the 
west. We have Maryland. So we have a lot of folks who live not 
too far away from us, millions and millions of people. The fact 
that we have no sales tax means that a lot of people come to 
Delaware to shop, and it is one of the reasons that among our 
major industries, we have a pretty significant one in our 
tourism as well.
    So that is of more than a little interest to us in the 
First State. I want to thank you again for testifying before 
our committee on the impact of the Wayfair decision on States 
and small businesses alike.
    As many of you know--I have already said it--we are one of 
the States that have no sales tax. Ironically, one of the 
major--maybe the largest retail sales outlet I think in the 
country may actually be the Christiana Mall in the northern 
part of our State.
    This means that somebody can drive to Delaware from 
Pennsylvania, purchase a piece of furniture or a computer, 
sales tax free. Under the Wayfair decision, someone from a 
State with sales tax who chooses to buy their furniture online 
rather than visiting Delaware will have to pay the tax. Having 
no sales tax continues to help our small State, 100 miles from 
north to south, 50 miles from east to west, 1 million people. 
Up-state, our small businesses punch above their weight.
    However, there is more we can do to support our small 
businesses, including making sure that they have the tools they 
need to comply with the existing patchwork of State sales tax 
regimes.
    My question, Ms. Huie, if that is the correct 
pronunciation--has your name ever been mispronounced?
    Ms. Huie. Always mispronounced.
    Senator Carper. But not now. Not now.
    Ms. Huie. Not now.
    Senator Carper. Ms. Huie and Mr. Hennessey, as small 
business owners, what challenges are you facing when it comes 
to State sales tax remittance? You have probably already 
answered this, but I was out when you did. Go ahead.
    Ms. Huie. Great. Yes, all the things that I had previously 
mentioned, through my process over the past 4 years of number 
one, researching and determining nexus, really conducting a 
study on each of the States and where I'm reaching nexus, 
registering with each of the departments of revenue, and then 
understanding all the varying requirements per State--those are 
kind of top-of-mind.
    And then from there, remitting payment to various 
departments of revenue, sometimes monthly, sometimes quarterly, 
sometimes annually, keeping track of all that. And then really 
making the decision of, you know, what do I do in-house? What 
do I work with a consultant on? How much administrative burden 
do I want to take on in that regard, as well as the technology 
component of making sure that that is aligned and integrated 
with everything going on with how we actually collect money 
from our customers, and also send out product to them.
    And so that is just the overall process with complying with 
State sales taxes.
    Senator Carper. Same question for Mr. Hennessey. Mr. 
Hennessey, what challenges are you facing when it comes to 
State sales tax remittance?
    Mr. Hennessey. I would echo the same things that Ms. Huie 
spoke about. In addition, product exemptions vary State to 
State. In 45 States, that can be overwhelming with the vast 
number of products that we sell.
    So, uniformity across States in many product categories--
including collectable coins, and I hear technology, and candy, 
and many, many others--would be very helpful in allowing us to 
comply with lower costs than we incur today.
    Senator Carper. I have one question for Ms. Huie, and then 
Mr. Hennessey. What can policymakers, including us--what can we 
do in working with small business owners to help alleviate 
these challenges?
    Ms. Huie. Yes, much of what we were discussing before in 
terms of a simplified sales tax rate per State. You know, not 
necessarily a uniform one, but a simplified one per State, 
instead of a State having hundreds. Maybe having one would be 
really helpful, as well as a centralized clearinghouse in order 
to register and remit payment of sales tax. Those are two main 
ones for me.
    Senator Carper. All right; thank you.
    Mr. Hennessey, the same question. How can policymakers work 
with small business owners to help alleviate some of these 
challenges?
    Mr. Hennessey. A phase-in period for any new taxes, 
including sales tax, would be extremely helpful. As we saw with 
the Wayfair ruling, with no way to collect taxes from our 
customers, that put us at an extreme disadvantage, and 
potentially on the hook to do it ourselves.
    As States continue to contemplate new taxes and fees, we 
would ask for, at minimum, a 1-year phase-in period, including 
Wayfair, but also for any potential new taxes and fees.
    Senator Carper. All right; thank you. My time has expired.
    Mr. Chairman, for the record, I am going to ask that Ms. 
Yetter and Mr. Johnson respond in writing to a question and 
just take a moment--however much time they need--to tell us 
what barriers to entry exist for States to become full members 
of the Streamlined Sales Tax program.
    The Chairman. This will have to be done briefly, because we 
have many colleagues waiting.
    Senator Carper. No response. I just wanted to know what 
steps should be taken to encourage more States to join the 
agreement. For the record, I will ask you to respond to that. 
And, Mr. Johnson ane Ms. Huie, thank you.
    The Chairman. Thank you all. Thank you, Senator Carper.
    Our next two will be Senator Grassley and then Senator 
Cardin.
    Senator Grassley. I will start with Mr. McTigue. I have the 
figures in front of me where we thought X number of dollars 
would come into the States under this, and it has come up short 
in many instances.
    So, in general, not with specific States, has additional 
revenue collected matched GAO's expectations?
    Mr. McTigue. I would say, ``yes,'' Senator. We reported 
that about $23 billion was collected from remote sellers that 
had economic nexus in 2021. That is more than what we estimated 
when we looked at it in 2017. The pandemic has been mentioned. 
Inflation has been mentioned. The growth in e-commerce has been 
mentioned. So there are a lot of factors that have gone into an 
increase, or an apparent increase in the amount of collections 
that States have been able to reap.
    Senator Grassley. Ms. Yetter, if you have any information 
on this, how are States auditing remote sellers? And how 
onerous are those audits compared to those done for home State 
businesses?
    Ms. Yetter. We are seeing States starting to do audits of 
remote sellers, so that has started. Typically--and this may be 
in part due to the pandemic and the ability to not visit in 
person, but what we are seeing is that most of these audits are 
happening remotely.
    We have requests for data information, and then the States 
are often doing most of the work themselves to come up with 
that liability. As consultants, we typically help to facilitate 
that for our clients and try to do as much of the work to 
minimize misunderstandings by the States.
    Senator Grassley. To Hennessey, Huie, and Yetter: since the 
Wayfair decision, every State with sales tax and the District 
of Columbia has adopted requirements governing the collection 
of sales taxes. In your experience, have States provided 
sufficient outreach and education to remote sellers to help 
them understand their legal obligations? Go in whatever order 
you want to.
    Ms. Huie. You know, I can speak to several years ago when 
the Wayfair case first passed and we were looking into this. I 
could not find any information regarding thresholds for many of 
the States, what the threshold levels were. And like I said, I 
was looking into it to be compliant, as soon as that law 
passed, or that case was passed.
    And it was really difficult to find any information at that 
time regarding what the threshold levels were.
    Mr. Hennessey. I do not recall any instances personally 
where a State had reached out to us. We really did the research 
on our own, with hiring outside experts and incurring the cost 
of that. Notices from the States do come in that relate to 
other issues like taxes that we owe that we may or may not have 
been aware of.
    Ms. Yetter. It certainly has varied depending upon the 
State. I think that Streamlined Sales Tax member States 
probably have done the best job. Even as a professional and an 
expert in this field, for some of the States it was not clear. 
And so we have dug into that. I certainly feel for the small 
businesses that have struggled with understanding the 
definitions. Our organization has attempted to supply that by 
providing a variety of resources, but it has varied greatly 
across all the States.
    Senator Grassley. Ms. Yetter and Mr. McTigue, whether or 
not the law is discriminatory in its design is often a 
different question from whether the law is discriminatory in 
its enforcement. So to you two, based on your work in this 
area, have States generally enforced their online sales tax 
rules in a neutral or non-discriminatory manner?
    Ms. Yetter. In my experience they have been, particularly 
as it relates to the economic nexus enforcement. It has been 
consistent across sellers that are in the same situation. So 
certainly, sellers that may have physical presence rather than 
just economic presence have been treated differently. But 
sellers that are strictly economic have been treated, for the 
most part, fairly and without discrimination.
    Mr. McTigue. Senator Grassley, I would just say that we 
have not seen any instances of discrimination of the kind that 
you described. I think States are also grappling with how to 
enforce this new power that they have been given, as 
traditional sales taxes continue to decline.
    The Chairman. Thank you, Senator Grassley.
    Next is Senator Cardin.
    Senator Cardin. Well, Mr. Chairman, first let me thank all 
of our witnesses. This has been an extremely valuable hearing.
    I have another responsibility in addition to being on this 
committee, and that is, I chair the Small Business and 
Entrepreneurship Committee. So I am particularly interested in 
the impact on small businesses from the Wayfair decision.
    So, we have two competing goals here. One, I come from a 
State that applies the sales tax. Our retailers need to compete 
around the country with other retailers. We want a level 
playing field. We want to have a level playing field so that 
you are not discriminated against because of online customers. 
On the other hand, I am extremely sensitive to the problems of 
small businesses.
    Mr. Hennessey, your testimony was pretty powerful about the 
costs that you incur and the continuing costs and complications 
that you have to deal with. So I am interested as to how we can 
act, the Federal Government, to preserve both of those 
objectives: a level playing field and removing the unnecessary 
burdens on small businesses.
    We have the threshold issues, which is one way that keeps a 
lot of small businesses from having to participate in this 
discussion because of the volume of their business. But there 
are other areas that we can assess.
    Ms. Yetter, I am very interested as to your assessment of 
how effective the Streamlined Sales and Use Tax agreements are, 
and whether the Congress could do something to either 
strengthen that or encourage that as part of the collection 
process, that compliance with those standards may be a 
prerequisite for a certain level of liability.
    Now I say that, but my own State of Maryland is not part of 
that. But I would just welcome your thoughts--this is a follow-
up to Senator Carper's question--as to what we can do in 
Congress to eliminate this unnecessary burden on small 
businesses that Mr. Hennessey has talked about.
    I think a phase-in period of time on notice for changes is 
certainly a very legitimate concern, but are there other things 
we can do?
    Ms. Yetter. You know, I do believe that some of the biggest 
benefits of Streamlined are the common definitions. Being able 
to go to one place for the 24 States to look for a definition 
of those defined terms makes it much easier.
    There is a centralized ability to submit a request for a 
ruling. So, if there is uncertainty as to how the States that 
are participants would classify certain items, there is a 
formal process that businesses can go through to submit that.
    The centralized depository of information, the taxability 
matrices that the States are required to update annually, the 
liability protections if sellers rely on the information 
published by Streamlined States--all those are very significant 
benefits.
    They also have the centralized registration system, as Mr. 
Johnson mentioned. It is very simple to go in and register. 
There are very few questions, if you compare some of the 
registration applications in some of the States that are 20 to 
30 pages long if you go through it separately. If you go 
through the Streamlined, it is a couple of questions. No need 
to disclose officers, Social Security numbers, or other things 
that are a barrier to a lot of businesses wanting to register.
    Mr. Johnson mentioned a centralized compliance where you 
actually file the returns. I think this would be the next step 
that would help simplify a lot of that filing and the burdens 
on small businesses.
    Senator Cardin. I agree with you completely, but I guess my 
point is, is there something we can do in regards to the 
Streamlined Sales Tax infrastructure to sort of get that into a 
place where the software information necessary for compliance 
becomes rather simplified--and therefore not as expensive--and 
updated as a result of the agreement for those States that are 
participating in it, perhaps again offering some degree of safe 
harbor for those States that are engaged with this effort?
    Ms. Yetter. I think what this Congress could do is actually 
provide incentives for the non-member States to join the 
Streamlined Sales Tax project, through offering additional 
benefits to them, potentially making it more lucrative for 
businesses at different levels to be required to collect the 
tax. And then I think setting up the different things like the 
thresholds and the definitions and having that be a requirement 
for the States to enforce remote collection.
    Senator Cardin. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Cardin.
    Let's see. We don't have anyone--we have Senator Hassan, 
who has been doing a lot of very, very good work on this.
    Senator Hassan?
    Senator Hassan. Well, thanks so much, Mr. Chair. Let me 
start with a comment, and then I have some questions for Mr. 
Hennessey.
    The Supreme Court's unfair Internet sales tax decision in 
the Wayfair case has imposed significant undue burdens on small 
businesses in New Hampshire and all across the country. The 
decision forced small businesses to become tax collectors for 
out-of-State governments.
    The Wayfair decision made small businesses responsible, 
legally and financially, for following complex tax rules 
imposed by thousands of State and local taxing jurisdictions. 
Congress must help small businesses by reversing the Supreme 
Court's misguided decision.
    In the meantime, we also need to focus on immediate ways to 
help the businesses hurt by this egregious legal decision. So I 
am very thankful that Mr. Hennessey is here today from New 
Hampshire to talk about the ways this decision has impacted his 
business.
    John, you have said that your business has paid $500,000 so 
far to comply with these tax obligations. And I would like to 
talk to you about the specific factors driving that significant 
financial burden.
    So let's start with this: you mentioned that different 
States have different filing and registration processes, 
including different websites and different forms, with some 
even requiring you to maintain a physical address in the State. 
And all the while, these rules frequently change with little 
notice.
    What is the cost imposed on Littleton Coin by this 
patchwork of filing requirements, both in terms of money and 
time?
    Mr. Hennessey. The sheer volume to file taxes in 45 States, 
on usually a monthly basis, is quite overwhelming. That equates 
to over 500 tax returns per year. And the total cost of that is 
about $20,000 for our business.
    So, what we would like to see for a solution would be one 
single registration that covers all States, as well as one 
annual return per State. That would really help us comply.
    Senator Hassan. Understood.
    In your testimony, you mentioned that Littleton Coin has to 
collect tax for more than 1,500 tax jurisdictions with varying 
tax rates. What difficulties do you face in trying to collect 
sales taxes at all of these different tax rates?
    Mr. Hennessey. Sure. So, of the 12,000 potential 
jurisdictions, we do collect in those 1,500. Software helps 
with the rates themselves and updating them. However, for our 
business in particular, our customers still like to order from 
catalogues. And that presents a unique burden for our business. 
With 12,000 rates--I actually brought a sample of what we would 
have to print, did we have the capacity to disclose to our 
customers all 12,000 tax rates. And this would be 40 pages long 
in order to do so.
    So beyond that, many of our customers who order from 
catalogues like to pay by check which, as you could imagine, 
often causes under- and over-payments accidentally from those 
customers, and sometimes forgetting to pay tax at all. Because 
it is virtually impossible to go back and try to collect those 
small dollar amounts per transaction, we are on the hook to 
foot the bill ourselves.
    And finally, I would say, our customer service department, 
based in New Hampshire, trying to help our customers interpret 
all these various rules, ends up spending about 300 hours per 
year on the phone simply answering tax questions.
    Senator Hassan. Wow. Thank you. So, so far you have spent a 
total of $500,000 and countless staff hours to become compliant 
with these new obligations. Yet a major concern going forward 
is that Littleton Coin and other small businesses could 
nevertheless be hit with audit notices from 45 different States 
and countless local governments.
    What kinds of legal and other costs are you bracing for as 
you consider whether hundreds of tax jurisdictions may flood 
your business with audit notices?
    Mr. Hennessey. So, we have done our best to map our 10,000 
unique products to the rules of the 45 States. Often the rules 
for exemptions for our product category are simply a couple of 
lines that we must try to interpret ourselves.
    We fear we will spend months preparing and discussing 
audits with any one State or jurisdiction nonetheless, with any 
that come into our business. If we are wrong on any of our 
classifications, unfortunately we cannot go back and collect 
tax for those periods under audit. We foot the bill ourselves. 
And if we were forced to justify our position, we would then 
incur legal costs to help us do so.
    Senator Hassan. Well, thank you.
    Mr. Chair, these examples are just the start of a laundry 
list of issues that small businesses like Littleton Coin are 
facing. John's testimony clearly shows that Congress needs to 
provide immediate relief to small businesses.
    I have three more areas that I would ask Mr. Hennessey 
about if I have time, or if we have a second round. I don't 
know right now, Mr. Chair, if there is anybody else waiting for 
questions, or if I could proceed with a couple of more to Mr. 
Hennessey?
    The Chairman. Senator Hassan, thank you. We are trying to 
determine if any colleagues are coming, but we are going to 
officially start the second round, and I think it is 
appropriate that you start it.
    Senator Hassan. All right. Well, thank you so much.
    Mr. Hennessey, I want to continue down this line of 
questioning. We have gone through the ways in which the Supreme 
Court's decision has resulted in significant costs for 
Littleton Coin. So in this round, I would like to hear from you 
about ways that out-of-State governments are overreaching to 
try to squeeze tax revenue out of small businesses.
    Along with Senator Wyden, I have introduced legislation to 
prevent out-of-State governments from retroactively requiring 
small businesses to collect taxes. In your testimony, you talk 
about how Littleton Coin has been forced to actually pay 
retroactive taxes out of its own pocket with no avenue to 
dispute these requirements, given the legal costs.
    Can you walk us through situations in which Littleton Coin 
has been forced to foot the bill itself for retroactive out-of-
State taxes?
    Mr. Hennessey. Well, the Wayfair decision providing no 
implementation period for our business, it took us 7 months to 
acquire the software, customize it, and institute the processes 
to collect sales tax.
    So we were on the hook during that period ourselves, 
without the ability to collect and remit from our customers. We 
received three notices thus far where States have asked us to 
go back as far as 2018 to pay those taxes. And whether we 
legally owe or not, the cost to defend ourselves against those 
demands would far exceed the settlement that we have now 
decided to make in order to pay those taxes.
    So we have settled in total for $140,000 thus far.
    Senator Hassan. Okay; thank you. That is really why we need 
to pass the legislation that Senator Wyden and I introduced to 
protect small businesses from being forced to pay out-of-State 
taxes in situations like that.
    Another question: because of the Wayfair decision, 
Littleton Coin is now paying an additional $40,000 a year to 
out-of-State governments in miscellaneous new taxes. What are 
all the different kinds of taxes you are now having to pay? And 
how has the $40,000 lost every year affected your bottom line?
    Mr. Hennessey. So, since Wayfair, we have been notified by 
States we owe a variety of taxes, and they all go by various 
names including franchise, business, business and occupation, 
commercial activity. So there are quite a few. In total, we are 
paying $40,000 per year. It directly reduces our profit. Those 
are not taxes we collect and remit. Those come right out of our 
own funds and prevent us from spending that same money on 
growing our business and benefiting our employees, particularly 
as we are an employee-owned business, and a reduced profit does 
impact retirement accounts for employees.
    Senator Hassan. Thank you.
    The last question for you this morning: you have recently 
received a notice from California claiming that because of 
Wayfair, Littleton Coin has to pay California State income 
taxes.
    What kinds of legal costs will you incur to work through 
this California notice, and income tax notices from any other 
States?
    Mr. Hennessey. For our business, the cost to defend 
ourselves against a State like California could potentially be 
unlimited. We don't have a lawyer on staff. We are not a big 
enough company to have one, so we have to hire a third-party 
counsel to help advise us and help us defend in these matters.
    We have already incurred costs just to research the letter 
that was sent to us related to income tax, as well as the 
Federal law that we believe protects us from having to pay. But 
nonetheless, we have to continue to defend ourselves as long as 
the process takes. And should a State decide to take us all the 
way to court, those costs could be well over $100,000.
    Senator Hassan. Well, thank you.
    John's testimony, Mr. Chair, makes it clear that there are 
many areas where we need to provide small businesses relief 
from the significant burdens imposed by the Supreme Court's 
Wayfair decision. Businesses and individuals come to our State 
because we do not have a sales tax, and we do not have an 
income tax. And to think that other States can now impose their 
tax structure on our State is particularly concerning.
    I am very grateful for this hearing this morning.
    The Chairman. Thank you, Senator Hassan. As is often the 
case, you are being a little bit too logical for Federal 
policy. Thank you for making the case, and I am glad to be 
joining you on this bill.
    I have just a few additional questions. We are going to 
wait and see if any other colleagues join us.
    Senator Hassan, did you have anything else you wanted to 
pursue right now?
    Senator Hassan. No, I did not.
    The Chairman. Okay; very good.
    Ms. Huie, you touched on this whole question of nexus in 
your comments. My understanding is that a nexus threshold is 
not just a number. It varies from State to State based on what 
types of sales are counted, what time period you use, and other 
factors.
    So, can you give us a little bit more insight on nexus 
calculations? This stuff sounds like a prolonged root canal. 
But for small businesses, this is a really big deal.
    Ms. Huie. It is really difficult to navigate, especially--
like I said, I did not get into the business to become a sales 
tax expert, but I am becoming more and more so.
    But yes, they really vary, from the economic nexus based on 
threshold around revenue, around number of transactions. That 
varies from State to State, and also it varies what the 
threshold amount is. Then you also have physical nexus.
    If you have a warehouse for example, or an Amazon 
warehouse, and oftentimes if you have an Amazon warehouse, you 
don't necessarily--it's not clear. Sometimes they have moved 
product from one warehouse to another warehouse with no 
information, or no notice necessarily, and that is all taken 
into consideration.
    So, it just really varies from State to State. It is really 
difficult to navigate all of that.
    The Chairman. All right.
    The next question would be for you, Ms. Yetter, and that is 
on the question of local sales taxes. Obviously States that 
have the autonomy to administer their own taxes generally have 
more complicated systems. So this strikes me that it makes for 
even more challenges for America's small businesses.
    So we talked a lot today about State sales taxes. There are 
thousands of local taxing jurisdictions across the country. 
Businesses have to figure out how to comply with 45 State sales 
tax systems, but for some States, sellers have to deal with 
local tax compliance separately.
    So you touched on this. Can you elaborate on how these 
additionally significant burdens cause hardships for remote 
sellers?
    Ms. Yetter. Certainly. The States of Colorado, Alaska, 
Louisiana, and Alabama are really our troublesome States. Each 
of those States allow localities, in some cases--all of them in 
Louisiana and Alaska, and a mix of them in Colorado and 
Alabama--to self-administer their taxes.
    In Colorado, Louisiana, and Alaska, the locals can have 
their own taxability rules. And that adds a significant burden. 
In Alabama, at least they have to follow State law. This is 
certainly something that the Wayfair decision mentioned as a 
centralized administration of all local taxes. And I think that 
is something that should be required before any collection 
responsibility on out-of-State sellers is allowed. And 
certainly a separate economic nexus that is being approached by 
any of those individual localities should not be allowed. It 
should require a central registration and a central 
administration for any of those local taxes to be enforced.
    The Chairman. Very good. And just at the right moment, 
Senator Daines has arrived, because he and I have talked about 
these issues often and are looking for ways to help small 
business.
    Senator Daines?
    Senator Daines [presiding]. Mr. Chairman, thank you. And 
thank you for your leadership on this important issue. Thanks 
to the witnesses for being here today. I am very glad that 
Chairman Wyden and Ranking Member Crapo listened to the letter 
that I sent with Senator Hassan requesting this hearing be 
held.
    The Supreme Court's decision in Wayfair has created a new 
economic reality for many small businesses in Montana and 
across the country. In the past, a business just operating in 
one State but selling in many would only pay tax in the State 
in which they operated. However, following Wayfair, that same 
business may find itself collecting and remitting taxes in 45 
different States.
    In Ms. Huie's case, VIM & VIGR sells compression socks 
across the country and files sales tax in 22 different States. 
My home State of Montana does not have a sales tax, but more 
than 99 percent of our businesses are small businesses, and 
many have to deal with this unfair unilateral burden.
    I joined several other Senators in submitting an amicus 
brief in 2018 to the United States Supreme Court in advance of 
the Court's decision, and I continue to believe that the 
Constitution gives sole authority to Congress to regulate 
commerce among the States, and not the courts.
    Other concerns have arisen following Wayfair, such as 
implications related to the Tax Injunction Act that was enacted 
85 years ago and generally prevents access to Federal courts to 
resolve State tax disputes.
    The TIA made sense in an era where small businesses were 
subject to tax in just one State. But now they are subject to 
tax across the country. We need to ask ourselves whether the 
Tax Injunction Act is making small business burdens and 
uncertainties more acute.
    Now to my questions.
    Ms. Huie, can you expand on the compliance burdens that 
your business faced in Montana following the Wayfair decision?
    Ms. Huie. Absolutely. So, since the Wayfair decision, from 
a compliance standpoint, we have to do audits on a regular 
basis, ensuring or looking into which States in which we have 
reached nexus.
    From there, registering with each of the departments of 
revenue to make sure that we are within the system, in order to 
remit payments to each of those States. From there, we then 
have to start collecting sales tax from all of our customers 
making purchases on our website--collect that amount of money, 
as well as pay and remit all of that information and money 
toward each of those States.
    And this is something that we do all the time. And then, as 
well as concerns that we have with changing legislation, 
changing sales tax rates, letters that we receive in turn from 
various States on payment, which we may not be aware of all the 
time because we are not notified proactively about any changes 
in terms of tax rates.
    Senator Daines. You mention in your testimony that you 
spend close to $50,000 a year in out-of-pocket technology costs 
and labor to comply with the sales tax legislation.
    What type of impact does that have on your bottom line, 
perhaps also uncertainty going forward, and your ability to 
grow?
    Ms. Huie. That is approximately one head count in the State 
of Montana. And when you are dealing with an e-commerce 
business, it is a movement of product, which means you need to 
buy product, buy inventory. And the money you put into buying 
that product, you don't see a dollar from that investment until 
6 months, 9 months down the line. So cash flow is really, 
really challenging when it comes to an e-commerce business. And 
so that money, the $50,000, obviously has a massive impact on 
cash flow.
    We are also dealing with inflation. Our cost of 
manufacturing and producing product has gone up considerably. 
We have resisted increasing our prices so far because we don't 
want to increase the prices for our consumers, but it is 
reaching a point in which we are eating the costs, and our 
profits are ultimately affected.
    Senator Daines. You have inflationary pressures too, on 
wages as well?
    Ms. Huie. On wages as well, yes. We have had to make and 
evaluate wage increases at least three times within the past 18 
months. So all of these competing factors are having a massive 
effect on my business and thousands of small businesses.
    Senator Daines. So you are in an ethos of other e-commerce 
businesses. Have you heard any Wayfair horror stories from 
fellow small business owners that might help demonstrate 
problems that entrepreneurs face in this post-Wayfair world?
    Ms. Huie. Yes. I mean, I know of people who were unaware 
of--there are a lot of e-commerce sellers that are not aware of 
collecting and remitting sales tax. I mean, there are a lot of 
small business and e-commerce sellers out there. And if you are 
not aware of it and you get a letter saying that you owe back 
taxes for the past 4 years, that is your entire livelihood.
    I have a couple of stories. I have a story of someone who 
had to completely stop their e-commerce business and move 100 
percent onto Amazon as a marketplace facilitator in which they 
saw about a 35-percent decrease in their overall business.
    This gentleman is around 70 years old, and he was looking 
to retire. That is not really in the cards for him at this 
moment. And so he had seen a massive decrease because he had to 
shut down a massive revenue channel, which was the online 
business, because of this tax liability and the burden that 
comes with that. And that is a major one, and that is just one 
example, but there are many, many more.
    Senator Daines. Ms. Huie, thank you very much.
    Senator Thune, you are up.
    Senator Thune [presiding]. Thank you, Mr. Chairman. Thank 
you all for being here today. I know I was here earlier and had 
to duck out for some other things, but I assume a lot of this 
has been covered and probably re-covered.
    But South Dakota v. Wayfair, that ruling did impact 
consumers, businesses, and States across the country. And as I 
think you all know, we are interested sort of in an assessment 
of how that has all worked out, and if States have been 
implementing various laws and looking at different collection 
models--just to get the feedback on that.
    I would like to start, Mr. McTigue, with you. With the 
Wayfair decision issued in the summer of 2018, most States 
adopted requirements for remote sellers to start collecting 
their sales taxes in 2019, just before the pandemic. Does GAO 
have any data to indicate how much these requirements impacted 
State and local sales tax revenues during the pandemic as many 
consumers were forced to shift to online purchases?
    Mr. McTigue. Thank you, Senator. In our written statement, 
we do have a graphic showing e-commerce as a share of total 
retail sales. And midway through 2020, there was obviously a 
pandemic-driven spike.
    The longer-term trend is that e-commerce is accounting for 
a larger share of retail sales. So the landscape is changing. 
States are reacting to that. And as you've heard today, 
businesses are shouldering a considerable burden in this new 
environment.
    Senator Thune. And do you have a sort of State-by-State 
kind of percentage-wise of total revenue raised, how much that 
contribution is now as a result of implementing some of these 
laws?
    Mr. McTigue. We don't have that at this point. We have some 
data that we reported in the statement. The aggregate data 
suggests about $23 billion in additional revenue in 2021 as a 
result of the enforcement of the economic nexus laws.
    Senator Thune. Okay. And I would just encourage you guys, 
as you are the natural place to do this, to continue to look at 
that issue as part of your work.
    Ms. Huie and Mr. Hennessey, from your perspectives, what 
presents the most significant burden to your business as a 
result of having to collect or remit sales taxes to the various 
jurisdictions in which you make sales? And I use as an example 
software accessibility, holding sellers harmless from 
collection errors, litigating challenges to assessments in non-
home-State jurisdictions.
    And perhaps as a follow-up, what is then the one thing that 
you believe Congress could do to help ease the burden of 
collecting and remitting sales taxes to the respective 
jurisdictions?
    Ms. Huie. Yes, in terms of the overall costs, obviously the 
out-of-pocket technology cost, that is definitely a burden. I 
would also say consulting costs. So we hired a consulting firm 
to help us calculate nexus, because it can be really 
complicated per State, per jurisdiction, so as well as the 
administrative costs of my staff and myself.
    Another cost that is not documented is, as I mentioned 
earlier, fear and concern about, am I doing something 
incorrectly? Am I reaching nexus in a State that I am not aware 
of--and an impending or potential letter from the Department of 
Revenue. No small business owner wants to receive that, and 
that is very concerning.
    So those are just the emotional costs of all of this. There 
are also many other things that we are dealing with on a daily 
basis.
    In terms of a lot of the things that you had mentioned in 
terms of--Mr. Hennessey mentioned a grace period on any tax 
rate changes, or any changes in general. And that would be 
really helpful. And those are some of my things.
    Mr. Hennessey. I certainly echo those comments of Ms. Huie. 
In addition, thank you for mentioning protection from 
liability. If we do make an error, even though we have put 
forward a good-faith effort, protection against that would be 
very helpful to our business, as well as any simplification and 
protection from taxes beyond sales tax--that would be very 
helpful as well.
    The audit process we fear could be extremely cumbersome, 
and we would appreciate simplification in that process, where 
Congress could help us by dictating one single audit that would 
cover all States, as opposed to subjecting us to 45 or more 
audits across the country.
    Senator Thune. Thank you.
    Most States have, you know--the sales tax has been 
traditionally imposed on tangible goods. We know that many 
States have been seeking to modernize their tax base to include 
digital goods and services.
    So, Mr. Johnson and/or Ms. Yetter, whoever wants to answer 
this, what area could present the most complications for State 
and local jurisdictions extending their sales taxes to these 
goods and services? And would uniform sourcing provisions, 
similar to the provisions enacted by Congress for wireless 
services in 2000, help address one of the main concerns in 
sourcing these transactions for tax purposes?
    Mr. Johnson. I will start. So from a Streamlined 
perspective, you are absolutely correct. There is an expansion 
of digital products that are being sold. In the Streamlined 
Sales and Use Tax Agreement, we have uniform sourcing rules 
that apply to all products: tangible goods, services, digital 
products, anything like that.
    So I believe that we have those things in place. We have 
uniform definitions for some of the digital products. And it is 
not only the Streamlined States that have been adopting those 
and imposing the taxes on those types of products, but non-
Streamlined States as well. Even though they are not a part of 
the organization, part of the entity, they are following some 
of those definitions.
    So we are continuing to look at that as well.
    Senator Thune. Ms. Yetter?
    Ms. Yetter. I would echo what Mr. Johnson said. However, I 
would add that there are still challenges in terms of how 
different digital goods are defined. The rise in NFTs that are 
becoming prevalent now--there is, I think, a lot of uncertainty 
in terms of how those should be classified.
    So certainly, having some further work and broadening of 
definitions in terms of what is considered a digital good. 
Secondly, the sourcing is a big issue. I am working with a 
client right now that--you know, one of the challenges that we 
have is that when you are selling digital goods, you don't have 
to capture a ship-to address.
    So how do we define where that is sourced, and particularly 
with things that are utilized on a multiple employee basis? So, 
if I sell things to a business, I sell 10,000 license 
subscriptions, where are those 10,000 employees who are using 
it? How much does the seller know? How much is the buyer 
required to provide information to the seller about that? And 
who has that ultimate responsibility?
    Those are just a couple of the challenges that businesses 
that work in this digital goods space are facing every single 
day.
    Senator Thune. Well, I would just say, Chairman Wyden and I 
have previously introduced a bill called the Digital Goods and 
Services Tax Fairness Act, which would get at this issue and 
establish a national framework to guide State and local 
taxation of digital commerce.
    And I would say, as this hearing and as other subsequent, I 
assume, hearings review the Wayfair decision, I think it is 
important to look forward to legislation that would ensure that 
consumers and businesses alike are able to effectively 
participate and equitably compete in today's marketplace.
    So I think we still have some work to do there, but your 
highlighting the challenges created by these State laws--and 
particularly in the digital space--I think is something that 
will be useful and guide our discussions and actions in that 
respect.
    So I guess that's it. We do not have anybody else here to 
ask questions, so let me just say that members have until June 
21st to submit any written questions that they didn't get to 
ask today. And we would ask all of you, if you could, to get 
your responses in to those questions as quickly as possible. 
But we appreciate you being here. I know some have traveled 
great distances to be here today, and we just appreciate you 
making the time to share your expertise with the committee.
    So thanks. And with that, this hearing is adjourned.
    [Whereupon, at 11:45 a.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


                Prepared Statement of Hon. Mike Crapo, 
                       a U.S. Senator From Idaho
    Thank you, Mr. Chairman. And thank you to our witnesses for joining 
us today in person.

    The Supreme Court's 2018 Wayfair decision significantly changed the 
sales tax landscape for States and online businesses. Post-Wayfair, 
States can require online sellers to collect and remit sales taxes from 
residents of sales tax States. The decision highlights the challenges 
for both the public and private sector to evolve with the rapid growth 
of e-commerce. The share of commerce conducted online has grown 
dramatically in recent decades due to technological innovation. The 
COVID-19 pandemic, and the resulting disruptions to normal life, have 
further fueled its growth.

    The Internet has been a boon to both buyers and sellers. Sellers 
have gained access to new markets, while buyers are no longer limited 
to brick-and-mortar retailers in their vicinity. However, as Wayfair 
acknowledges, the growth of e-commerce put traditional mechanisms for 
collecting sales tax at risk.

    The Government Accountability Office reported in 2017 that State 
Governments were losing out on billions of sales tax revenue as a 
result of online sales in the pre-Wayfair environment. Many States and 
municipalities rely on sales tax revenues to fund essential services. 
In fact, 45 States and the District of Columbia impose taxes on remote 
sales that exceed an economic nexus threshold. The Tax Foundation notes 
that in 32 States, these sales taxes account for more than one-fifth of 
total State and local tax collections. In 11 States, general sales 
taxes account for more than one-third of total State and local tax 
collections.

    By giving States the ability to collect sales tax from residents 
even when a sale occurs remotely, Wayfair attempted to address the 
disparate treatment of brick-and-mortar stores and online sellers. 
Notably, it does not result in sales tax being imposed on residents of 
non-sales tax States.

    However, in light of States' expanded rights and sellers' access to 
new markets, online businesses, and small businesses in particular, 
face new responsibilities and challenges.

    The different standards and thresholds between States and 
localities can create a burdensome and complex system that makes 
compliance difficult for small businesses. Sellers now must either 
learn to comply with the rules of myriad tax jurisdictions where their 
customers reside, or hire specialized advisors.

    This compliance can be time-consuming and expensive, especially for 
small businesses and for merchants in States that do not levy sales 
taxes, but that must collect and remit sales tax to other 
jurisdictions. While States and multistate organizations have taken 
important steps to attempt to ease these burdens, a comprehensive 
solution to this problem remains evasive. The right of States to levy 
taxes, and empower their municipalities to do the same, is well-founded 
on the principle of State sovereignty.

    On the other hand, as stated in Wayfair, ``States may not impose 
undue burdens on interstate commerce.'' Accordingly, a balance must be 
struck between ensuring States can collect sales tax due and ensuring 
that business activity is not stifled, particularly as the risk of 
recession rises.

    Businesses should be able to determine the taxes that are due, 
collect them, and remit them to the relevant authorities with minimal 
headache and expense. A sales tax system with more consistent 
thresholds and standards would allow businesses to more efficiently 
comply, and provide tax certainty, reducing the risk of future audits 
and penalties.

    Our witnesses will share their important perspectives, including on 
the challenges small businesses are facing and how tax advisors are 
approaching the post-Wayfair landscape.

    I look forward to hearing what steps can be taken to ease the 
burdens facing small businesses, and how States, multistate 
organizations, and even Congress may have a role in creating a more 
efficient and less burdensome approach.

                                 ______
                                 
               Prepared Statement of John E. Hennessey, 
            President and CEO, Littleton Coin Company, Inc.
    Chairman Wyden, Ranking Member Crapo, Senator Hassan, my home State 
Senator, and members of the committee, thank you for the opportunity to 
speak with you about a matter of great importance to small businesses 
in the United States, the impact of the U.S. Supreme Court case South 
Dakota v. Wayfair.

    I'm John Hennessey, president and CEO of Littleton Coin Company. 
We're a small business of 275 employees located in Littleton, NH, which 
is our only physical business location. We've been in operation since 
1945 when our founder, Maynard Sundman, returned from serving our 
country during WWII to start this business with his wife Fannie. Most 
recently, for the benefit of our employees, the Sundman Family sold 100 
percent of the business to our employees in 2017 through an employee 
stock ownership plan.

    Our mission is to bring the joy of coin collecting to as many 
people as possible throughout the United States. We serve coin 
collectors in all 50 States by delivering collectible coins and 
currency by mail order directly to their homes. As a New Hampshire 
company, prior the Supreme Court's Wayfair ruling, we had never 
previously been subject to collecting State and local sales taxes, nor 
did we have a need to implement any administrative processes, software, 
computer systems, or in-house expertise to do so.

    The 2018 U.S. Supreme Court Wayfair decision immediately required 
us to become the tax collector for up to 12,000 different State and 
local jurisdictions, all with different laws, tax rates, filing 
processes, websites, registrations, product classifications, and 
exemptions. This decision created an immediate and significant risk to 
our business. With no implementation period for us to become compliant, 
we immediately became exposed to over $100,000 of sales tax liability 
per month with no way to calculate and collect the taxes from our 
customers, leaving us liable to pay the bills ourselves.
             cost of implementation and ongoing compliance
    With the clock ticking, we made the decision to rush to become 
compliant as soon as possible, which we determined best case scenario 
to be January 1, 2019. Meeting this timeline meant incurring 
significant cost 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 employees to 
redesign our administrative processes to understand, calculate, explain 
to customers, and collect sales tax in nearly every State and up to 
12,000 total jurisdictions.

    We spent $225,000 in 2018 alone to comply with this new 
requirement. Based on this effort, we became compliant to the best of 
our interpretation of each State's laws by January 1, 2019.

    Unfortunately, these start-up costs were not the only significant 
costs. We incur ongoing third-party costs of approximately $50,000 per 
year for annual software licensing, registration fees, tax filing fees, 
accounting fees, and legal advice. On top of that, we incur significant 
unquantified internal costs for finance, information technology, and 
customer service on an annual basis.

    Further, the Wayfair ruling also now imposes the economic nexus 
standard on us for gross receipts taxes. We've received demands from 
many States requiring us to pay these non-sales taxes including 
franchise, business, commercial activity, and business and occupation 
taxes. These taxes we pay out of our own pocket as they are not taxes 
collected and remitted from customers. We currently pay $40,000 per 
year in these taxes.

    In total, we have paid over $500,000 in company funds since 2018 to 
comply with the taxation requirements imposed on us as a result of the 
Wayfair ruling.
                         needed simplification
    As a remote seller with no physical presence or previous knowledge 
of State and local tax regulations across these States, these 
requirements are onerous and detrimental to our business. We have 
registered, regularly file, and pay tax to 45 States and owe tax to 
over 1,500 jurisdictions with individual tax rates. Many States have 
their own rules and procedures for registration and filing including 
websites, log-ins, passwords, and specific forms, and all are subject 
to change and update based on each State's desires. Further, we have 
over 10,000 different products we sell to customers. Each State has its 
own laws for product classification and exemptions, requiring us to 
create and regularly update a massive classification and rule table to 
ensure we comply with all State laws and tax our customers correctly to 
the best of our ability.

    While we have purchased and customized a commercial software 
package to meet our needs to the best of our ability, the sheer 
complexity and changing requirements of the varied State and local 
jurisdictions remains extremely cumbersome and risky to our business. 
For example, just last month a routine vendor software update 
inadvertently impacted our customized tax tables. This issue was 
despite all parties' best intentions. Nonetheless, it caused us to 
temporarily classify some taxable products as exempt and not include a 
tax charge on outgoing invoices. Not only did this cause our IT, 
finance, and customer service teams a total of 100 hours to resolve, we 
ate the cost of these taxes totaling over $5,000, as we had no feasible 
way to go back and collect as little as a dollar from each individual 
customer due to the time and cost of generating printed letters, 
emails, phone calls, postage, and answering the hundreds of anticipated 
questions from customers.

    As another example, many State laws require us to maintain a 
physical contact address in their State simply to receive tax-related 
notices. With no physical presence within the States, we spend $5,000 
per year to hire third-party contractors for the sole purpose of 
receiving notices physically within the States, which could easily be 
mailed or sent electronically to our office in New Hampshire.

    As another example, a State recently changed its remote seller 
taxation requirement to a local jurisdiction-based model. This change 
required us to manually update our software with a unique code for 
every single local jurisdiction, at least 500. After spending 3 full 
business days inputting these codes, our finance team member was only a 
third of the way complete and is attempting to determine an efficient 
and effective path forward.

    A final example illustrates the need for simplification of product 
classification and exemptions. This is an example of the tax law in 
just one State, for just one product we sell to customers. Our company 
has over 10,000 unique products for sale. I have a coin that sells for 
$400. If it is ``legal tender,'' it is not taxable. If it is not 
``legal tender,'' if its value is determined by fluctuations in the 
bullion market, it is not taxable. If its value is determined by its 
rarity, it is taxable. The value of this coin is determined by both, 
and I must choose one or the other with no further guidance. Further, 
if this coin is determined to be taxable and a customer purchases three 
of these coins in separate transactions they are taxable. If a customer 
purchases those same three coins in a single transaction they are not 
taxable. However, if that customer returns one of those coins a month 
later, the remaining two coins are now taxable again even though no tax 
was collected. Our company sells thousands of products, and I must 
attempt to correctly apply the laws of 45 taxing States to each one.

    Despite tools like software and advice of accountants and legal 
advisors, the sheer complexity and volume of requirements, changes, 
legal updates, and notices is overwhelming.
          needed protection from state reach beyond sales tax
    Since Wayfair, we're using our best efforts to collect and remit 
sales tax wherever required. We're also paying franchise, commercial 
activity, business and occupation, business and other required gross 
receipts taxes despite no physical presence. These alone have been 
burdensome, but we are complying.

    However, just last month we've experienced what we believe is the 
start, and just the tip of the iceberg, of States reaching beyond these 
taxes into what could become an unlimited number of new areas. I will 
describe the two examples we have encountered in the past 6 weeks.

    The State of California sent us notice demanding we pay income tax 
for the tax year 2019 based on ``doing business'' in California. We 
have no physical presence in the State and Federal law (Pub. L. 86-272) 
specifically protects us from that liability. Nonetheless, California's 
position is that we are required to pay simply based on remote sales 
activity to California customers.

    Simply because we received this notice, we have been forced to 
incur time and legal fees to attempt to understand the State's position 
and determine any potential obligation. Despite our strong belief we 
have no legal obligation, we must now begin the process of responding 
and defending ourselves from the demand, not knowing how far California 
intends to take this matter. If we were forced to defend ourselves in 
court, legal fees alone to defend against this one tax obligation in 
one State would easily be in the tens of thousands of dollars, before 
ever stepping foot in a courtroom. Further, we pay 100 percent of our 
income tax to our home State of New Hampshire. If we were subject to 
this California income tax, we would have to amend our 2019 NH State 
income tax return, apportion tax to California, request a refund from 
NH, and calculate, file, and pay income tax to California. We would 
theoretically have to repeat this exercise again for California for 
2020 and 2021. Further, we've heard up to 10 States have already 
adopted a similar position, and if other States were to follow suit, 
each time a State sent us a demand we would have to go through the same 
amendment, apportionment, refund, and filing process every single time 
for every year in question. Finally, if a State were to demand income 
tax for a period beyond the NH statute of limitation for a refund, we 
would be subject to double taxation.

    As a second example, just a few weeks ago, one State announced a 
new law requiring remote sellers to collect and remit a 27-cent 
``retail delivery fee'' on any remote retail sale delivered to an 
address within that State. Further, this fee must be presented as a 
separate item on the customer invoice, and the effective date is July 
1, 2022. This presents several undue burdens to our business. First, we 
must rewrite our computer systems to address this totally new fee type, 
including logic to ensure it is only charged to residents of this one 
State and it's presented separately on every invoice. We estimate this 
IT work will take us 100 hours. Second, we have no way to implement the 
correct process in a matter of weeks by July 1, 2022. We must develop, 
test, and implement software, ensure proper communication with our 
third-party software vendors, and prepare communications to our 
customers in this State to ensure they understand and pay this fee. 
Third, the State admitted it will not have the tax forms available 
until the end of 2022 to allow remote sellers to properly remit the 
tax, despite the tax liability taking effect next month. Until we can 
divert our resources and complete the necessary work, or if customers 
refuse or accidentally fail to pay this new fee, our company will bear 
the burden of this new tax liability ourselves, which we estimate to be 
over $5,000 per year. If this State is permitted to impose this 
``retail delivery fee,'' what other new fees and taxes will be coming 
from other States in the future?

    Small businesses need reasonable, clear, and definitive protection 
from this overreach.
                          retroactive taxation
    The Wayfair ruling instantly changed the tax landscape for small 
businesses in the United States. With no safeguard allowing an 
implementation period for businesses to comply, to this day we remain 
exposed to an undue and unquantified historical tax burden. Few, if 
any, remote sellers had any possible way to begin collecting and 
remitting sales taxes in June 2018 or even in the months thereafter. 
January 1, 2019 was the first possible date our particular business 
could become compliant, even with devoting maximum resources to the 
issue.

    States have taken a variety of views on the matter of retroactive 
taxation. To date, we've received notice from three States demanding 
retroactive payment for periods as far back as 2018. Since we had no 
way to, and did not, collect tax from customers for these periods, we 
are forced to pay these retroactive taxes ourselves.

    Further, we find we're stuck between a rock and a hard place in 
these situations, because whether we agree or not that the retroactive 
taxes are owed, the legal cost to defend against these demands exceeds 
the tax liability. The end result is that we've settled with three 
States for a total of $140,000 in back taxes, interest, and penalties.

    Small businesses need protection from retroactive taxation and a 
minimum 1-year implementation period for any new taxes or fees imposed 
as a result of the Wayfair ruling and in the future.
                         state and local audits
    Going forward, we are now potentially subject to 45 separate annual 
State audits and countless county and local audits. Each one will take 
time to prepare source documents and records to prove our compliance. 
If there's a question as to whether we've interpreted a law correctly, 
we will have to pay significant legal costs to support our position. If 
we are unable to successfully support our position, we will be forced 
to foot the bill ourselves since we would not have collected those 
amounts from customers, despite our best efforts at understanding and 
complying with the laws.
                               conclusion
    Four years after the Wayfair ruling, the State and local tax 
landscape for remote sellers in the United States continues to be 
overly complex, expensive, and burdensome. The future outlook of State 
and local tax obligations for small businesses is even more troubling.

    The Supreme Court left the door open for Congress to act, and we 
need Congress to level the playing field and help small businesses to 
collect these taxes while continuing to operate and grow our 
businesses. While potential remedies are broad, the solutions that our 
business needs in order to comply are simplification including a single 
national registration, one sales tax rate per State, and uniform 
product classifications; limiting reach beyond sales tax; limiting 
retroactive taxation including a phase-in period of 1 year for any tax 
or fee; and a single audit no more than once per year.

    We need your help, and I urge you to find a bipartisan solution to 
this issue as quickly as possible.

    Thank you for the opportunity to testify today. I look forward to 
responding to any questions you may have.

                                 ______
                                 
         Prepared Statement of Michelle Huie, Founder and CEO, 
                     VIM & VIGR Compression Legwear
    Good morning, Senate Finance Committee. Thank you for the 
opportunity for me to share my experience and journey with sales tax 
compliance. I founded VIM & VIGR compression legwear in 2013 mainly 
through a personal need. I needed to wear compression socks but nothing 
out there reflected my personal style and were extremely uncomfortable. 
I was determined to solve this problem and bring everyday wellness to 
more people. A few years after launching my company, I quit my 
corporate job and went 100 percent into building and growing VIM & 
VIGR. Any business owner can tell you--the journey of entrepreneurship 
is not linear, it's met with many ups and even more downs--from looming 
recessions, impact of COVID on my staff and business, supply chain and 
managing cash flow--and over the past 4 years, trying to understand and 
comply with State sales tax regulations. I became aware of the Supreme 
Court's decision over the South Dakota v. Wayfair case from my 
accountant. I read through the ruling and quickly understood the impact 
this would have on my business and thousands of eCommerce sellers. 
Though I live in a State without sales tax, most of my revenue comes 
from outside the State of Montana. I started to look into what I needed 
to do to comply with these new regulations. And the more I learned, the 
less I knew and the more complicated it all became.

    There are several challenges that make determining, collecting, and 
remitting sales tax extremely difficult. For starters, there are 
varying threshold criteria per State, all with different threshold 
limits. The criteria range from revenue, transaction volume, storage of 
physical product--including Amazon warehouses to other more nuanced 
criteria like how a product is used. What makes things even more 
complicated is that all States have varying sales tax rates, and many 
States don't have just one rate--they have hundreds that vary per 
jurisdiction. You can imagine that this all became overwhelming. I 
didn't start a business to be a sales tax expert, but I wanted to be 
compliant, so I looked for a consultant with deep expertise in sales 
tax to help with this process. They determined that I was at nexus for 
22 States which was a surprise to me because at that time, most of my 
revenue came from wholesale and resellers and e-commerce only accounted 
for 30 percent of my business. I was triggering nexus for these States 
based on all my gross receipts even though e-commerce only accounted 
for a small percentage of that. From here, the administrative costs and 
time continued. I then had to register with the Department of Revenue 
for each of those States which is no small feat. I started to collect 
sales tax from customers purchasing product in those States and began 
remitting payment to each State at varying time intervals because the 
States had different filing schedules. And this is what I've been doing 
for several years. In total, I spend close to $50,000 a year in out-of-
pocket technology cost and labor to comply with sales tax legislation.

    I know many e-commerce business owners, and I'm part of a forum of 
thousands of e-commerce sellers. We want to be compliant and pay our 
taxes accordingly. But the current conditions make it excessively 
complicated and adds major costs and administrative burden as well as 
fear that we're not doing something correctly. I know of businesses 
that have had to close because the administrative complexities and 
costs were just too much for some business owners. I am not here to 
challenge the payment of sales tax. It's a major revenue stream for 
States and the shift to online commerce has changed the dynamics that 
don't work for preexisting regulations. I am here to ask to simplify 
the process for e-commerce businesses.

    There are a few things that can be done to make this easier for e-
commerce sellers. The first is to create some uniformity around the 
criteria used to calculate sales tax nexus. This will make things much 
more transparent for businesses. The second is for States to provide 
one sales tax rate for e-commerce sales. This will make calculating 
sales tax amounts much easier and can help reduce the reliance on 
expensive technology. For example, one particular State has hundreds of 
sales tax rates and recently allowed sellers to use one averaged sales 
tax rate when calculating the remittance amount. The third is to create 
a centralized clearing house for registering and paying sales tax. 
It'll save businesses and States a lot of time.

    You may hear people say that there are technology platforms that 
help with this. That's a costly band-aid for a problem that will 
continue to grow. These platforms can help but they also cost tens to 
hundreds of thousands of dollars and do not solve all of the 
administrative costs associated with the process.

    COVID pushed consumers to buy things online and as a result, 
shopping behaviors have changed--forever. Online sales have been the 
lifeline for many small businesses especially as consumers retrenched 
from physical storefronts. Here's the reality: e-commerce is a $1-
trillion industry growing at around 16 percent annually. Complexities 
around sales tax compliance limit the growth of e-commerce businesses 
especially for small business owners. This is the time to help simplify 
the sales tax process. Simplifying the sales tax process will help free 
up time and dollars that could be reinvested to their people and their 
businesses. This will all help businesses owners be more compliant 
which will generate more dollars for your State. If you would like more 
information, please reach out. I am also available to collaborate in 
any way possible.

                                 ______
                                 
       Prepared Statement of Craig Johnson, Executive Director, 
              Streamlined Sales Tax Governing Board, Inc.
    Chairman Wyden, Ranking Member Crapo, and members of the Senate 
Finance Committee, thank you for the opportunity to testify today on 
behalf of the Streamlined Sales Tax Governing Board \1\ (SSTGB) 
regarding the impact of the South Dakota v. Wayfair decision on small 
businesses and remote sales. My testimony will focus on what the 
Streamlined Sales Tax (SST) member states have done to make sales tax 
collection simpler and more uniform and what we offer to make it easier 
for all businesses, regardless of size, to calculate, collect and remit 
the appropriate sales or use tax in our member States. As a result, 
over 18,000 sellers have voluntarily come forward and registered 
through the SST registration system to collect and remit the sales or 
use tax in one or more of the SST States.
---------------------------------------------------------------------------
    \1\ https://www.streamlinedsalestax.org/.
---------------------------------------------------------------------------
                              introduction
    My testimony is limited to the work done by the SST organization 
that I represent, which is comprised of 24 member States. Moreover, I 
want to share with you the following key observations:

        SST represents a long-term and successful collaboration 
between the States, local governments, and the business community.
        SST member States have simplified and modernized their sales 
tax systems through conformity with the Streamlined Sales and Use Tax 
Agreement (SSUTA) and supported the certified service provider (CSP) 
model to substantially reduce compliance burdens.
        This reality was recognized in the Wayfair decision, a U.S. 
Supreme Court case that leveled the playing field for all sellers by 
allowing States to require both remote sellers with substantial nexus 
in the State and physical presence sellers to collect and remit their 
sales or use tax.
        The SST member States have implemented the Wayfair decision in 
a fair and reasonable manner consistent with the U.S. Supreme Court's 
opinion.
        While the landscape continues to evolve with new technologies 
and products emerging, we believe the current system implemented in the 
SST States is working.

    Beginning in 1999, the group of States that eventually became the 
Streamlined Sales Tax Governing Board (SSTGB), local government 
authorities and numerous members of the business community worked 
collaboratively and devoted countless hours in developing a program 
that addresses the concerns identified in the U.S. Supreme Court's 
National Bellas Hess v. Department of Revenue of Illinois, 386 U.S. 753 
(1967) and Quill v. North Dakota, 504 U.S. 298 (1992) decisions. The 
Quill decision required a retailer to have a physical presence in a 
State to create ``substantial nexus'' before that State could require 
them to collect its sales or use tax.

    The result of these efforts was the Streamlined Sales and Use Tax 
Agreement \2\ (SSUTA), which represents a blueprint for all States to 
follow to simplify and modernize the administration of their sales and 
use taxes and in the process to substantially reduce the burden of tax 
compliance. The SSTGB is the body that administers the SSUTA.
---------------------------------------------------------------------------
    \2\ https://www.streamlinedsalestax.org/docs/default-source/
agreement/ssuta/ssuta-as-amended-through-12-21-
21.pdf?sfvrsn=19cb2ba1_12.

    After the SSUTA became effective on October 1, 2005, the SST States 
and others pursued a dual strategy to obtain remote seller collection 
authority either through Federal legislation requiring the adoption of 
certain minimum simplifications or the reversal of the physical 
presence requirement contained in the Quill decision through 
litigation. The SST States believed that the simplification and 
uniformity provisions each State had enacted to join the SSTGB had 
removed the undue burdens referenced in the Quill decision. Federal 
legislation was not enacted, but the States were successful in 
reversing the physical presence requirement contained in the Quill 
---------------------------------------------------------------------------
decision.

    In 2016, South Dakota, an SST State, enacted legislation to require 
remote sellers (sellers without a physical presence in South Dakota) 
who engaged in 200 or more transactions or had $100,000 or more in 
gross revenue in the State in a calendar year, to collect and remit the 
applicable sales or use taxes in South Dakota. State leaders in South 
Dakota recognized that this was contrary to the Quill decision, but 
also recognized the State had taken steps to address tax compliance 
burdens in a landscape significantly changed since the Quill decision. 
The matter quickly proceeded to litigation in the case of South Dakota 
v. Wayfair, et al.

    On June 21, 2018, the United States Supreme Court decided South 
Dakota v. Wayfair, et al., and in the process overruled the Quill 
decision and the physical presence standard established in that case. 
However, the Court did indicate that some other principle in the 
Commerce Clause might still invalidate the South Dakota law at issue. 
This ``other principle'' to which the Court was referring was whether 
South Dakota's law discriminated against or imposed an undue burden on 
interstate commerce. The case was remanded to South Dakota to address 
that issue and eventually settled in South Dakota's favor.

    Although the Supreme Court was not compelled to say anything 
further about this undue burden in its opinion since that was not the 
question before the Court, the justices took the liberty to explain the 
features of South Dakota's laws which it indicated ``. . . appear 
designed to prevent discrimination against or undue burdens upon 
interstate commerce. . . .'' The features identified by the Court, were 
that (1) there was a safe harbor to protect businesses with only 
limited activity in South Dakota; (2) the law could not be applied 
retroactively; and (3) South Dakota had adopted the SSUTA. The Court 
went on and indicated that the SSUTA:

        Standardizes taxes to reduce administrative and compliance 
costs;
        Requires a single, State-level administration;
        Provides uniform definitions of products and services;
        Requires simplified tax rate structures; and
        Other uniform rules;
        Provides sellers access to sales tax administration software 
paid for by the State; and
        Sellers who choose to use such software are immune from audit 
liability.

    After the Wayfair decision was issued, the other SST States 
subsequently followed South Dakota's lead and enacted similar 
legislation in their respective States to require remote sellers that 
exceed certain thresholds to collect and remit their sales or use tax.

    Since the Wayfair decision in 2018, the SST States have been 
implementing their remote sales tax collection requirements in a fair 
and equitable manner. They recognize that the Wayfair decision brought 
about significant changes for remote sellers and have been working with 
remote sellers nationwide to get them compliant with the new collection 
and remittance obligations. The SST States have also developed various 
tools to assist remote sellers in complying with the new collection and 
reporting obligations.
         why did states and businesses undertake this project?
    In the late 1990s, the National Governor's Association and the 
National Conference of State Legislatures began meeting with the 
business community to identify the administrative burdens related to 
sales tax calculation, collection, and remittance and to find ways to 
reduce or eliminate those burdens in a manner that was acceptable to 
both the States and the business community. It was through this 
cooperative effort between the State legislators, State tax 
administrators, members of the business community, accountants and 
attorneys that the SSUTA was originally developed and continues to 
operate today.

    There are four primary reasons the States and business community 
came together to develop the SSUTA.

        States recognized that unless something changed, based on the 
Quill decision, they would not be able to require sellers who did not 
have a physical presence in their State to collect and remit their 
State and local sales taxes.
        The business community recognized that compliance with the 
differing sales tax laws of the States was extremely complex and 
burdensome.
        Both the States and the business community recognized that 
local merchants (i.e., brick-and-mortar retailers) suffered from the 
lack of a level playing field. Local merchants were required to collect 
and remit sales tax, but their remote seller competitors operating in 
the same market were not--effectively giving remote sellers a 5-10% 
price advantage strictly due to sales tax collection requirements.
        States recognized the significant growth in remote commerce 
(mail order, telephone order, online ordering, etc.) and the loss of 
tax revenue due to the inability to efficiently and effectively 
administer the sales and use tax with consumers.

    If this project was going to be successful, State and local 
governments needed to be willing to make changes and the business 
community needed to trust the States to provide details on what made 
the existing system so burdensome and why.

    Business, particularly multistate businesses, identified numerous 
burdens they encountered. Those burdens included the separate 
administration of the State and local taxes within a State, differing 
tax bases between the State and local jurisdictions both within and 
between the States, the multitude of rates and frequency of rate 
changes within each State and locality, differing definitions/
interpretations of the same term among the States, separate 
registration requirements, unique returns that require varying amounts 
of detailed information amongst the States, and being held liable for 
tax when a purchaser lies or provides incorrect information when 
claiming an exemption. These items have been addressed in the SSUTA.
                        who is involved in sst?
1. State Membership
    Forty-four States, the District of Columbia, and Puerto Rico have 
participated in the development of the SSUTA over the years.

    The SSTGB is currently comprised of 24 States--which is over half 
the States in the United States that have a sales or use tax. Twenty-
three of these States are full members of the SSTGB, which means they 
are in substantial compliance with each of the simplification and 
uniformity provisions contained in the SSUTA. One State has achieved 
substantial compliance with significant parts of the SSUTA taken as a 
whole, but not necessarily each provision, and therefore is an 
associate member State. Collectively, these States are referred to as 
the SST States.

    In addition, 20 other States, the District of Columbia, and Puerto 
Rico have participated in the SSTGB as non-voting advisor States over 
the years. Advisor States serve in an ex officio capacity, and although 
they do not have a vote, they may speak to any issue presented to the 
SSTGB. Input from all States, whether members of the SSTGB or not, is 
encouraged as the SSTGB considers various issues.
2. Local Government Participation
    Local governments participate with the SSTGB and provide input 
through the Local Government Advisory Council. The local government 
organizations represented include the U.S. Conference of Mayors, the 
National League of Cities, the National Association of Counties, and 
the Government Finance Officers Association. The input from local 
governmental organizations is important since successful implementation 
of the SSUTA requires cooperation between the State and local units of 
government.
3. Business Participation
    The SSTGB is advised by members of the business community primarily 
through the Business Advisory Council (BAC), although individual 
businesses and associations also provide input. SSTGB meetings are open 
to the public and businesses are encouraged to participate. The 
business community was instrumental in identifying and helping the 
States better understand the complexities retailers faced related to 
sales tax collection obligations, particularly when operating in 
multiple States. They also assisted greatly in developing solutions to 
overcome these complexities. The business community continues to play 
an extremely important role in the organization by identifying new 
issues as they arise, educating the SSTGB about these issues and 
providing valuable input when the SSTGB considers adopting solutions to 
help ensure the solutions can be administered efficiently by the 
business community.
                sst goals and key features of the ssuta
    The States participating in SST took to heart the concerns and 
burdens identified by the business community and moved forward in 
working with them to develop solutions to these issues, keeping four 
main goals in mind.

        Develop a simpler system to administer State and local taxes.
        If something cannot be made simpler, at least make it uniform. 
Uniformity in and of itself is a form of simplification.
        Balance State sovereignty with simplification and uniformity.
        Use technology to ease the retailer's tax calculation and 
reporting responsibilities.

    The discussions amongst the States and the business community took 
place over the course of several years and eventually led to the 
development of the Streamlined Sales and Use Tax Agreement (SSUTA).

    The key simplification and uniformity features contained in the 
SSUTA are as follows:
1. State-Level Administration of Local Sales and Use Taxes
    Most States have local jurisdictions that also impose a sales or 
use tax. Under the SSUTA, a single entity, which is usually the State's 
Department of Revenue, must be responsible for the overall 
administration of both the State and local sales and use taxes covered 
by the SSUTA in that State. This means a seller is only required to 
register, file returns with, and remit the sales tax collected to the 
State-
level authority.
2. Uniform State and Local Tax Bases Within a State
    The SSUTA requires, with limited exceptions, that the tax base upon 
which State and local taxes are imposed within a State be identical. 
Prior to SST, some local jurisdictions imposed a tax on products that 
were not subject to the State sales tax or exempted products that were 
subject to the State sales tax. Now, with limited exceptions, if a 
product is taxable at the State level, it is also taxable at the local 
level, and if it is exempt at the State level, it is also exempt at the 
local level.
3. Uniform Destination-based Sourcing Rules for Goods and Services
    Sourcing rules determine which State and/or local jurisdiction has 
the authority to impose its sales or use tax on a transaction--and are 
also a strong safeguard against multiple States and/or local 
jurisdictions imposing their tax on the same transaction.

    Under the SSUTA, sellers calculate the sales tax due on a 
transaction, using the uniform destination-based sourcing rules. The 
``destination'' is generally the location where the purchaser 
physically receives the product. The SSUTA contains a hierarchy for 
sellers to follow and which includes rules to follow for those 
transactions where the destination may not be known, such as in the 
case of products transferred electronically.
4. One-stop Online Central Registration System
    All SST States are required to participate in the Streamlined Sales 
Tax Registration System (SSTRS). Using the SSTRS, a seller can register 
for sales tax collection purposes in one or more of the SST States by 
completing one simple online application that requires very limited 
information and for which there is no fee to complete. If a State needs 
additional information, that State must contact the seller to 
specifically request the information. This eliminates the need for a 
seller to review every State's application and determine what 
information each State requires. Sellers can also update their 
registration information and, if necessary, unregister for any of the 
SST States using this same system.
5. Uniform Definitions
    One of the most fundamental components of simplifying sales tax 
collection requirements throughout the United States is the use of 
uniform definitions. Uniform definitions make it much easier for 
sellers to determine the taxability of individual products in the SST 
States. When developing the SSUTA, the business community stressed (and 
continues to stress), the need for the definitions to be uniform, clear 
and contain bright-line tests to eliminate any subjectivity where 
possible. The States and business community worked together to identify 
the terms in which uniform definitions were needed and would be the 
most helpful in removing difficulties. Additional uniform definitions 
continue to be developed as new products and technologies emerge.

    Although the SST States must follow these uniform definitions, the 
Legislature in each State maintains its sovereignty and is responsible 
for determining if the State is going to tax or exempt the products 
contained within those definitions.
6. Taxability Matrix--Library of Definitions
    Transparency and providing free and reliable guidance to sellers is 
of utmost importance to the SSTGB. One of the requirements imposed on 
every SST State is that they complete (and keep current) the Taxability 
Matrix: Library of Definitions \3\ for their State. The Taxability 
Matrix is a document that contains a list of all the uniformly defined 
terms included in the SSUTA.
---------------------------------------------------------------------------
    \3\ https://sst.streamlinedsalestax.org/TM.

    Every SST State is required to indicate whether each item listed on 
the matrix is included or excluded from the sales price of a product or 
if the product itself is taxable or exempt. Sellers are relieved of 
liability if they charge and collect the incorrect amount of sales tax 
if they relied on erroneous data provided by an SST State on a State's 
Taxability Matrix. The SSTGB publishes all the SST State's Taxability 
Matrices on its website making it easy to find answers for any of the 
SST States.
7. Simplified Rate Structure and Rate and Boundary Databases
    The large number of local taxing jurisdictions and varying tax 
rates on different types of products were identified as concerns of the 
business community early on in the development of the SSUTA. It was 
recognized that technology could likely address these issues if certain 
safeguards were put in place. The SSUTA contains various requirements 
SST States must follow related to State and local tax rates to make it 
easier for sellers to comply with their calculation and collection 
responsibilities. Those requirements include limiting each State to a 
single rate (exception allowed for food and drugs), limiting the 
frequency of local rate and boundary changes, requiring adequate notice 
of those changes, requiring States to provide and maintain rate and 
jurisdiction databases in a uniform downloadable format and providing 
liability relief to sellers who rely on the information contained in 
the databases.

    Many States have also developed free online sales tax look-up 
applications for sellers to use to determine the proper sales tax 
rate(s) and jurisdiction(s) to charge their customers in their 
respective States.
8.  Simplified Exemption Administration
    Under the SSUTA, if a remote seller obtains a fully completed 
exemption certificate (or the required data elements in an electronic 
format) at the time of the sale (or within 90 days after the date of 
the sale), a remote seller will not be held liable for the tax, unless 
the seller fraudulently failed to collect the tax or solicited the 
purchaser to claim an unlawful exemption. As a result, sellers are not 
put in the challenging position of having to determine whether 
purchaser's claims of exemption are valid.

    The SST States developed a uniform multistate exemption certificate 
\4\ that is accepted in any of the SST States. This prevents sellers 
from having to obtain State-specific exemption certificates. Sellers 
also have the option of just gathering the required data elements 
electronically in lieu of maintaining the paper exemption certificates.
---------------------------------------------------------------------------
    \4\ https://www.streamlinedsalestax.org/docs/default-source/forms/
exemption-certificateb926a
7ab4a0d43e1ad4fe8eb19e79cbb.pdf?sfvrsn=857843d_5.
---------------------------------------------------------------------------
9. Uniform Simplified Electronic Return
    Under the SSUTA, SST States can only require a single return for 
each reporting period and the return must cover all the local taxing 
jurisdictions within that State that are covered by the SSUTA.

    The SST States developed a uniform Simplified Electronic Return 
(SER) that States are required to allow any seller, whether registered 
through the SSTRS or not, to file.
10. Certified Service Provider (CSP) Program
    The certified service provider (CSP) program provides every seller 
the opportunity to outsource nearly all their sales tax compliance 
responsibilities through a package of software and services. Under the 
contracts \5\ the SSTGB has with the CSPs, each CSP agrees to provide 
the software and services necessary to:
---------------------------------------------------------------------------
    \5\ https://www.streamlinedsalestax.org/docs/default-source/
contracts/csp-contracts/csp-contract-from-2021-to-2023-approved-by-gb--
-8-31-20.pdf?sfvrsn=afb8c96_6.

        Set up and integrate the CSP's certified automated system 
(CAS) with the seller's system;
        Calculate the amount of State (and local, if applicable) tax 
due on a transaction at the time of the sale;
        Generate and file the required sales and use tax returns and 
make the necessary remittances for each of the SST States;
        Respond to and provide supporting documentation with respect 
to any notices from or audits by the SST States; and,
        Protect the privacy of the tax information it obtains.

    The CSP's systems are tested at least quarterly by the SST States 
to ensure their systems are operating properly.

    Sellers receive several benefits by utilizing a CSP. For those SST 
States in which the seller qualifies as a ``CSP-compensated seller'' 
(i.e., generally no physical presence in the State), the States will 
compensate the CSP to provide these CSP services. CSP-compensated 
sellers include any remote seller that is required to collect and remit 
sales tax in an SST State solely because they exceed that State's 
economic nexus thresholds (i.e., those sellers required to collect a 
State's tax solely due to the Wayfair decision).

    Sellers utilizing a CSP can be confident that if they provide 
complete and accurate information to their CSP, the tax treatment of 
the transactions processed by the CSPs will be correct in the SST 
States--or be relieved of liability if it is not correct. Sellers 
utilizing a CSP are only required to make a single automated payment to 
the CSP that covers all the sales taxes owed in the SST States for each 
reporting period. The CSP is responsible for filing the corresponding 
returns and distributing from the single payment the necessary 
remittances to each of the individual States. Finally, the CSP assumes 
responsibility for any audits conducted by the SST States. If the CSP's 
system fails to calculate the proper tax due on a transaction, 
presuming the seller provided complete and accurate information to the 
CSP, the CSP is the one held liable for the tax on that transaction--
not the remote seller.

    The CSP program has been successfully operating for over 15 years 
and is one of the key programs developed and implemented by the SSTGB 
and our CSP partners to assist sellers and remove the ``undue burdens'' 
with which the SCOTUS was concerned in the Quill decision and referred 
to in the Wayfair decision. In 2021, the CSPs successfully processed 
hundreds of millions of transactions and filed hundreds of thousands of 
returns on behalf of CSP-compensated sellers in the SST States. The SST 
States, not the sellers, compensated the CSPs for processing these 
transactions and remitting the taxes due by allowing the CSPs to retain 
a percentage of the tax collected and remitted on behalf of these 
sellers. Sellers only paid the CSPs for those additional services they 
wanted that were beyond the scope of the contract the SSTGB has with 
the CSP.
11. Other Simplification and Uniformity Provisions
    There are numerous other simplification and uniformity provisions 
contained in the SSUTA related to sales tax holidays, uniform rounding 
rules, caps and thresholds, direct pay permits, digital goods, customer 
refund procedures and uniform rules for recovery of bad debts. The SST 
States continue to encourage businesses with specific concerns to share 
that information with the SSTGB along with their ideas or suggestions 
on how the concern may be addressed uniformly by the SST States--as we 
are always looking for ways to improve as time moves forward.
12. Option for Nonmember State Participation in the SST
    Working with the business community, the SSTGB identified some of 
the key simplification and uniformity provisions that help remove 
burdens on remote sellers and developed an option for nonmember States 
to participate in the SSTGB if they are willing to enact certain 
limited requirements. The requirements include participating in the 
central registration system; developing and posting the rate and 
jurisdiction databases; completing the taxability matrices and noting 
any differences between their laws and the SSUTA definitions; 
participating in the certification of the CSP's systems and the 
contract the SSTGB has with the CSPs; and, providing liability relief 
to sellers and CSPs for relying on erroneous information that may be 
contained in the taxability matrices or rate and jurisdictions 
databases provided by the State.
          success of the streamlined sales tax governing board
    When SST began, the participating States believed that if they made 
the calculation, collection and reporting of the sales tax in their 
State simple and uniform, sellers would voluntarily come forward and 
register to begin collecting and remitting their taxes--even though 
they may have no legal requirement to do so. Sellers first began 
registering with SST in 2005 and by June 1, 2018 (just prior to the 
Wayfair decision), over 3,800 retailers had voluntarily come forward 
and were collecting and remitting the applicable State and local taxes 
in every one of the SST member States, regardless of any physical 
presence. Since the Wayfair decision was issued in 2018, nearly 15,000 
additional retailers (over 18,300 retailers in total) have come forward 
to collect and remit the tax in one or more of the SST States. These 
retailers have successfully collected and remitted billions of dollars 
in sales tax in the SST States.

    But SST's success is about more than just the tax dollars being 
collected. It is about making the overall sales tax system simpler and 
more uniform throughout the country, so it is easier to administer from 
both the State and business perspectives. It is also about providing 
adequate guidance to remote sellers so they can more easily comply with 
each State's laws. Since the Wayfair decision, the SST States and SSTGB 
have put together several pieces of information to make sellers aware 
of possible sales tax collection and reporting requirements in those 
States in which they are making remote sales. This includes FAQs 
related to the Wayfair decision and a chart outlining all the States' 
(not just the SST States) remote seller compliance dates, thresholds 
and links to guidance each of the States has issued. SST also developed 
charts that outline the various collection and reporting requirements 
for Marketplace Sellers and Marketplace Facilitators. More information 
can be found on the SSTGB website at: https://
www.streamlinedsalestax.org/.

    The SST States and the business community worked together very 
closely to develop numerous disclosed practices (Tax Administration 
Practices \6\) that each SST State must respond to which makes it easy 
for sellers to find answers to questions they may have related to a 
State's remote seller collection requirements.
---------------------------------------------------------------------------
    \6\ https://sst.streamlinedsalestax.org/TAP.
---------------------------------------------------------------------------
                               conclusion
    The SST States want sellers to be successful and are committed to 
making their sales tax systems simpler and more uniform so that it is 
easier for businesses to comply with the collection and remittance 
obligations. There is no question that the simplification and 
uniformity provisions enacted by the SST States make this process 
easier for sellers.

    Based on a survey conducted in 2021 of all sellers registered 
through the SSTRS, numerous comments were received from these sellers 
indicating the simplification and uniformity provisions enacted in the 
SST States makes complying with their sales tax collection and 
reporting obligations easier.

    Since the Wayfair decision, I have received numerous calls and 
spoken to various businesses regarding their collection and remittance 
obligations. These sellers generally had no problem being required to 
collect the tax and they want to be compliant. However, to accomplish 
this, the one common message was that they need it to be easier and as 
uniform as possible. SST does this and we continue to work with the 
business community to identify additional areas where simplification 
and uniformity may be considered.

    The SST States have shown that they can and will continue to 
implement the remote seller collection authority they received in the 
Wayfair decision in a fair and reasonable manner. SST will continue to 
work with remote sellers to help them get compliant and with the entire 
business community to develop additional simplification and uniformity 
provisions as new issues arise and technology continues to evolve.

    I thank you again for the opportunity to testify and explain what 
the Streamlined Sales Tax Governing Board has developed and 
accomplished over the last 20-plus years in partnership with the 
business community. We are proud of the program we have put in place 
and know that it is helping thousands of businesses comply with the 
sales tax collection obligations in our 24 member States.

    I am happy to answer any questions you may have.

                                 ______
                                 
          Questions Submitted for the Record to Craig Johnson
                 Question Submitted by Hon. Mike Crapo
    Question. One of the most common concerns I have heard from small 
businesses is the difficulty of complying with different State tax 
regimes that categorize the same goods in different ways. Streamlined 
has done a lot to help States standardize definitions and categories of 
goods for taxation, and it has done so in a voluntary way that 
recognizes State sovereignty.

    What proposals, if any, would you make to Congress to encourage 
States to adopt uniform categories, while respecting the principle of 
State sovereignty?

    Answer. Uniformly defined categories of products play an extremely 
important role in simplifying sales and use tax compliance for all 
multistate businesses, particularly small remote sellers. Streamlined 
(SST) recognized this and at the same time recognized the need to 
respect each State's sovereignty. A balance between uniformity and 
State sovereignty was needed.

    SST reached this balance by working with both the participating 
States and businesses to identify variations in how items were taxed 
amongst the States and developed options for the States to choose 
between when developing their laws. Both the participating States and 
the businesses agreed the options allowed would be administrable from 
their perspectives, provided the States clearly indicated how they 
treated each of these options.

    The options or ``toggles'' agreed upon provide flexibility by 
allowing the States to choose whether to exclude certain subcategories 
of products from the uniformly defined categories and tax them 
differently than the rest of the items in that category. These 
``toggles'' also provide the business community with the certainty they 
need to properly apply each State's laws because these subcategories 
are clearly defined, and each State indicates how they are treated in 
their respective State by indicating this on the Streamlined Sales Tax 
Governing Board's Taxability Matrix which the States are required to 
complete.

    For example, ``food and food ingredients'' is a uniformly defined 
term and States can choose to tax or exempt this category. States also 
have the option of excluding certain uniformly defined subcategories of 
``food and food ingredients,'' such as ``candy'' and ``soft drinks,'' 
and taxing them differently. Each State indicates on its Streamlined 
Sales Tax Governing Board Taxability Matrix how it treats each of these 
subcategories. This provides States flexibility in their laws, while at 
the same time providing sellers with the specific guidance they need to 
properly apply each State's laws.

    In the Wayfair decision, the United States Supreme Court recognized 
much of what SST has developed in collaboration with the business 
community. This included the uniform definitions, which it identified 
as one of the actions that South Dakota took that ``. . . appear[ed] 
designed to prevent discrimination against or undue burdens upon 
interstate commerce. . . .''

    The uniform definitions SST developed have proven to work for both 
our member States, the more than 18,000 businesses that are currently 
registered through SST and countless other multistate businesses 
selling products that are covered by these uniform definitions. 
However, both our member States and the business community also 
recognize that these definitions need to remain flexible to a certain 
extent, so we can continue to work together and revise them as things 
change over time. We continue to encourage other States to join SST and 
enact the uniform definitions to the extent possible.

    Although we are not advocating for any congressional action at this 
time, we believe that every State needs to assess whether its laws are 
discriminating against or imposing an undue burden on interstate 
commerce and recognize that uniform definitions, along with preparing a 
taxability matrix to improve transparency, can go a long way in not 
only removing some of the potential burdens on interstate commerce, but 
also help clear things up for each State's brick-and-mortar sellers.

                                 ______
                                 
              Question Submitted by Hon. Thomas R. Carper
    Question. In your testimony, you mention that the Streamlined Sales 
and Use Tax Agreement has the potential to reduce tax compliance 
burdens on small business and remote sellers. Unfortunately, only 23 
States are full members of this agreement.

    Could you tell us what barriers of entry exist for States to become 
full members of the Streamlined Sales and Use Tax Agreement, and what 
steps should be taken to encourage more States to join the agreement?

                           barriers to entry
    Answer. Joining Streamlined (SST) is not easy. Every current member 
State was required to make significant changes to its laws and 
administrative practices to join SST. These changes were made because 
the States recognized the difficulties and burdens multistate 
businesses faced and knew they needed to make it simpler and more 
uniform to remove the undue burdens on interstate commerce as discussed 
in the Quill decision.

    I cannot speak to what specific barriers of entry exist within each 
State to become full members of SST, but over time, I have heard that 
some States believe that due to advancements in technology their laws 
do not impose undue burdens on interstate commerce and therefore there 
is no reason to join SST. Some believe they already offer a simple 
solution while others believe they would be required to give up State 
sovereignty to join.

    There is no question that States that have joined SST have, to a 
limited degree, voluntarily given up some of their State sovereignty. 
For example, member States are required to follow certain uniform 
definitions, such as clothing, and adopt certain uniform administrative 
practices such as accepting the uniform simplified electronic return 
(SER). Although these are requirements of membership, the requirements 
were developed through a transparent and cooperative process between 
the member States and the business community, and they represent 
solutions that have proven to work from both the State and the business 
perspectives.

    It should also be noted that it is not always that the State does 
not want to join SST. For example, in some cases, the business 
community may not support the State joining SST because they don't want 
the State to change one or more of the definitions it is currently 
using to the definitions required if it were a member of SST.
              encouraging more states to join streamlined
    Although the Wayfair decision determined that sellers who met 
either of South Dakota's economic nexus thresholds had substantial 
nexus in South Dakota, it did not change the Commerce Clause or the 
portion of the Quill decision which provides that States cannot 
discriminate against or impose undue burdens on interstate commerce. 
The Supreme Court also specifically noted various features of South 
Dakota's laws which it indicated ``. . . appear designed to prevent 
discrimination against or undue burdens upon interstate commerce. . . 
.''

    The specific features contained in the Streamlined Sales and Use 
Tax Agreement that were identified by the Court were that it:

        Standardizes taxes to reduce administrative and compliance 
costs;
        Requires a single, State-level administration;
        Provides uniform definitions of products and services;
        Requires simplified tax rate structures; and
        Other uniform rules;
        Provides sellers access to sales tax administration software 
paid for by the State; and
        Sellers who choose to use such software are immune from audit 
liability.

    Our member States believe that based on the Wayfair decision, they 
have addressed the issues and removed any undue burdens on or 
discrimination against interstate commerce by voluntarily conforming to 
the requirements of the Streamlined Sales and Use Tax Agreement in the 
same manner as the State of South Dakota. Therefore, our organization 
is not advocating for any Congressional action that would change what 
the SST member States have already done voluntarily.

    With respect to the States that are not participating in SST, our 
member States believe the requirements we have put in place are 
necessary to prevent discrimination against or undue burdens on 
interstate commerce as discussed in the Quill decision. We are open to 
discussing other alternatives that you or your colleagues believe would 
encourage more States to participate in SST and still prevent 
discrimination against or undue burdens on interstate commerce. We look 
forward to continuing to work with you and the committee on this 
endeavor.

                                 ______
                                 
                Question Submitted by Hon. Sherrod Brown
    Question. To start a new business under Wayfair and seek a national 
customer base carries a huge risk: any State might come after you--
might even criminally prosecute you--for failing to file complicated 
paperwork with that State.

    Big companies, like Wayfair itself, can easily hire people to 
handle sales tax. One person starting out in business can't. One person 
starting out in business might not even know what States they're 
selling to, since small businesses often get paid through platforms 
that handle the credit-card billing addresses.

    Yet, especially in the content industry, one person can make lots 
of small sales to customers nationwide, potentially triggering 
liability for tax compliance in numerous States without making enough 
money to hire someone to handle that compliance. The South Dakota law 
upheld in Wayfair applied to businesses with at least 200 transactions 
per year in that State. If just 17 South Dakotans subscribe to a 
newsletter and pay $5 a month, that's 204 transactions, but it's a mere 
$1,020 of gross revenue.

    What can the Senate do to reduce the risk to one-person, 
shoestring-budget businesses that don't have the resources to file 
taxes in 50 States, and to eliminate the deterrent effect of that risk?

    Answer. After the Wayfair decision was published, every State with 
a sales tax enacted an economic nexus threshold similar to South 
Dakota's State law (Missouri's State law is effective January 1, 2023). 
Some State legislatures subsequently revised their economic nexus 
thresholds to remove the number of transactions portion of their 
threshold. Those States recognized that the 200-transactions portion of 
their threshold resulted in remote sellers with a large number of very 
small dollar amount transactions in the State being required to 
calculate, collect, and remit the applicable sales or use tax for their 
State, but for a very small amount of tax being remitted.

    Congress may consider prohibiting States from including a number of 
transactions provision in its economic nexus threshold to help 
eliminate the risk to small businesses that have very low gross 
revenues in a State but a high volume of transactions from being 
required to calculate, collect, and remit the tax in those States.

    The SST member States have helped mitigate this risk for small 
businesses by implementing our certified service provider (CSP) 
program. Under the CSP program, sellers are able to outsource their 
sales and use tax responsibilities to entities that all 24 of our 
member States have certified. The CSPs handle everything from 
registering the seller in the member States, setting up and integrating 
the CSP's tax engine that calculates the tax due on a transaction with 
the seller's system, prepares and files the required returns in each of 
the member States, makes the necessary remittances, responds to notices 
from the member States and handles any audits by the member States. 
This is all done at no cost to CSP-compensated sellers in the member 
States under a contract the Streamlined Sales Tax Governing Board has 
with each of our CSPs. The SST member States compensate the CSPs for 
providing these services to the CSP-compensated sellers. A seller 
qualifies as a ``CSP-compensated seller'' if it meets the following 
criteria:

        No fixed place of business for more than 30 days in the 
Streamlined State;
        Less than $50,000 of property, as defined below, in the 
Streamlined State;
        Less than $50,000 of payroll, as defined below, in the 
Streamlined State;
        Less than 25 percent of its total property or total payroll, 
as defined below, in the Streamlined State; and
        Was not collecting sales or use tax in the Streamlined State 
as a condition for the seller or an affiliate of the seller to qualify 
as a supplier of goods or services to the Streamlined State.

                                 ______
                                 
 Prepared Statement of James R. McTigue, Jr., Director, Tax Policy and 
            Administration, Government Accountability Office

               Remote Sales Tax: Initial Observations on
                 Effects of States' Expanded Authority

Why GAO Did This Study

    Sales tax is an important revenue source for the 45 States with a 
statewide sales tax, making up an average of about one-third of States' 
total tax collections. Over the past quarter-century, electronic 
commerce (e-commerce) sales have grown rapidly. However, until recently 
States could not require e-commerce and other businesses operating out-
of-State to collect taxes on sales to residents of their States unless 
the business had a physical presence in the State.

    GAO was asked to testify on how States and businesses have been 
affected by the Wayfair decision. This statement summarizes GAO's 
findings from a November 2017 report (GAO-18-114) and initial 
observations from ongoing work examining (1) the current landscape of 
remote sales tax requirements, (2) how State revenue has been affected 
by these requirements, and (3) what types of costs businesses have 
incurred in complying with the requirements.

    For the part of this statement based on ongoing work, GAO 
administered a survey to revenue agencies in all 45 States with a 
statewide sales tax and the District of Columbia. Forty-three States 
and the District of Columbia responded, for a response rate of 95 
percent. GAO also interviewed multiple organizations representing 
States and businesses, as well as businesses engaged in e-commerce and 
multistate taxation, selected to represent a broad range of 
perspectives.

What GAO Found

    In its June 2018 decision, South Dakota v. Wayfair, the Supreme 
Court held that States could require out-of-State businesses (commonly 
referred to as remote sellers) to collect and remit sales taxes even in 
the absence of a physical presence, such as a store or warehouse in the 
State. Following Wayfair, States moved quickly to put in place new 
legal requirements for remote sellers, which often differed by State. 
As of June 2021, all 45 States with a statewide sales tax and the 
District of Columbia had adopted requirements governing sales tax 
collection by remote sellers based on an economic, as opposed to 
physical presence (such as a certain amount of sales into the State). 
All but one had also adopted requirements shifting primary tax 
collection obligations from sellers in an online marketplace to the 
company facilitating the sale, such as Amazon, eBay, and Etsy. These 
requirements vary in numerous respects, including effective dates, 
exemptions for small businesses below certain thresholds, and how those 
thresholds are calculated.

    State revenue agencies responding to GAO's 2022 survey attributed 
some increases in sales tax revenue to remote sales following the 
Wayfair decision. For example, 33 States provided data on 2021 
collections from remote sales, totaling around $23.1 billion. In 
addition, 20 States provided data on the portion attributable to 
marketplace sales, totaling around $9.5 billion (around 41 percent of 
total collections from remote sales reported that period).


                          State Remote Sales Tax Revenue Collections from 2018 to 2021
----------------------------------------------------------------------------------------------------------------
                                                                               Revenue from
                                       Revenue from all   Number of States   remote sales via   Number of States
                Year                  remote sales  (in      reporting      marketplaces  (in      reporting
                                          millions)                             millions)
----------------------------------------------------------------------------------------------------------------
2018                                            $3,200                 21               $344                  5
----------------------------------------------------------------------------------------------------------------
2019                                            $6,735                 28             $1,276                 12
----------------------------------------------------------------------------------------------------------------
2020                                           $16,328                 31             $6,529                 20
----------------------------------------------------------------------------------------------------------------
2021                                           $23,104                 33             $9,539                 20
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Source: GAO survey of the 45 States with a statewide sales tax and the District of Columbia. | GAO-22-106016
 
Note: This table combines calendar and fiscal year formats provided by States. Some States provided data on
  marketplace collections only, which may undercount total collections. Marketplaces include companies such as
  Amazon, eBay, and Etsy which facilitate sales on behalf of third-party sellers.


    In November 2017, GAO identified costs associated with multistate 
sales tax collection: software-related costs, audit and assessment 
costs, and costs associated with research and liability. GAO confirmed 
in its ongoing work that remote sellers incurred costs in these 
categories as they took steps to comply with new remote sales tax 
requirements. Among other things, businesses incurred costs to 
establish software for expanded multistate tax collection and audit and 
assessment costs associated with increased exposure to more tax 
jurisdictions. Businesses also incurred costs to stay current with 
legal requirements in multiple jurisdictions but were still exposed to 
liability risks, including liability for past sales. For example, many 
States' remote sales tax requirements became effective within about 3 
months of Wayfair. However, some businesses were unable to comply with 
these requirements until well after the effective dates, thereby 
exposing them to liability for sales made after those dates.
_______________________________________________________________________

    Chairman Wyden, Ranking Member Crapo, and members of the committee, 
I am pleased to be here today to discuss our work on States' collection 
of sales taxes from out-of-State businesses, including how States and 
businesses have been affected by States' expanded taxing authority.\1\
---------------------------------------------------------------------------
    \1\ Generally, ``sales tax'' refers to the tax collected by in-
State sellers on goods and services at the point of sale, while ``use 
tax'' refers to the equivalent tax imposed on the purchaser for the 
privilege of use, ownership, or possession of tangible goods or 
services. States may require remote sellers to collect and remit use 
taxes under certain circumstances. For this testimony, and in keeping 
with common usage, we generally use the term ``sales tax'' to refer to 
both situations.

    Sales tax is an important revenue source for the 45 States with a 
statewide sales tax.\2\ On average, States receive about one-third of 
their total tax collections from general sales taxes.\3\ Over the past 
quarter-century, electronic commerce (e-
commerce) sales have grown rapidly. However, until recently States 
could not require e-commerce and other businesses operating out-of-
State (commonly referred to as remote sellers) to collect taxes on 
sales to residents of their States unless the business had a physical 
presence, such as a brick-and-mortar store or a warehouse in the 
State.\4\ Customers were required to report online and other remote 
purchases on annual State tax returns, but compliance was negligible 
and difficult to enforce.\5\
---------------------------------------------------------------------------
    \2\ Five States have no statewide sales tax: Alaska, Delaware, 
Montana, New Hampshire, and Oregon.
    \3\ In addition to the States with no statewide sales tax, the 
outliers are the States that have no broad-based individual income tax 
and thus rely more heavily on sales tax: Florida, Nevada, South Dakota, 
Tennessee, and Texas.
    \4\ Under Quill v. North Dakota and its antecedents, the Supreme 
Court interpreted the Commerce Clause of the United States Constitution 
as prohibiting States from taxing sellers without a physical presence 
in the State. 504 U.S. 298, 317-318 (1992).
    \5\ For example, a 2015 study prepared for the Minnesota 
legislature observed that in the 27 States that allow taxpayers to pay 
use taxes on their State income tax returns, only about 1 to 2 percent 
of returns included use taxes. See, Minnesota House of Representatives, 
``Use Tax Collection on Income Tax Returns in Other States,'' updated 
2015, www.house.leg.state.mn.us/hrd/pubs/usetax.pdf, accessed May 24, 
2022.

    As remote sales began to make up a larger portion of total sales, 
some States worried about revenue loss and enacted sales tax collection 
requirements for remote sellers, even those that did not have a 
physical presence in the State. In its June 2018 landmark decision, 
South Dakota v. Wayfair, the Supreme Court held that States could 
require remote sellers to collect and remit sales taxes even in the 
absence of a physical presence in the State, thereby paving the way for 
enforcement of these types of State requirements.\6\
---------------------------------------------------------------------------
    \6\ South Dakota v. Wayfair, Inc., 585 U.S., ___, 138 S. Ct. 2080 
(2018).

    The Wayfair majority and dissenting opinions both cited our prior 
work on remote sales tax issues, published in November 2017.\7\ The 
majority cited, among other things, our finding that States could have 
gained an estimated $8 to $13 billion in 2017 if given expanded 
authority to collect sales taxes from remote sellers without a physical 
presence in the State.\8\ The dissent cited, among other things, our 
findings on the costs and challenges business would likely face if 
States were given this authority.\9\
---------------------------------------------------------------------------
    \7\ GAO, Sales Taxes: States Could Gain Revenue From Expanded 
Authority, but Businesses Are Likely to Experience Compliance Costs, 
GAO-18-114 (Washington, DC: November 16, 2017). We also published 
reports on this issue is 2001 and 2000: GAO, Update on State and Local 
Revenue Loss from Internet Sales, GAO-02-83R (Washington, DC: November 
6, 2001); Sales Taxes: Electronic Commerce Growth Presents Challenges; 
Revenue Losses Are Uncertain, GAO/GGD/OCE-00-165 (Washington, DC: June 
30, 2000).
    \8\ Wayfair, 138 S. Ct. at 2088.
    \9\ Wayfair, 138 S. Ct. at 2103.

    In my statement today, I will draw on data and observations from 
our 2017 report as well as initial observations from our ongoing work 
on remote sales taxes since the Wayfair decision. I will discuss (1) 
the current landscape of State remote sales tax requirements, (2) how 
State revenue has been affected by these requirements, and (3) what 
types of costs businesses have incurred in complying with these 
---------------------------------------------------------------------------
requirements.

    For the part of this statement that is based on ongoing work, we 
reviewed existing literature on State and local requirements 
implemented in response to (or enforceable as a result of) the Wayfair 
decision, as well as the requirements themselves. We also tracked and 
reviewed related litigation and legislation, where relevant. 
Additionally, we administered a survey in February 2022 to revenue 
agencies in all 45 States with a statewide sales tax and the District 
of Columbia to learn more about their experiences collecting sales tax 
from remote sellers without a physical presence in their State. Forty-
three States and the District of Columbia responded, for a response 
rate of 95 percent.

    In addition, as of May 2022, we conducted semi-structured 
interviews with five organizations representing States and State 
officials, three State revenue agencies, six academic and private 
entities studying these issues, seven organizations representing 
businesses, five organizations providing assistance to businesses 
(including software, legal, and accounting firms), and 14 businesses 
engaged in e-commerce and multistate taxation. We selected interview 
subjects to represent a broad range of perspectives.

    Information on our objectives, scope, and methodology for the 2017 
report can be found in the issued product.\10\
---------------------------------------------------------------------------
    \10\ GAO-18-114.

    We conducted the work on which this statement is based in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on audit objectives. We believe the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives.
                 the current remote sales tax landscape
    Following the Wayfair decision, States moved quickly to put in 
place new legal requirements for remote sellers, which often differed 
by State. As of June 2021, all 45 States with a statewide sales tax and 
the District of Columbia had adopted requirements governing sales tax 
collection and remittance by remote sellers based on an economic, as 
opposed to physical, presence (referred to as nexus).\11\ In addition, 
all but Oklahoma had adopted marketplace facilitator requirements 
shifting primary tax collection obligations from sellers in an online 
marketplace to the company facilitating the sale, such as Amazon, eBay, 
and Etsy.\12\ These requirements vary in numerous respects, including 
the following.
---------------------------------------------------------------------------
    \11\ The Supreme Court has interpreted the Constitution's Commerce 
Clause requirement of substantial nexus as requiring a sufficient 
connection between a State and a taxpayer in order for the State to 
impose a tax. For sales tax purposes, following Wayfair, substantial 
nexus could be met through economic, as opposed to physical, means, 
such as through a certain amount of sales into a State.
    \12\ Unlike other States, Oklahoma provides marketplace 
facilitators the option to report on sales into the State as an 
alternative to collecting and remitting sales taxes. Okla. Stat. title 
68, Sec. 1392.
---------------------------------------------------------------------------
Adoption Dates
    Some States adopted economic nexus sales tax requirements prior to 
the Wayfair decision.\13\ For example, Connecticut, New York, and 
Minnesota imposed collection and remittance requirements on remote 
sellers with economic, as opposed to physical, nexus in advance of the 
Supreme Court considering whether to overturn the physical presence 
requirement in the case of Quill v. North Dakota.\14\ However, in 1992 
the Quill decision upheld the requirement that States could not impose 
tax collection and remittance obligations on businesses with no 
physical presence in the State. Subsequently, States left these early 
economic nexus requirements on the books, but until recently they were 
largely unenforced or unenforceable.\15\
---------------------------------------------------------------------------
    \13\ Also prior to Wayfair, States enacted a variety of 
requirements based on alternative theories of nexus. These included 
``affiliate'' and ``click-through'' nexus, which apply collection 
obligations to remote businesses on the basis of affiliated in-State 
third parties (such as bloggers) acting to promote the business's 
products. In addition, some States enacted ``notice and reporting'' 
requirements, requiring remote sellers not collecting taxes on out-of-
State sales to notify customers that they may be liable for use taxes 
to their home State and to send out-of-State customers an annual 
summary of purchases for which sales tax was not collected; data from 
these summaries are shared with State revenue agencies which can use 
the information for enforcement purposes. States have repealed some, 
but not all, of these types of requirements since Wayfair.
    \14\ 1989 Conn. Pub. Acts 57-59, codified at Conn. Gen. Stat. 
Sec. 12-407(12), (15); 1989 N.Y. Laws 1830, 1923, codified at N.Y. Tax 
Law Sec. 1101(b)(8)(i)(E), (iv); 1988 Minn. Sess. Law Serv. 719, 
(West), codified at Minn. Stat. Ann. Sec. 297A.66, subdiv. 1, (b), 
subdiv. 2, previously codified at Minn. Stat. Ann. Sec. 297A.21, 
subdiv. 4.
    \15\ For example, in 1992 the Connecticut Department of Revenue 
published a notice stating that because its remote seller statutory 
requirements were ``virtually identical'' to those struck down in 
Quill, the department would not enforce those requirements. Conn. Dept. 
of Rev., Special Notice 92(19) (1992). In contrast, a Tennessee tax was 
ruled unconstitutional under Quill as applied to a bank without a 
physical presence in the State. J.C. Penny Nat'l Bank v. Comm'r of 
Revenue Johnson, 19 S.W.3d 831 (Tenn. Ct. App. 1999), cert. denied, 531 
U.S. 927 (2000).

    Similarly, more than a dozen States adopted collection and 
remittance requirements for remote sellers with economic nexus in the 
months leading up to the Court's reconsideration of the physical 
presence requirement in Wayfair. When the Court overruled Quill's 
physical presence requirement in June 2018, the District of Columbia 
and all but two of the remaining 45 States with a statewide sales tax 
moved quickly to adopt sales tax collection and remittance requirements 
based on remote sellers' economic nexus, each doing so by the end of 
2019. Florida and Missouri were the last to follow suit with 
legislation in 2021.\16\
---------------------------------------------------------------------------
    \16\ 2021 Fla. Laws ch. 2021-2, codified at Fla. Stat. 
Sec. 212.0596; 2021 Mo. Laws 982, 1047, codified at Mo. Ann. Stat. 
Sec. 144.605(f).
---------------------------------------------------------------------------
Effective Dates
    Following the Wayfair decision, the dates by which remote sellers 
had to comply with these requirements varied across States, ranging 
from the day Wayfair was decided (June 21, 2018) to January 1, 2023. 
Consequently, remote sellers had to be aware of multiple dates on which 
one or more States' requirements became effective. In addition, they 
had to be ready to comply with some States' requirements in a very 
short time frame, many within about 3 months of Wayfair. For example,

        New York announced that its remote seller requirements became 
immediately effective once Wayfair was decided (June 21, 2018);\17\
---------------------------------------------------------------------------
    \17\ New York State Department of Taxation and Finance, 
``Registration requirement for businesses with no physical presence in 
New York State,'' https://www.tax.ny.gov/pubs_and_bulls/publications/
sales/nexus.htm, accessed May 18, 2022.
---------------------------------------------------------------------------
        Maine and Vermont imposed remote seller requirements with 
effective dates that were less than 2 weeks after Wayfair (July 1, 
2018);\18\
---------------------------------------------------------------------------
    \18\ 2016 Vt. Acts and Resolves 285, 302. Maine announced it would 
enforce its remote seller requirements for sales made on or after July 
1, 2018. Maine Revenue Services, ``Guidance for Remote Sellers,'' 
https://www.maine.gov/revenue/taxes/sales-use-service-provider-tax/
guidance-documents/remote-sellers, accessed May 24, 2022.
---------------------------------------------------------------------------
        Mississippi announced it would enforce its remote seller 
requirements starting about 2 months after Wayfair (September 1, 
2018);\19\ and
---------------------------------------------------------------------------
    \19\ Mississippi Department of Revenue, ``Sales and Use Tax 
Guidance for Online Sellers,'' http://www.dor.ms.gov/Business/
Documents/Online%20Seller%20Guidance.pdf, accessed May 5, 2022.
---------------------------------------------------------------------------
        Alabama, Illinois, Maryland, Michigan, and Washington imposed 
remote seller requirements with effective dates that were about 3 
months after Wayfair (October 1, 2018).\20\
---------------------------------------------------------------------------
    \20\ Ala. Admin. Code Sec. 810-6-2-.90.03(3)(a); Ill. Comp. Stat. 
105/2; Md. Code. Reg. 03.06.01.33(C); Mich. Comp. Laws Sec. 205.52C; 
Wash. Rev. Code Sec. 82.08.052(1)(a).

    Other States' had effective dates for remote sellers further out, 
including Georgia on January 1, 2019; California on April 1, 2019; and 
Missouri, which is set for January 1, 2023.\21\
---------------------------------------------------------------------------
    \21\ 2018 Ga. Laws 259, 261; Cal. Rev. and Tax. Code 
Sec. 6203(f)(1); 2021 Mo. Laws 982, 1047, codified at Mo. Ann. Stat. 
Sec. 144.605(f).
---------------------------------------------------------------------------
Economic Thresholds
    Another variation that businesses face is that States have 
established different monetary and transactional thresholds exempting 
some small businesses from remote sales tax requirements. In addition 
to differing threshold values, States vary regarding how the thresholds 
are calculated, including which sales are included and the time periods 
over which the sales occur.

        Threshold value. As shown in figure 1, as of April 2022, 22 
States and the District of Columbia had adopted economic nexus 
threshold values of $100,000 in sales or 200 transactions into the 
State each year.\22\ Three large-population and large-Gross Domestic 
Product States (California, New York, and Texas) adopted higher 
monetary thresholds of $500,000.\23\ More recently, some States 
(including Florida, Kansas, and Missouri) adopted monetary thresholds 
without an accompanying transactional threshold.\24\ Other States 
(including Iowa and Maine) eliminated transactional thresholds in favor 
of monetary-only thresholds.\25\ Some States also raised or lowered 
their monetary thresholds, including Tennessee which moved from 
$500,000 to $100,000.\26\ States differ regarding whether a business 
meets these thresholds when its sales equal or exceed the stated 
values.\27\ For example, both Illinois and Indiana have thresholds of 
$100,000 or 200 transactions; but in Illinois the $100,000 threshold is 
met when sales equal this amount whereas in Indiana it is met when 
sales exceed this amount.\28\
---------------------------------------------------------------------------
    \22\ The South Dakota law at issue in Wayfair had a threshold of 
more than $100,000 worth of goods or services delivered into the State 
or 200 or more transactions for the delivery of goods and services into 
the State on an annual basis. The Court concluded that this quantity of 
business, along with the taxpayers being large national companies with 
extensive virtual presence, satisfied the requirement to have a 
substantial nexus with the State. Wayfair, 138 S. Ct. at 2089.
    \23\ Cal. Rev. and Tax. Code Sec. 6203(c)(4)(A); N.Y. Tax Law 
Sec. 1101(b)(8)(iv); 34 Tex. Admin. Code Sec. 3.286(b)(2)(B).
    \24\ Fla. Stat. Sec. 212.0596(1)(b); Kan. Stat. Ann. Sec. 79-
3702(h)(1)(G); Mo. Ann. Stat. Sec. 144.605(f).
    \25\ 2019 Iowa Acts 535, 539, codified at Iowa Code 
Sec. 423.14A(3)(a); Me. Rev. Stat. title 36, Sec. 1754-B(1-B)(B).
    \26\ 2020 Tenn. Pub. Acts ch. 759, at 4, codified at Tenn. Code 
Ann. Sec. 67-6-524(b). The prior threshold had been set by regulation 
in 2016 at $500,000. Tenn. Comp. R. and Regs. 1320-05-01.129(2).
    \27\ In addition, as discussed below, different sales are counted 
toward the monetary threshold in all States, so $100,000 of the same 
sales into two States--each with a $100,000 threshold--could be above 
the threshold in one State but below it in the other.
    \28\ 35 Ill. Comp. Stat. 105/2; Ind. Code 6-2.5-2-1.

    [GRAPHIC] [TIFF OMITTED] T1422.001
    

    .eps    Type of sales. Some States use total gross sales, but 
others use retail sales as a basis for determining whether numeric 
thresholds have been reached.\29\ For example, California's threshold 
is total sales of tangible personal property for delivery into 
California.\30\ In comparison, Minnesota's threshold is retail sales, 
made or facilitated, from outside Minnesota to destinations in the 
State.\31\
---------------------------------------------------------------------------
    \29\ At least one State, New Mexico, includes leases and licenses--
in addition to sales--in determining whether its threshold of $100,000 
of total taxable receipts is met. N.M. Stat. Ann. Sec. 7-3.3.
    \30\ Cal. Rev. and Tax. Code Sec. 6203(c)(4)(A).
    \31\ Minn. Stat. Sec. 297A.66, subdiv. 1, (c)(2).

        Treatment of tax-exempt sales. Six States--Arkansas, Florida, 
Missouri, New Mexico, North Dakota, and Oklahoma--include only taxable 
sales in their threshold calculations, excluding all tax-exempt 
sales.\32\ In contrast, other States include some or all tax-exempt 
sales in their threshold calculations. Furthermore, the types of sales 
States exempt from sales taxes vary considerably State-to-State. In 
some States, only sales of tangible personal property are taxed while 
all other sales are tax exempt. In other States, some or all services 
are also taxed. In addition, some States impose taxes on the sale of 
certain digital products.
---------------------------------------------------------------------------
    \32\ Ark. Code Ann. Sec. 26-52-111(a); Fla. Stat. 
Sec. 212.0596(1)(b); Mo. Ann. Stat. Sec. 144.605(f); N.M. Stat. Ann. 
Sec. 7-3.3; N.D. Cent. Code 57-39.2-02.2; Okla. Stat. title 68, 
Sec. 1392(A), (G)(1).

        Treatment of marketplace sales. In some States, sales made via 
a marketplace facilitator are excluded from the threshold calculation 
for remote sellers, while in others marketplace sales are included in 
---------------------------------------------------------------------------
that calculation.

        Measurement period. In some States thresholds are calculated 
based on sales made during the prior or current calendar year. In other 
States, measurement periods differ. Examples include the prior 12 
months, the prior four sales tax quarters, and the 12-month period 
ending on the last day of the most recently completed calendar quarter.
When a Business Must Register After Exceeding a Threshold
    Once a business exceeds the economic nexus threshold in a State, 
requirements vary widely regarding when the business must register with 
the State for sales tax collection purposes. For example, according to 
a May 2022 analysis by the Sales Tax Institute, in some States (such as 
Maine, Mississippi, South Dakota, and Wisconsin) a business must 
register as soon as it makes the next transaction into the State after 
exceeding the threshold.\33\ Other time frames noted in the analysis 
include the day the threshold is exceeded (California), the first of 
the month after it is exceeded (Hawaii and Maryland), the first of the 
second month after it is exceeded (South Carolina and Nebraska), and 
the first of January after it is exceeded (Alabama, Michigan, New 
Mexico, and Rhode Island).
---------------------------------------------------------------------------
    \33\ The Sales Tax Institute provides training, consulting 
services, and educational resources regarding sales and use taxes 
designed for finance, accounting, and tax professionals.
---------------------------------------------------------------------------
Other Definitions
    In addition to the differences described above, States vary in 
other definitions related to remote sales tax requirements. For 
example, some States have a narrow definition of what constitutes a 
marketplace facilitator, which generally requires direct or indirect 
processing or collection of the customer's payment. This includes 
Maryland, which defines a marketplace facilitator as one that 
facilitates a retail sale by a marketplace seller by listing or 
advertising the sale in a marketplace, collects payment from the buyer, 
and transmits payment to the marketplace seller.\34\ In contrast, other 
States have broader definitions of marketplace facilitators. For 
example, a business may fall within one of these States' definitions of 
marketplace facilitator if it provides a product listing on its 
website, even though it is not associated with the financial aspects of 
seller transactions.
---------------------------------------------------------------------------
    \34\ Md. Code Ann. Tax-Gen. Sec. 11-101(c-6)(1).
---------------------------------------------------------------------------
Local Sales Taxes
    Local sales taxes add an additional layer of complexity to tax 
compliance for remote sellers. Of the 45 States with a statewide sales 
tax, 37 also have local sales taxes. In addition, while Alaska does not 
have a statewide sales tax, it does have local sales taxes.\35\
---------------------------------------------------------------------------
    \35\ Montana is another State with no statewide sales tax. However, 
Montana law permits certain resort communities to impose a resort tax 
on the sale of good and services. Mont. Code Ann. 7-6-1501 to 7-6-1551. 
Because this is limited, for purposes of this report (and consistent 
with general practice in the field), we do not include Montana in our 
count of States with local sales taxes.

    Local sales tax authority varies widely. In some States, only 
selected jurisdictions may impose a sales tax, while in others a broad 
range of jurisdictions--such as counties, municipalities, and various 
local authorities--may opt, either by ordinance or local referendum, to 
impose a sales tax. Tax policy specialists have estimated that 
approximately 30,000 local jurisdictions in the U.S. have the authority 
to impose sales taxes and that between 10,000 and 12,000 do.\36\
---------------------------------------------------------------------------
    \36\ Arthur R. Rosen and Susan K. Haffield, ``Sales and Use Taxes: 
Streamlined Sales Tax System,'' Bloomberg Law, Portfolio 1270-1st 
(2022); GAO-18-114.

    The Streamlined Sales and Use Tax Agreement (SSUTA) is an 
initiative aimed at simplifying business compliance with State and 
local sales taxes.\37\ As a condition of membership, member States must 
have State-level administration of State and local sales taxes, 
uniformity across State and local tax bases (with some exceptions), and 
databases for businesses to identify local rates and boundaries. Of the 
38 States with local sales taxes, 20 are SSUTA members and have agreed 
to these simplification measures.\38\ Of the 18 States with local sales 
taxes that are not SSUTA members, the majority, according to tax policy 
specialists, have independently put in place systems to levy all taxes, 
both State and local, at the State level, administered by a single 
State tax agency and using the same tax base.
---------------------------------------------------------------------------
    \37\ The SSUTA is administered by the Streamlined Sales Tax 
Governing Board, which is comprised of representatives from each of the 
24 SSUTA member States. The initiative formally began in March 2000 as 
a cooperative effort undertaken by several States to find solutions for 
complexity in State and local sales tax systems.
    \38\ In the Supreme Court's Wayfair decision, the Court noted that 
South Dakota's SSUTA membership was one among several feature that 
appeared ``designed to prevent discrimination against or undue burdens 
upon interstate commerce.'' Wayfair, 138 S. Ct. at 2099-2100.

    However, some States have given authority to local governments to 
establish and administer their own sales taxes, separate and apart from 
the State tax. These States are generally the most complex in terms of 
local sales tax compliance. In these States, tax bases and filing 
schedules can differ across the jurisdictions within a State. As a 
result, businesses must file separate tax returns and remittances with 
each jurisdiction. Moreover, each jurisdiction may audit the same 
business. Since Wayfair, many localities have begun imposing sales tax 
---------------------------------------------------------------------------
requirements based on economic nexus on remote businesses.

    Four States are often cited by tax policy specialists as presenting 
substantial challenges for remote sales tax collection: Alabama, 
Alaska, Colorado, and Louisiana. Each of these States has numerous 
localities that administer their own unique sales taxes. According to 
our review of State documentation and other third-party legal analysis, 
Alabama has over 300, Alaska has over 100, Colorado has 70, and 
Louisiana has 64. Each of these States has a centralized system to 
streamline registration and filing for remote businesses.\39\ In 
addition, municipal leagues in Alaska and Colorado developed model laws 
to standardize some local requirements.
---------------------------------------------------------------------------
    \39\ These systems are Alabama's Simplified Sellers Use Tax 
program, Alaska's Remote Seller Sales Tax Commission, Colorado's Sales 
and Use Tax System, and Louisiana's Sales and Use Tax Commission for 
Remote Sellers.

    Despite these efforts, several complexities remain for local sales 
---------------------------------------------------------------------------
tax compliance:

        Limited local participation in some centralized systems. In 
Alaska and Colorado, not all localities that administer their own sales 
taxes participate in the centralized system. As of April 2022, 
approximately 48 percent of such localities in Alaska and approximately 
74 percent in Colorado had joined the States' centralized systems, 
according to the systems' websites. Consequently, businesses selling 
into these States must be aware of which localities have joined the 
centralized systems and must register with and remit separately to 
those that have not.
        Varying tax rates and bases. In Alaska, Colorado, and 
Louisiana, remote businesses must still contend with varying tax bases 
and rates across localities. In contrast, remote businesses selling 
into Alabama collect sales tax at a flat 8-percent combined State and 
local rate, with the funds then apportioned to State and local 
coffers.\40\ Alabama State law also requires that local tax bases 
follow those set by the State.\41\
---------------------------------------------------------------------------
    \40\ Louisiana previously had a flat 8.45 percent combined State 
and local sales tax rate which remote businesses could voluntarily 
collect and remit, but this changed effective July 2020.
    \41\ Ala. Code Sec. Sec. 11-51-200, 40-12-4.
---------------------------------------------------------------------------
        Limited business access to some centralized systems. The 
centralized systems in Alabama, Alaska, and Louisiana are designed for 
remote businesses only, not those with substantial nexus for other 
reasons, such as physical presence. If the activity of a remote 
business results in establishment of nexus for other reasons, the 
business may lose access to the simplified system and have to contend 
with a separate, more complex one. For example, in Alabama, this would 
mean the business is no longer able to collect at the flat rate for 
remote sellers, and must instead manage the State's varying local 
rates. In Louisiana, this would mean no longer being able to register 
with and remit through the centralized system for remote sellers, and 
instead having to do so with each locality individually.\42\
---------------------------------------------------------------------------
    \42\ In 2021, Louisiana enacted a law proposing a constitutional 
amendment to create a new administrative body which would have 
consolidated all State and local sales tax filings for both in-State 
and remote businesses. 2021 La. Acts. No. 131. However, Louisiana 
voters rejected the amendment in November 2021.

        Local audit challenges. While the centralized systems in 
Alabama, Alaska, and Louisiana perform all audit functions on behalf of 
member localities, Colorado's centralized system does not. 
Consequently, businesses are subject to audit by each local taxing 
jurisdiction they sell into.
         states attribute some increases in sales tax revenue 
                      to post-wayfair remote sales
    In our November 2017 report, we estimated that States would gain 
additional revenue if given expanded authority to collect sales tax 
from remote sellers without a physical presence in the State.\43\ At 
the time, based on our analysis of nearly 1,000 Internet retail 
companies, we estimated that about 80 percent of the potential revenue 
from requiring all Internet retailers to collect sales tax was already 
being collected. Many of the largest Internet sellers were established 
retail chains or consumer brands with a physical presence, such as 
retail stores, in all, or nearly all, of the 45 States (plus the 
District of Columbia) that have a statewide sales tax. Our estimates of 
additional revenue States could have gained in 2017 if given the 
ability to collect from remote sellers the remaining taxes that they 
were already owed from purchasers ranged from more than $1 billion for 
more populated States like California and Texas to about $20 million 
for less populated States such as Vermont and Wyoming. We estimated the 
average gain could be about $200 million per State. As a result of 
Wayfair, all States now have expanded authority to collect this revenue 
from remote sellers without a physical presence in the State.
---------------------------------------------------------------------------
    \43\ GAO-18-114.

    In our ongoing work, we administered a survey in February 2022 to 
revenue departments in the 45 States with a statewide sales tax and the 
District of Columbia to learn more about their experiences collecting 
sales taxes following the Wayfair decision. Of the 46 surveys we 
administered, 43 States and the District of Columbia responded, for a 
response rate of 95 percent.\44\
---------------------------------------------------------------------------
    \44\ In our discussion of survey questions and responses that 
follow, we treat the District of Columbia as a State to simplify our 
reporting of the results.

    Among the questions we asked States was whether they could provide 
data on the amount of sales tax revenue they had collected between 2018 
and 2021 from remote sellers (which we defined as out-of-State sellers 
with economic but not physical nexus) both directly and via marketplace 
facilitators. As shown in table 1, for the 2018 reporting period, 21 
States provided data in response to this question. These States 
reported a total of around $3.2 billion in 2018 revenue collections. 
This total increased each year following the Wayfair decision.\45\ For 
the 2021 reporting period, 33 States provided data in response to this 
question. These States reported a total of around $23.1 billion in 2021 
revenue collections.\46\
---------------------------------------------------------------------------
    \45\ States provided data in calendar and fiscal year formats. For 
purposes of this testimony, we combine these responses into four 
reporting periods (2018 to 2021) based on the calendar or fiscal year 
that States reported.
    \46\ Some States provided collections data for remote sellers 
remitting directly separately from collections data for those remitting 
via marketplace facilitators. In these cases, we combined the two sets 
of data.

    In our survey, we also asked States about the amount of revenue 
from remote sellers that they could attribute to sales made through 
marketplace facilitators.\47\ For the 2018 reporting period, five 
States provided data in response to this question, totaling around $344 
million (or approximately 11 percent of total collections from remote 
sales reported for that period).\48\ For the 2021 reporting period, 20 
States provided data in response to this question, totaling around $9.5 
billion (or around 41 percent of total collections from remote sales 
reported for that period). In our November 2017 report, we estimated 
that, of the additional revenue States could gain if given expanded 
authority to collect sales taxes from remote sellers without a physical 
presence in the State, nearly half would result from collections on 
marketplace sales.\49\
---------------------------------------------------------------------------
    \47\ Some States indicated that where marketplace facilitators sold 
their own goods in addition to facilitating sales by others, they were 
unable to remove the former from their collections data. In addition, 
some States' marketplace data may include revenue from third-party 
sellers with a physical presence in some of the States into which they 
sell. We include these responses in the total collections reported 
here.
    \48\ Not all responding States had laws requiring marketplace 
collection of sales taxes in 2018, which may explain the relatively few 
number of States that responded for this period with collections data.
    \49\ GAO-18-114.


                     Table 1: State Remote Sales Tax Revenue PCollections from 2018 to 2021
----------------------------------------------------------------------------------------------------------------
                                          Revenue from all remote sales         Revenue from remote sales via
                                     --------------------------------------             marketplaces
                Year                                                       -------------------------------------
                                        Total revenue     Number of States    Total revenue     Number of States
                                        (in millions)        reporting        (in millions)        reporting
----------------------------------------------------------------------------------------------------------------
2018                                            $3,200                 21               $344                  5
----------------------------------------------------------------------------------------------------------------
2019                                            $6,735                 28             $1,276                 12
----------------------------------------------------------------------------------------------------------------
2020                                           $16,328                 31             $6,529                 20
----------------------------------------------------------------------------------------------------------------
2021                                           $23,104                 33             $9,539                 20
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
 Source: GAO survey of revenue departments in the 45 States with a statewide sales tax and the District of
  Columbia. | GAO-22-106016
 
Note: This table combines calendar and fiscal year formats provided by States. Some States provided data on
  marketplace collections only, which may undercount total collections. Marketplaces include companies such as
  Amazon, eBay, and Etsy which facilitate sales on behalf of third-party sellers.


    Data from the U.S. Census Bureau show that e-commerce sales 
generally experienced a faster growth rate than overall retail sales 
between 2017 and the onset of the COVID-19 pandemic in early 2020, and 
consequently grew as a proportion of total retail sales (see fig. 2). 
Then, between the first two quarters of 2020, e-
commerce sales experienced a sharp increase. However, from the third 
quarter of 2020 through the fourth quarter of 2021, e-commerce sales 
were trending back toward pre-pandemic levels.

[GRAPHIC] [TIFF OMITTED] T1422.002


           .epsbusinesses incurred several types of costs to 
               comply with remote sales tax requirements
    In our November 2017 report, we identified various costs associated 
with the typical steps involved in multistate sales tax collection.\50\ 
We grouped these costs into three broad categories: software-related 
costs, audit and assessment compliance costs, and costs associated with 
research and liability. In our ongoing work, businesses and 
organizations that represent or assist businesses reported that 
businesses incurred costs in each of these categories as they took 
steps to comply with remote sales tax requirements.
---------------------------------------------------------------------------
    \50\ GAO-18-114.
---------------------------------------------------------------------------
 Businesses Incurred Costs to Establish Software for Expanded 
        Multistate Tax Collection
    Businesses and other organizations we spoke with in our ongoing 
work stated that purchasing or developing software is essential for 
multistate tax collection, given the legal complexities involved. 
Regardless of the size of the business, almost all of the businesses we 
spoke with used software for multistate tax collection in order to 
automate a variety of functions such as:

        Tracking sales into a State to inform nexus determinations;
        Determining the correct sales tax rate for each sale;
        Collecting and remitting the tax; and
        Managing sales tax exemption certificates.\51\
---------------------------------------------------------------------------
    \51\ An exemption certificate enables a buyer to purchase an item 
tax free which would ordinarily be subject to sales tax. These 
certificates are often used where the buyer is a nonprofit or 
government entity or intends to resell the purchased item.

    The use of software for multistate tax collection includes one-time 
start-up costs, such as mapping products sold to tax categories used by 
the software and by States and integrating the software with existing 
business software and operations, as well as ongoing usage costs. As we 
reported in 2017, ongoing usage costs typically increase with the 
number of States that a seller sells into and with the amount of 
sales.\52\ Furthermore, businesses using customized software might face 
higher costs, as would businesses that had not previously collected 
sales tax.
---------------------------------------------------------------------------
    \52\ GAO-18-114.

    Some software-related costs are reduced, or removed, for certain 
remote sellers that sell into SSUTA member States and register with the 
SSUTA organization.\53\ A representative of the SSUTA organization told 
us in October 2021 that SSUTA had an estimated 16,000 registered 
sellers. Some businesses that we spoke with in our ongoing work said 
they did not register with the SSUTA organization because it initially 
required remote sellers to register in all member States regardless of 
meeting a State's economic nexus threshold. The SSUTA organization has 
since revised this requirement. In addition, some non-SSUTA-member 
States, such as Pennsylvania and Illinois, have also made software 
available at a free or reduced rate.
---------------------------------------------------------------------------
    \53\ To qualify for free or reduced cost services, remote sellers 
must meet certain criteria, such as having less than $50,000 of payroll 
in the past year or not having a fixed place of business for more than 
30 days in a member State.

    In general, businesses and other organizations we spoke with in our 
ongoing work stated that currently available software has some 
limitations. For example, some businesses and organizations expressed 
concern about how accurate software is at the local level. One 
organization explained that some software providers lack sufficiently 
detailed information to handle sales tax collection at the local level. 
In addition, software will not tell a company in which jurisdictions it 
---------------------------------------------------------------------------
must register or which product categories it should use for mapping.

    However, businesses are ultimately liable for errors made in tax 
collection and remission. For example, one business that reported 
around $40 million in gross receipts told us it incurred a cost of 
almost $250,000 beyond taxes owed due to an error in the software code. 
The business said it identified a programming error that resulted in a 
sales tax underpayment to States over a roughly 1-year period. One 
employee estimated spending 80 hours to identify the error and prepare 
relevant documentation. According to the business, with paid assistance 
from an accounting company, it had to file at least 350 amended tax 
returns for the time period in question and remit back taxes with 
accrued interest and penalties.
 Businesses Incurred Audit and Assessment Costs Associated With 
        Increased Exposure to More Tax Jurisdictions
    In our November 2017 report, we found that, if States were allowed 
to require businesses to collect tax on remote sales, audit and 
assessment related costs for businesses would likely rise given 
increased exposure to more tax jurisdictions.\54\ According to 
businesses that we spoke with in our ongoing work, State-level audits 
on sales tax collections are taking place. One provider of software for 
multistate tax collection told us that it is beginning to see some of 
the first audits of businesses' remote sales tax collections and that 
it expects audit activity to increase.
---------------------------------------------------------------------------
    \54\ GAO-18-114.

    An attorney whose firm advises and represents businesses in sales 
tax matters told us he has also seen an increase in sales tax audits 
since Wayfair, not just by States but also by localities. Several 
businesses that we spoke with told us about audits they had undergone 
related to remote sales taxes since Wayfair. For example, one business 
said that just as it was paying an assessment by one State following an 
audit, two other States initiated audits of the business and an 
additional State recently informed the businesses that it will be 
---------------------------------------------------------------------------
auditing the business soon.

    In November 2017, we reported that some businesses told us that, 
pre-Wayfair, they already expended substantial resources responding to 
audits on sales tax collection and remittance.\55\ These costs included 
making staff available, developing justifications for tax claims, and 
complying with document or information requests. In our ongoing work, 
multiple businesses told us they were concerned about being audited for 
remote sales tax collections. Some predicted that these audits would 
eventually impose substantial costs on businesses, with the greatest 
expense being staff time, which they said diverted business resources 
from operating and growing the business.
---------------------------------------------------------------------------
    \55\ GAO-18-114.

    In our ongoing work, we learned through our interviews that some 
small businesses are reluctant to appeal State sales tax assessments 
for fear of the cost and time involved and the uncertainty of success. 
Appeals costs often involve travel to the assessing State and hiring an 
attorney in that State to represent the business's interests. 
Furthermore, even if a business is successful in its appeal, the State 
may have further appellate rights and costs continue to mount with each 
level of review. Currently, if a remote seller sells into all 45 States 
that have enacted sales tax economic nexus requirements and the 
District of Columbia, it could be subject to audits by each and by 
localities in some, and, as applicable, appeals processes in each 
---------------------------------------------------------------------------
jurisdiction.

    In November 2017, we reported that, in addition to audits, State 
revenue departments have many low-cost enforcement tools at their 
disposal which create compliance costs for businesses.\56\ Letter 
audits are one example. For these audits, a revenue office sends a 
letter to a business stating that the office suspects they owe sales 
taxes. In our ongoing work, we found that businesses receiving such 
letters might choose to conduct research to determine whether they 
actually owe sales tax and draft an official response. We also found 
that States sent information requests and questionnaires to businesses 
to learn whether they met the State's economic nexus thresholds.
---------------------------------------------------------------------------
    \56\ GAO-18-114.

    Several entities we spoke with in our ongoing work told us they 
have experienced or assisted businesses in responding to similar 
enforcement tools. For example, an organization that assists businesses 
in sales tax compliance told us that once a business starts collecting 
sales tax for a State, it will start to receive a large number of 
notices, which it referred to as ``nuisance notices.'' These range from 
simple administrative matters to notices that a payment is late or not 
received. In addition, this organization described ``nexus notices'' 
sent to businesses by States aiming to establish whether the business 
met the State's economic nexus threshold and should begin collecting 
for the State. Responding to notices from multiple States could be 
costly, but businesses told us that they feared not responding could 
trigger more notices and potentially an audit.
 Businesses Incurred Costs to Stay Abreast of Legal Requirements in 
        Multiple Jurisdictions, but Were Still Exposed to Liability 
        Risks
    In November 2017, we reported that if States were given authority 
to require businesses to collect tax on remote sales, businesses would 
have to incur costs to understand their new compliance obligations, 
which could differ by State or tax jurisdiction.\57\ We found that the 
related liability costs would increase along with an increase in 
exposure to more tax jurisdictions. We also found that these costs 
would likely increase the most for businesses that did not have 
established legal teams, software systems, or outside counsel to assist 
with compliance-related questions. The interviews we conducted for our 
ongoing work confirmed these findings.
---------------------------------------------------------------------------
    \57\ GAO-18-114.

    In our 2017 report, we identified several areas where liability 
costs were most likely to occur, including liability for past sales. We 
reported that businesses were concerned that, if States were given 
expanded authority to collect remote sales tax, they could be exposed 
to retroactive enforcement of sales tax economic nexus requirements 
already adopted. In the Wayfair decision, the Supreme Court noted that 
South Dakota's remote sales tax law included features that appeared 
``designed to prevent discrimination against or undue burdens upon 
interstate commerce,'' including that it was not retroactive.\58\ In 
our ongoing work, several tax policy specialists told us that they were 
not aware of any State that has retroactively enforced their sales tax 
economic nexus requirements. However, States are actively enforcing 
their requirements consistent with the effective dates reported above, 
many of which range from the day of the Wayfair decision to just a few 
months later.
---------------------------------------------------------------------------
    \58\ Wayfair, 138 S. Ct. at 2099.

    In our prior work, we identified transition periods as a means to 
help businesses prepare for new collection obligations.\59\ In our 
ongoing work, businesses and organizations that assist businesses told 
us that State effective dates generally did not provide sufficient time 
for many businesses to understand the new requirements, let alone 
implement systems to comply with them. Some businesses said they were 
not able to start complying until well after some States' effective 
dates.
---------------------------------------------------------------------------
    \59\ GAO-18-114.

    Some States have implemented programs to mitigate past tax 
liability, such as amnesty and voluntary disclosure programs. For 
example, eligible businesses participating in Alabama's Simplified 
Sellers Use Tax program are granted amnesty for uncollected remote 
sales taxes that may have been due on sales made prior to October 1, 
2019.\60\ In addition, through Washington's voluntary disclosure 
program, eligible businesses may have their past tax liability reduced, 
including penalties and the audit lookback period.
---------------------------------------------------------------------------
    \60\ Ala. Code Sec. 40-23-199.

    In summary, today's remote sales tax laws mean that many more 
businesses are subject to multistate taxation for remote sales. 
Following the Supreme Court's Wayfair decision, States acted quickly to 
put requirements in place (or to begin enforcing requirements already 
in place) to require remote sellers to collect and remit sales tax on 
types of remote sales for which there had previously been negligible 
voluntary purchaser compliance. States saw sales tax revenue increase, 
---------------------------------------------------------------------------
and some were able to attribute the increases directly to remote sales.

    Multistate tax collection has always come with challenges and costs 
for businesses. Prior to the internet, businesses were typically taxed 
in new States as they grew and expanded their physical presence, and 
often, their sales. Today, even a small online seller could have a 
customer in every State. With every sale, a seller has to determine 
whether nexus, physical or economic, has been met, and potentially 
collect and remit tax. Businesses have faced various costs to come into 
compliance with remote sales tax laws that were adopted or came into 
effect following Wayfair.

    We will expand on these topics as we continue to examine the 
evolving remote sales tax landscape, State revenue generated as a 
result and related State actions and issues, and the compliance costs 
borne by businesses.

    Chairman Wyden, Ranking Member Crapo, and members of the committee, 
this concludes my prepared statement. I look forward to answering any 
questions you may have.

                                 ______
                                 
      Questions Submitted for the Record to James R. McTigue, Jr.
                 Questions Submitted by Hon. Mike Crapo
    Question. The COVID-19 pandemic accelerated the existing trend 
toward e-
commerce sales. Clearly, remote sales are here to stay, both for large 
retailers and small businesses.

    Can you please discuss the relative importance of remote sales to 
large and small businesses, and what share each contributes to the 
total volume of remote sales?

    Answer. Data from the U.S. Census Bureau presented in our testimony 
show that e-commerce has grown as a share of overall retail sales since 
the 2018 Wayfair decision. However, we have not evaluated the relative 
share that large and small businesses contribute to the total volume of 
remote sales. Furthermore, based on our review, we do not believe data 
currently exist to conduct such an evaluation.

    Our interviews of both large and small businesses suggest that 
these sellers see remote sales as an important part of their business. 
Marketplace facilitators can help small businesses, in particular, 
reach larger markets. The large number of sellers, including small 
sellers, participating in these markets show that they can be 
attractive options for these businesses.

    Question. I cited the Tax Foundation in my opening statement on the 
significant role that sales taxes play in funding State and local 
governments, with 32 States deriving at least one-fifth of their tax 
collections from such taxes. In your own written testimony, you noted 
that, ``On average, States receive about one-third of their total tax 
collections from general sales taxes.''

    Looking at the table in your written testimony, it would appear 
that sales tax revenue, both from all remote sales, and from 
marketplaces, have grown steadily over the past 4 years. While it can 
be hard to separate the multiple contributing factors, how much of 
that, would you estimate, is due to improved State collection, versus 
changes in consumer behavior?

    Answer. Expanded State collection authority resulting from the 
Wayfair decision allowed States to collect remote sales tax revenue 
where it was not previously practicable. Therefore, it is fair to say 
that this expanded authority was likely a key factor contributing to 
the growth in remote sales tax revenue.

    Likewise, Census Bureau data suggest that some changes in consumer 
behavior brought about by the pandemic affected growth in remotes sales 
tax revenue, but the data also show this change was fairly short-lived. 
At this point, it is too early to say what future consumer behavior 
patterns will be. However, it is important to note that States would 
largely have been unable to collect revenue from increased e-commerce 
sales during the pandemic were it not for the expanded authority given 
them by Wayfair.

    Overall, we have not evaluated the extent to which various factors 
have contributed to the growth in remote sales tax revenue. 
Furthermore, based on our review, we do not believe it would be 
feasible to isolate the effects of such factors.

    Question. Since the Wayfair decision, how successful have State and 
local governments been in collecting taxes on remote sales?

    Answer. In general, State responses to our survey show increased 
collections from remote sales each year after the Wayfair decision. 
Over half of the States responding to our survey reported to us that 
the approaches they have taken to administer new collection 
requirements have been successful. However, through interviews we 
conducted with businesses, and organizations representing or assisting 
businesses, we were told that many businesses are not in compliance 
with remote sales tax requirements for a variety of reasons including 
not being aware of or not understanding their collection obligations.

    Question. Is your final report going to suggest improvements to 
various reporting and compliance regimes of States, and how that might 
affect the ability of State and localities to collect taxes owed?

    Answer. In our final report, we may discuss some actions that have 
been or could be taken by States and others to address remote sales tax 
issues experienced by sellers. We are also looking at options that 
Congress could consider to facilitate simplification and reduce 
reporting burden on businesses.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    This morning the Finance Committee meets to discuss a major source 
of headaches and costs for small businesses around the country today--
online sales taxes.

    Running a small business has always been a big challenge, and these 
days the impact of inflation is making it even more challenging. Small 
businesses are also dealing with the impact of the 2018 Supreme Court 
ruling in the case South Dakota v. Wayfair. In the Wayfair decision, as 
it's known, the Court gave States a green light to force small 
businesses into becoming tax collectors when they sell online--
collecting taxes even for States where those businesses had no brick-
and-mortar presence.

    Small businesses had never been responsible for this kind of tax 
collection before. Almost immediately after the ruling came out, States 
across the country began passing these tax collection laws.

    Small businesses in my home State of Oregon, which doesn't have a 
sales tax, were among the first to speak out about the costs and 
complexities they were facing for the first time. Speaking out 
alongside them were people in New Hampshire and Montana, also States 
without sales taxes. That's why Senator Hassan has been a leader on 
this issue, as well as Senator Daines.

    But it's not just a burden in States without sales taxes. It's a 
burden for small businesses everywhere. Sales taxes in America are 
extremely complicated. Forty-five States and hundreds of localities 
have different laws for sales taxes, different tax rates, different 
regulations for who collects taxes, and different rules and definitions 
for taxable products.

    In Illinois, you'll pay sales tax on a Snickers bar, but not on a 
Twix. If you take up sewing in New Jersey, you're in for some 
confusion. Yarn bought for art projects will get taxed, but yarn for 
sweaters--that's tax free.

    After the Wayfair decision, small businesses are on the hook for 
managing that complex web of laws. They're essentially forced into 
buying costly software and hiring consultants to get it all straight.

    My view is, as long as the Wayfair ruling stands, the Congress 
ought to step in and give small businesses some relief. That ought to 
start with exempting small businesses that have revenues under a 
certain threshold. And Congress ought to create clear, standardized 
rules that lay out what States can require of small businesses outside 
their borders. That's what Senators Hassan, Shaheen, Merkley and I 
sought to accomplish when we introduced the Online Sales Simplicity and 
Small Business Relief Act.

    If Congress fails to act, you're going to see increasing numbers of 
Oregon small businesses chased and hassled by authorities from Texas, 
Florida, or California over tax liabilities they can't effectively 
dispute. This is a conflict the Congress ought to help prevent. 
Otherwise, my view is, you're going to find that Oregon and other 
States won't be interested in helping these actions against our 
residents move forward.

    The bottom line is that small businesses have it plenty challenging 
today just trying to keep their doors open. The family-owned furniture 
makers, tool and die shops, clothing boutiques--they shouldn't be 
forced into spending big on sales tax consultants and software. This 
committee has a bipartisan interest in helping small businesses get 
ahead, and this is an opportunity for us to lower their costs and save 
a lot of headaches.

                                 ______
                                 
                Prepared Statement of Diane L. Yetter, 
               President and Founder, Sales Tax Institute
    Thank you, Chairman Wyden, Ranking Member Crapo, and members of the 
committee, for the opportunity to join you today. I am Diane Yetter, 
the president and founder of The Sales Tax Institute and Yetter Tax. We 
provide sales tax education, resources, and consulting services to 
clients in almost every industry and size around the world. My entire 
professional career of almost 38 years has been spent in the sales tax 
field. I've worked in State government as an auditor, in a corporation 
managing sales and use tax, in public accounting advising clients about 
their sales tax obligations, and, for the last 26 years, as a woman-
owned small business providing sales tax consulting and education 
services. I am a licensed Certified Public Accountant. I have served on 
many committees and task forces working to simplify sales tax 
collection obligations for businesses. I am a board member of the 
Business Advisory Council of the Streamlined Sales Tax Governing Board. 
A significant focus over my career has been sales tax technology 
solutions. My testimony is not on behalf of any client or association 
but reflects my own professional judgement.

    I have long been a proponent of rules that result in equitable 
collection responsibilities of sales tax by sellers. True equity 
requires greater uniformity with clear requirements and guidance by the 
States, which will foster compliance, reduce burdens on all sellers 
(whether local or remote), and promote reasonable enforcement. It is 
inherent in our subnational sales tax structure that the rules will 
vary by State, however, States should make every effort to reduce 
unnecessary complexity and variations of law that create avoidable 
burdens on sellers. One obligation of being a business owner is 
complying with a variety of tax and regulatory requirements including 
payroll, income tax, insurance, licensing, and others. The costs 
related to collection of sales tax are not dissimilar to these other 
costs and are a significant cost of being in business.

    In my testimony today, I will address three key points:

        1.  The economic nexus rules enacted as a result of the South 
        Dakota v. Wayfair decision have made life harder for some 
        businesses to comply with sales tax collection.
        2.  Compliance burdens still exist.
        3.  There are actions the Congress and States can take to 
        further reduce burdens on businesses.
 the economic nexus rules enacted as a result of the wayfair decision 
   have made it harder for some businesses to comply with sales tax 
                               collection
Challenges Faced by Some Businesses
    The economic nexus rules enacted as a result of the Wayfair 
decision have made things harder for some businesses, particularly 
those with limited physical presence in multiple States and even more 
so on those businesses located in one of the four States without a 
general State sales tax (Delaware, Montana, New Hampshire, and Oregon). 
These businesses may have never had to understand or comply with any 
sales tax calculation and compliance or may have only dealt with sales 
tax in their home State. The challenges to comply were hard for these 
businesses. I have clients in this situation who shared their 
frustration with me. In working with them to reduce efforts and costs, 
we developed processes and implemented tools best suited for their 
individual situations. In some cases, it took time--about a year. They 
now have a manageable process and have incorporated the requirements 
into their operations as they've had to do when other regulatory 
changes have occurred. Technology exists and can help, but it isn't 
free (even when subsidized by the States). A number of factors impact 
costs including whether the seller qualifies for free technology and 
what additional services the seller requires to support its sales tax 
compliance obligations.
Benefits Recognized by Some Businesses
    For other businesses with existing broader sales tax collection 
requirements in place, the Wayfair decision and the resulting economic 
nexus provisions provided benefits to them. For businesses that faced 
competitive disadvantages due to their collection of sales tax when 
their competitors did not, this disadvantage was reduced or eliminated. 
When the U.S. Supreme Court issued their ruling in South Dakota v. 
Wayfair, visibility and understanding of sales tax collection 
requirements were elevated.

    The collection of sales and use tax by out-of-State sellers (remote 
sellers) is not a new requirement and is certainly not a new tax that 
was created through the South Dakota v. Wayfair decision. However, 
there was a significant lack of understanding by both sellers and 
consumers about the application of the tax. While States do impose a 
consumer's use tax on purchasers, the compliance rate, particularly 
with individuals, is very low. Businesses that did have nexus in 
multiple States often found themselves at a competitive disadvantage in 
their efforts to be compliant. Customer service complaints were common. 
The passage of economic nexus in every State (with Missouri's law 
effective January 1, 2023) has provided relief to sales tax compliant 
businesses and eliminated the competitive disadvantage for these 
sellers.
States Responses Toward Simplification
    With the significant increase of registrants, States have had to 
respond with better taxpayer services. Some States took simplification 
seriously by reviewing their published guidance, filing processes, and 
even the registration process. In anticipation or in response to the 
Wayfair decision, Alabama and Texas reimagined their local tax 
structure and adopted a single statewide rate that applies to remote 
sellers. Alabama's Simplified Seller's Use Tax (SSUT) was effective in 
2015, however, it was amended to allow businesses with some limited 
physical presence in the State, such as inventory or home office 
employees, to still qualify to use the single rate. Given Alabama's 
local tax structure, which requires sellers to separately register in 
many of the counties and cities, this is an example of how a State has 
taken efforts to simplify compliance for remote sellers. As part of its 
economic nexus legislation, Texas adopted a flat local tax rate for 
purely remote sellers. This eliminated the need for a remote seller to 
understand the jurisdictional boundaries and rates that can be 
challenging for out-of-State sellers. This flat rate is only available 
to remote sellers with no physical presence in the State. Although not 
as generous as Alabama, I applaud Texas for recognizing the burden of 
its local taxes.

    The States have also all enacted Marketplace Facilitator Collection 
provisions which require the marketplace provider to collect and remit 
tax on all sales occurring on their platform regardless of whether an 
individual seller is registered in the delivery State. This legislation 
has provided the most significant reduction in compliance burden, 
particularly for smaller sellers who predominately sell on 
marketplaces.

    As I'll discuss below, there are still some challenges with how 
States address taxpayers' remittances, with a number of States 
modifying their original economic statutes based on experience and 
feedback, and I expect that will continue.
                     compliance burdens still exist
    I appreciate the efforts made by individual States to simplify 
sales tax provisions. However, each State operates unilaterally 
resulting in a myriad of rules businesses must comply with. As a 
practitioner, I have worked on sales tax questions in every State. 
There are not two States with laws that are exactly the same, though 
similarities certainly exist. Each State enacts laws, interprets those 
laws, and defends litigation of those laws in different ways. It is 
this lack of uniformity and consistency that creates the most 
significant burden on sellers.

    Areas that generate the heaviest burdens on sellers are addressed 
below.
Physical Nexus Standards Create Compliance Burdens
    Complexity and confusion exist as physical presence is still used 
to determine if a business has nexus, even if the seller has minimal 
sales into a State. For decades, physical presence represented by a 
temporary or permanent presence of people (employees or independent 
agents) or property in a State was required before a business could be 
subjected to a requirement for collection of sales and use taxes. 
However, what hasn't been clear or consistent within a given State (or 
across the States as a whole) is what constitutes physical presence. 
The South Dakota v. Wayfair decision has not eliminated the physical 
presence standard but rather added the economic presence standard if 
physical presence does not exist. Sellers with minimal sales into a 
State but who have physical presence have a collection responsibility. 
Most sellers have little understanding of what establishes physical 
presence and therefore end up in a ``gotcha'' situation with the 
States, including retroactive assessment of uncollected sales tax due 
to lack of clarity and understanding of what creates nexus.

    Before Wayfair, the test for nexus was physical presence, but this 
has and continues to be a challenge to businesses and actually creates 
registration requirements for many small businesses that were not aware 
of this obligation. This rule applied to sellers regardless of where 
they were headquartered (in a no sales tax State, a State with sales 
tax, or even a foreign country). Common business activities which 
create physical presence include traveling salespeople, use of 
independent contractors, attending trade shows, remote employees, 
delivery of goods, and fulfillment operations. Numerous decisions over 
the years by not only State courts but the U.S. Supreme Court found 
that these activities, often when slight, create the obligation for a 
seller to collect sales tax. Some States have started recognizing the 
burden of this evaluation, while others have expanded their efforts to 
enforce physical presence before and after the Wayfair decision.

    With advances in technology as well as the massive changes the 
world has undergone in the last 2 years, it is very evident that 
physical presence has little to do with where a business makes sales. 
More recent concepts such as ``Click-Through Nexus,''\1\ ``Affiliate 
Nexus,''\2\ and even ``Cookie Nexus''\3\ stretch the imagination of 
what anyone would think of as physical nexus. However, States still 
cling to this concept in making a determination as to whether a seller 
has significant presence in a State and is required to collect sales 
tax. The Supreme Court in its Wayfair ruling stated ``Modern e-commerce 
does not align with a test that relies on the sort of physical presence 
defined in Quill. Rejecting the physical presence rule is necessary to 
ensure that artificial competitive advantages are not created by this 
Court's precedents.'' I would argue that retaining the physical 
presence test as the primary test even creates an artificial 
competitive disadvantage.
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    \1\ Click-Through Nexus typically requires that a remote seller 
meets a minimum sales threshold in the State in question resulting from 
activities of an in-State referral agent. The seller must be making 
commission payments to the in-State resident for any orders that come 
about as a result of the click-through referral from the resident's 
website.
    \2\ Affiliate Nexus may require that a remote retailer holds a 
substantial interest in, or is owned by, an in-State retailer and the 
retailer sells the same or a substantially similar line of products 
under the same or a similar business name, or the in-State facility/
employee is used to advertise, promote, or facilitate sales to an in-
State consumer. The legislation may not always require common ownership 
and may include activities related to sales, delivery, service, and 
maintaining a place of business in the State on behalf of the out-of-
State business to benefit the out-of-State business's customers.
    \3\ Cookie nexus refers to Internet sellers whose only physical 
presence in the State is through property interests in and/or the use 
of in-State software and ancillary data (``cookies'') which are 
distributed to or stored on the computers or other devices of the 
seller's in-State customers; contracts and/or other relationships with 
content distribution networks (CDNs); and/or through contracts and/or 
other relationships with online marketplace facilitators and/or 
delivery companies resulting in in-State services, including, but not 
limited to, payment processing and order fulfillment, order management, 
return processing or otherwise assisting with returns and exchanges, 
the preparation of sales reports or other analytics, and consumer 
access to customer service.

    Most small businesses and many larger ones have had no idea that 
common business operations were exposing them to this obligation. With 
each State interpreting and enforcing different concepts and 
activities, the complexity of physical presence is overwhelming. There 
is no uniformity of what activities create nexus or even for a given 
activity what level of activity is sufficient. For example, attendance 
at a trade show in Texas for just one day constitutes physical 
presence. But in Illinois, physical presence isn't established until 
more than 8 days in a 12-month period are exceeded. Other States vary 
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from a few days to about 2 weeks.

    Even the small businesses who sell on marketplaces are not 
protected from physical presence nexus. Many small sellers are multi-
channel sellers using a variety of platforms and partners to build 
their business. The Fulfillment by Amazon (FBA) platform is one of the 
most common entry points for small businesses. But this business model 
creates physical presence for each seller in most States where their 
inventory is managed by Amazon. The seller often has no involvement or 
authority in directing where the inventory ends up. In the time since 
the Wayfair decision, Amazon has expanded its footprint into 12 new 
States. For most sellers this means their physical footprint has 
exploded. A handful of States including Arizona, Arkansas, Illinois, 
Iowa, Kansas, Nebraska, Nevada, New York, Oklahoma, and Texas have 
recently adopted beneficial positions that this small and transient 
level of physical presence does not create physical nexus. However, in 
most of these States, it is a recent change based on marketplace 
facilitation \4\ legislation. Storage of inventory in these States 
prior to the change, as well as in all other States incurs financial 
risk for the seller. Just over the last year, almost 40 percent of 
clients we've assisted in determining where they have nexus were 
required to register and collect in States solely due to the presence 
of inventory in an Amazon warehouse even though their sales were below 
the States' economic nexus thresholds.
---------------------------------------------------------------------------
    \4\ Marketplace Facilitation legislation typically requires that if 
an online marketplace operates its business in a State and provides e-
commerce infrastructure as well as customer service, payment processing 
services, and marketing, the marketplace facilitator is required to 
register and collect tax as the retailer rather than the individual 
sellers.

    States have taken advantage of the FBA business model by assessing 
sellers for retroactive tax due to physical presence--both before the 
Wayfair decision and after. I have one client who physically is located 
only in Illinois. However, they sell predominately through the Amazon 
platform using the FBA model. They have been in business since 2012. In 
2017, they participated in the Multistate Tax Commission amnesty 
program offered by about 20 States to forgive uncollected sales tax due 
to inventory at Amazon fulfillment centers. However, not every State 
participated, and California was one of the non-participants. Due to 
information gathered from investigations by California, this company 
was selected for an audit. The company is facing a $1 million dollar 
assessment plus increasing interest costs. An appeal is pending, as 
during 2019 California enacted S.B. 92 providing an amnesty program 
limiting the lookback period for marketplace sellers with inventory in 
California who were not complying with the sales tax collection 
requirements. My client, who became compliant in 2017, was prohibited 
from enjoying the benefits of the limitation on the tax assessment 
because they registered and had been collecting tax beginning in late 
2017. Their compliance upon being made aware of the obligation due to 
inventory in California that it did not control is costing them $1 
million and counting. There have been assessments and settlements with 
other States in efforts to limit their exposure and protect the 
viability of their small business. I have many other examples with 
---------------------------------------------------------------------------
varying amounts of tax, interest, and penalties being assessed.

    The ambiguity as well as the inconsistency as to what constitutes 
physical presence places a significant burden on all sellers regardless 
of their size. The risk of retroactive tax assessment due to physical 
presence impacts the ongoing concern of businesses and even merger 
activity. We've worked with companies to quantify the exposure on both 
the buyer and seller side with more than a few impacts to purchase 
price, escrow requirements, or even aborted deals.
Compliance Challenges Due to Non-Uniform Thresholds
    Economic nexus is premised on sellers making sales into a State 
that exceeds a defined level of economic activity, referred to as the 
threshold. Economic nexus provides clearer guidance (but still with 
challenges) to sellers in determining when they have established 
sufficient presence to collect sales tax. Over the last 4 years, States 
have adopted varying rules regarding the factors a business must 
evaluate in determining when the economic threshold is met. In some 
States, this guidance has been modified to eliminate the very small 
sellers, while in others, it has been expanded to require more sellers 
to comply. Adding to the challenge facing businesses is the sheer 
magnitude of the combinations of the different rules.

    Four factors must be evaluated as to whether a company exceeds 
State economic nexus thresholds.

    The first factor that a business must evaluate is what sales are 
included in the threshold calculation. Gross Sales is the most common 
measure used by the States (29 States) which requires a seller to 
include all of its sales, whether taxable or not and sales at retail 
and wholesale. Retail Sales are used by 12 States, which allows the 
seller to exclude sales at wholesale. Only five States use the 
reasonable Taxable Sales test. Taxable Sales is really the appropriate 
measurement as requiring tax registration on sellers that make little 
to no taxable sales creates undue burdens. Unfortunately, for those 
sellers that sell through a marketplace, an additional evaluation must 
be added into this initial test and that is whether the sales are made 
through the marketplace (for which the marketplace is responsible for 
the collection and remittance of the tax). For the 29 States using the 
Gross Sales test, only nine allow the seller to exclude these 
marketplace sales. Half of the States that use the Retail Sales test 
exclude marketplace sales and all of the States that use the Taxable 
Sales test only include direct sales that are taxable in calculating 
the threshold. Six different rules must be understood before the 
counting even begins. See Chart 1 for a breakdown of States that use 
the six different threshold rules.

    The second factor is what is the value of sales or number of 
transactions (invoices) that constitute nexus. Again, there are six 
different variations. The most onerous is used by almost half of the 
States with economic nexus (24 States) and that is the test used by 
South Dakota and evaluated by the U.S. Supreme Court of $100,000 in 
sales or 200 transactions. A third of our clients with sales under 
$50,000 in a State in the last year were required to register solely by 
exceeding the 200-transaction threshold. Luckily for low-dollar high-
volume sellers, seven States recognized the undue burden of the 200-
transaction threshold and removed this test over the last few years, 
with Maine eliminating this requirement effective January 1, 2022. In 
addition to these seven States, ten additional States passed their 
legislation using only the $100,000 threshold. Two States (Connecticut 
and New York) recognized the wisdom of an ``and'' test requiring the 
sales threshold and a minimum number of transactions. Two States set 
their thresholds at $250,000 and two at $500,000. See Chart 2 for a 
listing of States' threshold values.

    The third factor that needs to be evaluated by sellers to determine 
if they have crossed the threshold is what is the measurement period, 
or what specific time period must be evaluated. Again, there is no 
consistent rule but seven different rules to be evaluated. This is one 
area where we have the most consistency with 30 States using the 
current or prior year as the measurement period. See Chart 3 to see the 
number of States using different measurement periods.

    Once the economic threshold is reached, the States have respected 
the requirement of not imposing tax collection on a retroactive basis 
(as long as there was no physical presence). However, many of them (18 
States) require collection on the very next transaction. For the 
remaining States, sellers must evaluate 15 different rules. See Chart 4 
for a listing of rules for when sellers must register.

    For specific information regarding these various rules, visit 
https://www.
salestaxinstitute.com/resources/economic-nexus-state-guide.

    Many of the States have provided guidance for taxpayers. However, 
it is not in a consistent format or central location making it 
challenging for sellers to find, let alone interpret, the rules and how 
they apply to their businesses. It is important to recognize the 
efforts of the Streamlined Sales Tax Governing Board \5\ and their 
commitment to provide guidance that is clear, in a common format, and 
available in a single location for their member States. A recent update 
to the Disclosed Practice component of their Taxability Matrix 
(Disclosed Practice #8) requires the member States to respond to a 
variety of questions critical to the economic nexus determination for 
remote sellers, marketplace sellers, and marketplace facilitators 
(https://www.streamlinedsalestax.org/Shared-Pages/State-taxability-
matrix).
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    \5\ The effort that became the Streamlined Sales TaxTM 
Governing Board began in March 2000. The goal of this effort is to find 
solutions for the complexity in State sales tax systems that resulted 
in the U.S. Supreme Court holding that a State may not require a seller 
that does not have physical presence in the State to collect tax on 
sales into the State. The Court ruled that the existing system was too 
complicated to impose on a business that did not have a physical 
presence in the State. The Court said Congress has the authority to 
allow States to require remote sellers to collect tax. Today, 24 States 
have adopted the simplification measures in the agreement (representing 
over 31 percent of the population) and more States are moving to adopt 
the simplification measures.
---------------------------------------------------------------------------
Local Tax Compliance Burdens
    Although statements regarding the number of tax authorities in the 
U.S. are significantly overstated, there are still burdens related to 
local taxes. All but five States have a single point of administration 
for all sales tax authorities within their State. Although there are 
different rates within a given county, city, or special purpose 
district, the rules related to tax determination are consistent within 
the State. Most States provide databases of the sales tax rates at no 
charge. However, a seller must obtain these databases from each State 
and the formats can vary between the States as there is no consistency 
in the information provided.

    Even in the States with central administration (which was a point 
addressed in South Dakota v. Wayfair), the burden on remote sellers is 
the differences between the States. Only nine of the 47 States with a 
sales tax do not impose local sales taxes. The remaining 38 States have 
local sales taxes ranging from only a county tax to combinations of 
county, city, and more recently, a myriad of special purpose taxes. To 
determine the correct rate to be charged, understanding local physical 
boundaries in some States like Colorado requires intricate geographic 
mapping tools and some of the localities can't even tell a taxpayer 
which authority controls a given address.

    Prior to economic nexus legislation, there were some States that 
did not require out-of-State sellers to collect local tax at all. They 
were only required to collect the State tax. However, cries from 
localities for their ``Amazon tax'' resulted in these States amending 
their statutes to require out-of-State sellers to collect the local 
sales tax. In some of these States, such as New Mexico and Colorado, 
the changes also resulted in local in-State sellers having to collect 
the destination sales tax rather than the rate at the seller's 
location. However, the State that wins for incorporating the most 
draconian changes to their local tax collection rules is Illinois. 
Prior to 2021, remote sellers with no physical presence in Illinois 
were only required to collect the State's 6.25-percent use tax rate. 
However, under the Leveling the Playing Field Act, remote sellers must 
now collect the destination sales tax which results in out-of-State 
sellers facing a significantly higher burden than in-State sellers who 
only collect the local tax of their location, in clear violation of the 
Commerce Clause. The State has published a flow chart to assist sellers 
in determining what tax applies: https://www2.illinois.gov/rev/
research/taxinformation/sales/Documents/
LevelingthePlayingFieldRetailerFlowchart.pdf.
Home Rule Locality ``Simplification''
    The States that top every tax practitioner's list as most 
complicated for sales tax are Colorado, Louisiana, Alabama, and Alaska. 
Each of these States permit some or all of their local sales tax 
authorities to self-administer their taxes under ``home rule 
authority.'' While each of them has made some efforts toward 
simplification and centralized administration of their local sales 
taxes, these efforts are not enough. It is my belief that based on the 
dicta in South Dakota v. Wayfair, any State that does not have full 
central administration of all levels of sales tax in the State should 
not qualify to enforce economic nexus standards, and certainly 
individual localities have no right to force remote sellers to comply 
with these individual authorities and to understand the nuances of all 
these local authorities.

    In Colorado and Alabama, some localities are administered by the 
State following State law for taxability and administrative rules, but 
other localities are locally administered. In Colorado, each home rule 
authority can even have taxability laws that contradict the State laws. 
There is no real centralized depository of information for taxpayers to 
rely on. Efforts are underway for a centralized filing and remittance 
portal through the Colorado Sales and Use Tax System (SUTS) however, 
this does not solve many of the challenges facing taxpayers. Alabama, 
which requires all home rule authorities to follow State law, is easier 
for taxpayers to understand and with their Simplified Seller's Use Tax 
(SSUT) discussed above, remote sellers avoid the need for separate 
registration in each home rule locality.

    Louisiana and Alaska, which have no centrally administered 
localities at all, address local tax collection by remote sellers by 
seeking to create independent remote seller collection authorities. 
This is a good first step. However, true centralization only exists 
when there is one collection authority within the State.

    With each of these States with separate administration of local 
taxes, the risk to sellers is significant as many are not aware of the 
separate collection authorities or registration requirements with 
discrete authorities. In their efforts to comply, remote sellers often 
collect all the tax in a State, not knowing that they can't remit this 
tax to the State. When they attempt to file the tax return and find out 
there is no ``line'' for a local tax they collected, they are faced 
with the impossible choice of registering in all the localities, 
remitting the tax to the State and hoping this is sufficient, refunding 
the local portion of the tax to the customer, or improperly retaining 
the tax, possibly subjecting them to criminal fraud.
Burden of Compliance for Each State
    One of the real burdens of sales tax for multi-State sellers is 
filing the periodic tax returns. Not only can these returns be due 
monthly, but if you are a successful business, you could have to pay 
deposits as frequently as weekly as in Illinois. Due dates vary by 
State from the 15th of the month to the end of the month, giving 
taxpayers about ten days to compile data from the prior month and to 
file tax returns in each different State. Although some States have 
less frequent filing periods (quarterly, semiannual, and annual), the 
typical State registration policy is monthly for at least the first 
year. In addition, many States set filing frequency based on total 
sales into the State, not based on tax due. We have clients filing 
monthly returns with remittances of less than $1.00 and many months 
with no tax due. At a cost of $25-$50 per return done by a paid 
preparer, this is not just a burden of effort, but a burden on 
profitability of the company. It isn't unheard of for one business to 
file 50-100 sales tax returns a month!

    Although there has been a significant push towards electronic 
filing, this is just the submission of the data. Each State has 
different requirements in terms of what information is required to be 
reported--from taxable sales at the State level to gross sales with 
detailed breakdown of all deductions, and gross and taxable sales at 
each locality. Returns can be as short as one page to hundreds of pages 
in Colorado. Not one return is the same, and even the electronic filing 
portals differ. Some States use the same technology provider but 
configure the systems differently. There isn't consistency on whether 
an electronic file can be uploaded, and if so, there is no consistency 
of the file format.

    Even for member States of the Streamlined Sales and Use Tax 
Agreement (Streamlined), returns must be filed separately with each 
State. There is an option to file a Simplified Electronic Return (SER) 
which has a common format, but most businesses that file their own 
returns file the actual return with the State.

    I appreciate the effort by some States towards simplification. 
However, each State has their own unique simplification rules. In 
summary, the biggest burden on small businesses and remote sellers is 
lack of uniformity and consistency between all the States. A 
collaborative effort across the States is what is needed. States that 
participate in Streamlined represent a good start in this effort.
                 continuing efforts to reduce burdens 
                 on small businesses and remote sellers
    By far the single greatest effort towards reducing burdens on small 
business and remote sellers is the creation and operation of the 
Streamlined project. Started in 2000, its vision of providing 
uniformity and consistency across member States has been admirable and 
should be applauded. Its structure has preserved State sovereignty for 
setting tax rates and taxability rules within a structure of uniform 
definitions. Its focus has been more on traditional consumer types of 
categories (food, clothing, medicine, school supplies) as well as 
general definitions and tax base. A key requirement for membership is 
centralized administration of the sales tax at the State level. All 
members are required to annually update taxability information that is 
published in a central location at the Streamlined Sales Tax website. 
Liability protection is provided to sellers that rely on State 
published rates, boundaries, and taxability. There is also support and 
input from the business community through the Business Advisory 
Counsel. Representatives from companies large and small as well as from 
the practitioner community help the organization address new issues as 
they arise.

    The advancement and growth of technology solutions focusing on 
sales and use tax was fueled by the Streamlined organization. When I 
started my career in sales tax, there were only two sales tax 
technology vendors. Today, the list is long and wide covering not just 
sales tax calculation but also compliance (return preparation), 
exemption certificate management, rate, and boundary solutions. Pricing 
for technology has also adapted and become much more affordable. 
Certified Service Providers (CSPs) approved by Streamlined Sales Tax 
are required to offer calculation and compliance services at no charge 
to qualifying remote sellers. For a typical remote seller, this can 
result in about a 40 percent reduction in service costs for those 
registered in all States.

    Even with all these efforts, there is more that can be done to 
reduce the burden on small business and remote sellers.

        1.  Encourage all States to become members of Streamlined. The 
        benefits to businesses as described above from uniformity of 
        definitions, centralization of information, and technology 
        subsidization significantly reduce tax compliance burdens. 
        Common definitions across all States, territories, and 
        localities are critical to reduce the burden on businesses. 
        With the Wayfair decision and complete adoption of economic 
        nexus by the States, the non-member States don't believe there 
        are benefits in becoming a member. However, reducing the burden 
        on sellers should be States' top priority and becoming a full 
        member State of Streamlined is the best way to accomplish this 
        goal.
        2.  Encourage expansion of simplification within Streamlined to 
        include a centralized return/compliance function where all 
        State returns can be filed as well as the inclusion of more 
        content and standardized definitions for additional business 
        types of categories.
        3.  Eliminate physical nexus provisions for sellers that don't 
        exceed State economic thresholds, so sellers can focus on 
        growing their businesses without concern for where a remote 
        employee might live, where inventory might be stored and 
        managed by a fulfillment provider, whether a customer accepts 
        ``cookies'' to enhance their shopping experience, or whether a 
        visit to strengthen customer relations occurs in a State. 
        Elimination of these provisions with reliance on economic nexus 
        allows a business to focus on growth and comply with sales tax 
        collection at the time it has significant sales into a State.
        4.  Create uniform economic nexus rules related to sales that 
        are included in the threshold, elimination of transaction count 
        thresholds, consistent measurement periods, and sufficient time 
        for registration and compliance once the threshold is met. It 
        is my recommendation that thresholds should be based on taxable 
        direct sales only without a transaction count threshold, based 
        on current or prior year activity, with registration no sooner 
        than the first of the second month after reaching the 
        threshold.
                               conclusion
    It is my opinion that the broad acceptance of economic nexus as a 
result of the South Dakota v. Wayfair decision is appropriate in 
defining substantial presence requiring collection of sales tax. It has 
and will impact businesses to different degrees. This is an inherent 
issue whenever new regulatory requirements are enacted. States have 
made efforts to reduce the burden of multi-State tax collection. The 
most significant of these efforts is membership in the Streamlined 
Sales and Use Tax Agreement. Efforts to encourage nonmember States to 
participate should be promoted and/or required for remote seller 
collection authority.

    There are burdens that exist in all States and there are 
opportunities to address these with a focus on uniformity across all 
States. Uniformity of economic thresholds, definitions, and compliance 
will have the greatest impact on reducing the burdens on small 
businesses and remote sellers.
Resources:

      South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).
      ``No Excuses: Automation Advances Make Sales Tax Collection 
Easier for Everyone,'' Diane L. Yetter and Joe Crosby, State Tax Notes 
Volume 85, Number 7, August 7, 2017; https://www.taxnotes.com/tax-
notes-state/audits/no-excuses
-automation-advances-make-sales-tax-collection-easier-everyone/2017/08/
07/1vs
wj?highlight=Automation%20Advances%20Make%20Sales%20Tax%20Collection
%20Easier%20for%20Everyone.
      Sales Tax Institute Economic Nexus Chart: https://
www.salestaxinstitute.com/resources/economic-nexus-state-guide.
      Streamlined Sales Tax Taxability Guide: https://
www.streamlinedsalestax.org/Shared-Pages/State-taxability-matrix.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
                                 
          Question Submitted for the Record to Diane L. Yetter
              Question Submitted by Hon. Thomas R. Carper
    Question. In your testimony, you mention that the Streamlined Sales 
and Use Tax Agreement has the potential to reduce tax compliance 
burdens on small business and remote sellers. Unfortunately, only 23 
States are full members of this agreement.

    Could you tell us what barriers of entry exist for States to become 
full members of the Streamlined Sales and Use Tax Agreement, and what 
steps should be taken to encourage more States to join the agreement?

    Answer. In my opinion, there are a few reasons why more States have 
not become full members of the Streamlined Sales and Use Tax Agreement 
(SSUTA). In most cases, States will need to make some changes to their 
laws and policies to comply. The changes create benefits for taxpayers/
multistate sellers but create additional costs for States when 
evaluated individually. States tend to only focus on the changes that 
have negative impacts rather than looking at the changes holistically. 
States also tend to only focus on the impact of potential law changes 
to purchasers rather than the ramifications of the new requirements on 
the sellers. As remote sellers are required to comply with more and 
more States, differences in State laws exponentially increase the 
complexity of complying in all the States for sellers. Some hesitancies 
and barriers to entry for States to join the SSUTA include:

        1.  After the Wayfair decision and enactment of economic nexus 
        by a State, there is a perception that there is no need or 
        benefit to joining the SSUTA. Since the State can enforce 
        remote sellers to register if they exceed the small seller 
        threshold, they don't perceive any value for SSUTA membership 
        as the membership won't result in additional taxpayers. Even 
        though the Wayfair decision specifically mentioned that South 
        Dakota's membership in SSUTA was a factor in their decision, 
        non-SSUTA member States do not view SSUTA membership as a 
        requirement to enact and enforce economic nexus. Unfortunately, 
        these States do not recognize the benefits to the taxpayers of 
        the SSUTA membership.

        2.  States value and protect their sovereign rights to create, 
        interpret, and enforce their own laws. Membership in the SSUTA 
        requires States to agree to conform their laws with the 
        standard definitions and policies defined in SSUTA. For some 
        States, this requires little to no change in their current 
        legislation, but in others, there could be more changes 
        required. In either case, the perception is that States are 
        relinquishing some of their sovereign rights to the collective 
        agreement of the member States. However, the SSUTA does not 
        dictate what a State can or can not tax but rather focuses on 
        common definitions and reasonable administrative practices.

        3.  The SSUTA provides for common definitions and 
        administrative policies that each State must comply with in 
        their legislation, regulations, and policies. Some of the 
        requirements that may require changes in States include: using 
        standard rounding rules rather than bracket tables for tax 
        calculations; limitation of one tax rate per level of tax 
        authority within the State with one additional for food/drug; 
        conforming definitions for certain products such as clothing, 
        food, and durable medical equipment; following a good faith 
        policy for acceptance of exemption certificates; restriction of 
        caps and thresholds on tax bases and tax rates; and acceptance 
        of alternative State registration for drop shipment resale 
        exemptions.

        4.  The SSUTA requires States to provide information necessary 
        for sellers to comply with the correct calculation of sales tax 
        including providing databases of boundaries and sales tax 
        rates. SSUTA requires the States to provide this in a common 
        format to ease the burden on sellers having to manage different 
        database formats from different States. Some States claim this 
        is a burden to provide. It is unreasonable to assume a taxpayer 
        can determine the correct boundaries and tax rates if the State 
        can't even do this for their own State. SSUTA States are also 
        required to provide responses to the Taxability Matrix of 
        defined terms as well as the Disclosed Tax Administration 
        Practices. Taxpayers that rely on these published materials are 
        provided protection from liability. States don't want to 
        provide easy to understand guidance to taxpayers and they don't 
        want to be held responsible for providing accurate information 
        to taxpayers.

        5.  The SSUTA requires States to subsidize technology tools for 
        true remote sellers by compensating the Certified Service 
        Providers (CSP) used by qualifying sellers. This eliminates the 
        financial burden for remote sellers to comply with most of the 
        compliance activities. In exchange, the States can rely on the 
        CSP's correct calculation and compliance since they undergo 
        regular reviews and certificate by the States. This 
        participation also significantly reduces the audit burden on 
        the State as the CSP manages the audits of participating 
        sellers, and the State is familiar with the technology and tax 
        collection/remittance process.

    I do believe there are steps that Congress could take to encourage 
more States to join SSUTA. A review of the Remote Transaction Parity 
Act (RTPA) that was introduced in the House of Representatives and the 
Marketplace Fairness Act (MFA) that was introduced in the Senate for 
common-sense provisions is the first place to start. Both proposed 
bills established an alternative to SSUTA membership which required 
States to meet in order to require remote sellers to collect its State 
tax. If Congress were to implement requirements similar to those in 
RTPA or MFA for States that are not members of SSUTA, this could 
encourage more States to join. Since many of the requirements required 
under both the RTPA and MFA are similar to SSUTA requirements, the 
burden on States would be lower to simply join SSUTA than create its 
own technology certification program. The alternative options 
established similar requirements to those in the SSUTA as well as 
requiring States to provide taxability, boundary and taxability 
databases. It also requires the State to provide free access to all 
certified software providers. In addition, the RTPA prohibited States 
from imposing any other taxes including income, franchise, occupation 
and other taxes on remote sellers.

                                 ______
                                 

                             Communications

                              ----------                              


                  American Catalog Mailers Association

                             P.O. Box 41211

                       Providence, RI 02940-1211

                              800-509-9514

U.S. Senate
Committee on Finance
Dirksen Senate Office Bldg.
Washington, DC 20510-6200

Dear Chairman Wyden, Ranking Member Crapo, and Members of the 
Committee:

I appreciate the opportunity to submit written testimony to the 
Committee in light of the hardships brought on small remote retail 
businesses following the 2018 Supreme Court ruling in South Dakota v. 
Wayfair, et al. My name is Hamilton Davison and I am President of the 
ACMA (American Catalog Mailers Association), a trade association for 
businesses that depend on the printed catalog or engage in e-commerce 
and direct selling, which I founded in 2007. We respectfully request 
this testimony be made part of the official committee hearing record.

Introduction: As remote sellers in a post-Wayfair world, our members 
must now contend with over 12,000 separate taxing jurisdictions and 
authorities, each with varying rates, definitions as to what is 
taxable, differing exemption and filing requirements, and other unique 
complexities. And quite honestly, these new burdens are changing by the 
week. It has brought on considerable extra costs and wasted resources 
to these small businesses, has invited unintended compliance 
challenges, and imposes non-uniform demands on landed versus remote 
sellers, all of which has proven to be highly disruptive to these small 
businesses.

ACMA members have never objected to a level playing field for all 
retail sellers. However, the current environment is far from level. 
Effectively, brick and mortar sellers have origin sourcing rules 
grounded in their store locations. Massive corporations are able to 
handle these new burdens with dedicated stables of lawyers and 
compliance officers. Small sellers, however, must contend with 
thousands of destination tax rules and restrictions across the country. 
At the same time with no consumer education, our members are now having 
to handle consumer pushback and confusion.

Our Business to Business (B2B) merchant members are incurring 
additional requirements which impose greater costs, but result in 
little or no additional sales tax revenue. In fact, some ACMA members 
are spending more money to comply than they are collecting in revenues, 
an unintended consequence proving damaging and dangerous. Clarifying 
federal legislation setting equal requirements on all sellers while 
minimizing the waste and unintended consequences would be most helpful 
in addressing the current status quo.

B2B customers traditionally claim exemptions for a portion or all their 
purchases. Historically, use tax remittance for business consumption of 
products has been very high already. Various studies show more than 90% 
of applicable business use tax is successfully collected. For the 
entire class of B2B remote sellers, there is the reality that 
additional costs are imposed without any new net sales tax being 
generated. The variability in state nonprofit and exempt-from-tax 
definitions presents another obstacle. The lack of consistency in state 
and local exemption certificates adds greater complexity.

Background and Problems Incurred: The ACMA is a nonprofit organization 
established under Section 501(c)(6) of the Internal Revenue Code. We 
represent the interests of businesses, individuals, and organizations 
engaged in and supporting cataloging, including e-commerce sellers, as 
well their suppliers. The organization advocates for catalog and online 
merchants on public policy issues with material financial impact.

Sales tax requirements are a major concern for catalog- and remote-
selling merchants. Many of the companies operating in this space are 
small and medium-sized businesses, exactly the type that are often 
considered the backbone of American employment, particularly in terms 
of the creation of new jobs. The Supreme Court's reversal of over a 
half-century of legal precedent, without replacing it with a clear test 
of when a business must begin tax collection and without the states 
responding in a unified approach to alleviate the burdens on remote 
retailers to begin tax collection, throws the entire remote selling 
community into disarray and uncertainty. This makes it very hard to 
operate a successful and durable business. In fact, since the Wayfair 
decision, we have lost member companies who went out of business, 
reporting the massive shift in burdens and costs post-Wayfair was 
behind their decision to shut down their business.

Additionally, the ACMA conducted a survey \1\ in the Fall of 2019 among 
catalog and other remote merchants, which clearly showed numerous 
hindrances to such businesses. Chief among them was an open-ended 
question that, among others, yielded this striking comment: ``We will 
very likely close up our 100-year-old business because of this.'' Other 
comments included:
---------------------------------------------------------------------------
    \1\ https://catalogmailers.org/wp-content/uploads/2022/06/ACMA-Tax-
Survey.pdf.

      ``One year later and still no clarity. Time consuming and 
difficult or impossible because many customers are mail order and the 
multiple tax rates and localities in states.''
      ``We won't be able to handle the additional costs of using a 
third-party service or handling implementation ourselves as things now 
stand with the variance of rules amongst states.''

Prior to the June 2018 Quill reversal, hundreds of private equity firms 
had an investment interest in this sector of the economy. Since 
Wayfair, however, given the widespread complexity and chaos brought 
forward by this decision, equity investor interest has waned. Senior 
lenders routinely raise the issue of sales tax liability and 
professionals are challenged to accurately council their clients given 
the regularly changing compliance target. Most accountants do not even 
understand all the issues. All of this is further evidence that 
clarification of the rules going forward is critically important.

Also of note, more than 10% of catalog-placed orders still come in via 
the U.S. Mail. At some companies, over a third of their inbound order 
flow is received as checks in the mail. These orders are sent as full 
payment for the order placed. Therefore, sales tax calculations present 
a special complication for customers who must calculate the correct 
sales taxes due before writing and mailing a check or entering their 
credit card information on the written order form. Some of these 
customers are located in rural America without high-speed access while 
others do not use the Internet or are not comfortable on the Internet.

If such customers incorrectly determine the taxable or exempt status of 
the purchase or the applicable tax rate on the order form, the seller 
is confronted with a difficult task: When the customer underpays the 
tax, the seller must either return the check to the customer, absorb 
the loss and pay the additional tax due directly, or issue an 
additional bill for the balance due. When the amount at issue ensures 
that it would not be economical to seek the underpayment from the 
customer, the seller picks up the tax. Naturally, these small 
underpayments can add up for the cataloger.

On the flip side, customer overpayments present a special headache: The 
seller must either pay back the tax to the customer or send the 
overpayment on to the state or locality. As for the customers, once 
moneys are turned over to taxing authorities, consumers cannot easily 
seek refunds for overpayments because of the time and difficulty of 
seeking refunds under state laws.

Uncertain Future: The removal of a bright line physical presence test 
that was established under Quill has led to a ``wild west'' tax-grab 
among some states. State legislatures and local tax jurisdictions, such 
as in Colorado and Alaska, have been passing varying laws to enable 
collection. Some states have impossibly made these changes effective 
immediately, with little or no notice. One state--Massachusetts--has 
sought retroactive collections, going back to 2017, and other states 
have sought enforcement back to July 1, 2018, just days after the 
Wayfair decision was issued and long before any retailer could 
implement a tax collection system. New regulations and requirements 
change virtually weekly in what is an unmanageable and dynamic 
compliance environment difficult to track and trace, much less comply 
with. We can think of no other government compliance area grounded in 
only constantly shifting sands.

What's more, a growing number of our members are reporting numerous 
difficulties and significant expense in their efforts to responsibly 
react to an assortment of demands coming from various states. For 
instance, some members have informed us that it has been a major 
interruption trying to implement tax collection for the many diverse 
local tax rates that don't match to zip codes. As one member points 
out, ``It is the perfect legislation for the few big national players 
to hammer all the rest of us. We'll survive but because we only have 
limited resources, this is preventing us from tackling projects that 
would actually improve our bottom line.''

Our members report that the new rules are nearly impossible to comply 
with, present enormous new complexity and cost, and are simply unclear 
and contradictory. Small companies, sometimes without even a full-time 
bookkeeper, don't have the people or sophistication required to stay in 
compliance. Even companies that have substantial sophistication and 
resources are concerned about the difficulty and cost to conform and 
the future liabilities the current situation may be baking into company 
Balance Sheets.

Others have already determined they cannot easily obey laws in some 
states, such as in Colorado, where, if the more than 70 home rule 
jurisdictions have their way, it will be necessary \2\ to send over 70 
checks each month to more than 70 different addresses. Some remote 
sellers have ceased sales in those states they deem too difficult or 
burdensome to comply with altogether, placing a disproportionate burden 
on rural Americans, shut-ins and single income families who often rely 
on remote merchants for the merchandise or services they want and need.
---------------------------------------------------------------------------
    \2\ https://catalogmailers.org/wp-content/uploads/2022/06/Home-
Rule-Jurisdictions-ACMA.
pdf.

Integrating software to legacy systems is also a substantial concern as 
virtually every catalog company has had to integrate custom software 
solutions to keep their business functioning properly. What's more, 
installing a new web-enabled module brings substantive costs because 
the module must interface with virtually every system and process at 
any given catalog company. Unlike some claims to the contrary, software 
alone does not solve the problem; on the contrary, it represents an 
---------------------------------------------------------------------------
enormous additional financial and operational burden.

There's little hope of a uniform taxing standard, even with the Supreme 
Court's admonishment that the Streamlined Sales and Use Tax Agreement 
(SSUTA) model be used. In fact, the Streamlined Sales Tax Governing 
Board can make any changes it wishes to the SSUTA simply by a vote of 
revenue officers from states without any vote or input from merchants 
affected. The history of the SSUTA is that it progressively weakens 
simplifications to encourage non-member states to join the SSUTA. With 
the Quill protection now destroyed, states cannot be expected to seek 
any additional simplifications or uniformity. The ``Wayfair 
protections'' written in Justice Kennedy's majority decision can be 
easily watered down or withdrawn while a state still complies with 
SSUTA in general. And significantly, no new SSUTA member states have 
joined since the Wayfair decision.

All companies are concerned about the lead time to obey regulations as 
some states have served as little as less than a week's notice before 
companies must comply with complex new rules. It is virtually 
impossible to make changes with such short notice.

Customer Confusion: All of this gets magnified when considering the 
catalog customer. Consumers are not always aware that they have use tax 
responsibilities when sales taxes are not collected. To our knowledge, 
no state has made any meaningful effort to educate its citizens about 
use tax responsibilities before or after the Court acted.

Since the June 2018 Wayfair ruling, there has been zero education of 
the public by states as to new obligations affecting the consumer. Yet, 
the sea change imposed by the reversal of longstanding practice 
requires a massive shift in consumer behavior. We hope states will set 
aside some resources to educate their citizenry about these changes and 
not leave it simply to remote sellers to inform and educate. Without a 
Congressional mandate to do so, however, this seems unlikely.

Considerable Complexities: The concept of ``plug and play'' software 
that spans the multiple systems (website, order management, payment, 
etc.) affected by sales tax compliance efforts, is a myth.\3\ Setting 
up a system to collect sales and use tax in a given state is a major 
software project of the type that often goes over budget and beyond the 
scheduled completion date.
---------------------------------------------------------------------------
    \3\ https://catalogmailers.org/wp-content/uploads/2020/08/2017-08-
29-Kavanagh-Report.pdf.

When catalog retailers use order management software systems created by 
vendors like Avalara or Vertex, these vendors' tax lookup modules must 
be integrated into every system that interacts with customers and the 
customer's order for the cataloger to be able to collect sales tax 
correctly. To ease the integration process, some of these vendors build 
communication protocols that facilitate the transfer of information--
sometimes referred to as ``integration modules.'' But such models are 
not compatible with a retailer's often home-grown systems without 
significant work to customize and integrate the software and the 
retailer's existing systems. It becomes a major software project 
---------------------------------------------------------------------------
requiring resources, testing, correction and ongoing maintenance.

Consider all that is necessary for the small cataloger: Programming is 
required to determine when to pass information to the module that looks 
up the sales tax rate associated with an item. More programming is 
called for to retrieve data from the retailer's system to be passed to 
the sales tax lookup module. Then further programming is necessary to 
receive and store information back from the sales tax lookup module. 
Yet more programming is called for to be able to display and act on the 
information, including events such as sales tax holidays. No third-
party software vendors can do such programming to truly integrate their 
software with the retailer's systems; rather, all of this work must 
happen inside the retailer's software systems.

Financial Hardships: Consider remote retailers with annual sales of $5 
million to $50 million: They are faced with the need to spend between 
$80,000 and $290,000 to set up and fully integrate such sales tax 
software programs (ibid). The integration is needed to bridge their 
website, call center and customer service/returns systems. The set-up 
costs are in addition to the estimated $20,000 to $50,000 in annual 
fees of the third-party software provider as well as the annual 
internal costs of maintenance, updates and audit representation, 
estimated to be $57,500 to $260,000 for companies of this size. None of 
this includes the substantial executive time required to supervise and 
direct such a project or the training of staff who must explain all of 
this to customers.

Consider this example, which is actually one of many that can be 
significantly expensive to the cataloger: Despite software vendors' 
vast offerings, the bulk of the work must be handled by the cataloger 
or online retailer. That work includes creating a requirements document 
and the project plan to coordinate the work between the different 
programmers working on the call center and order entry software, which 
are maintained by separate engineering teams.

Other in-house-created necessities include origination of a cross-
reference table that maps the products a retailer sells to the sales 
tax software's proprietary Tax Codes. Although most software providers 
have their own proprietary Tax Codes that represent a grouping of goods 
and services, the catalog retailer still must create the cross-
reference table correctly, because if the wrong tax code is sent to the 
sales tax software provider, it could result in the wrong tax being 
applied. Then the retailer is liable for this difference if audited. 
There can be a significant startup cost for retailers to map their 
products to the sales tax software provider's Tax Codes.

All of this gets compounded by the fact that catalog and e-commerce 
companies change out their product offerings continuously. It is not 
unusual for companies to changes thousands of SKUs each year, 
necessitating this work be done each time a product or product line is 
changed.

But that's not all. Though the Wayfair case involved interstate sales 
tax, states are now expanding their compliance demands beyond sales tax 
into gross receipts taxes, income taxes, digital taxation, consumer 
privacy, and consumer protection. This has resulted in some of our 
members having tax and/or compliance obligations to nearly all states. 
In many cases, these very small remote retail operations have the same 
obligations of massive retailers such as Walmart.

If Improperly Handled, These Changes May Result in a Net Decrease in 
Revenues: In the late 2010s, the GAO released a study indicating that 
the total new revenues expected at the time from widespread remote 
seller sales tax collection would amount to no more than an additional 
2% to 4% in new state and municipal revenues.\4\ The GAO also noted the 
significant compliance costs that can be levied on remote sellers. 
Since these companies and their employees historically had paid all 
manner of taxes, anything that would undermine significantly the 
financial performance or employment levels of remote sellers would 
actually represent a new loss of revenues as these companies' 
corporate, payroll and employee-generated expenses are reduced.
---------------------------------------------------------------------------
    \4\ https://www.gao.gov/assets/gao-18-114.pdf.

It won't take much of a reduction in an industry segment estimated to 
be $250 billion (not including e-commerce revenues) to cause a net loss 
in tax receipts. When all other remote sellers are considered, improper 
handling of this issue going forward puts even more state and local 
---------------------------------------------------------------------------
revenues at risk.

Legislation Urgently Needed: While the Supreme Court clearly stated 
that the 1992 physical presence standard from Quill was overruled, the 
Court did not lay out an action plan for next steps--nor was it 
required to. In his dissenting opinion, Chief Justice Roberts said, 
``Nothing in today's decision precludes Congress from continuing to 
seek a legislative solution. But by suddenly changing the ground rules, 
the Court may have waylaid Congress's consideration of the issue. Armed 
with today's decision, state officials can be expected to redirect 
their attention from working with Congress on a national solution, to 
securing new tax revenue from remote retailers.''

Indeed, Congress must act swiftly to pass legislation that clarifies 
the rules of the road going forward post-Wayfair. ACMA members and 
other remote sellers would like to see Congress pass a seemingly simple 
set of rules that will allow remote sellers to affect sales tax 
collections on every transaction they do:

     1.  A grace period of one year before new rules are effective to 
provide remote retailers time to adjust to the new regulatory reality.
     2.  One rate per state that is no more than the average sales tax 
rate statewide.
     3.  One return per state, and only one annual filing per state.
     4.  One audit per state, or one comprehensive audit conducted by 
the retailer's home state shared with all other jurisdictions.
     5.  One set of product classifications standardized across all 
states.
     6.  One definition of sales--net sales dollars collected after all 
discounts, with common rules about applying discounts, shipping and 
handling charges, and uniform rounding rules applied consistently to 
all transactions.
     7.  Consistent small seller exclusion rules, and consistent 
treatment of rules for marketplaces.
     8.  When good faith efforts are made to properly collect taxes 
including reasonable efforts to correct any over or under payments, no 
penalties against sellers for the mis-collection of taxes, including 
indemnification against lawsuits.
     9.  Where CSP software providers are used, they are held 
accountable for errors and omissions--not the seller of record.
    10.  No retroactivity to any prior collection start dates.
    11.  Access to the more neutral federal court system to provide 
fairness and balance in adjudicating revenue department rulings and 
pronouncements.
    12.  Reasonable, fair compensation to sellers for direct collection 
costs plus an additional reasonable percentage of taxes collected for 
associated soft costs.

It is critical that effective dates are far enough in the future so a 
majority of merchants can comply. In fact, with some states seeking 
immediate compliance, the scenario for widespread violations has 
already been established, as it is impossible to react in days or weeks 
to the additional burdens and demands created. Moreover, for many 
merchants, the fall and holiday periods are their busiest time of the 
year. Some companies do more than three quarters of their entire 
revenue in the last three calendar months. These are ``all-hands-on-
deck'' times for companies that are already stretched to maximum 
capacity. Promulgating new requirements to be effective at exactly the 
busiest time of the year will be particularly crippling and will 
inflict unnecessary damage on affected companies.

Retroactivity is also an enormous issue. Obviously, until the Supreme 
Court changed the law, there were no obligations and requirements on 
remote sellers without nexus to collect in a given geography. 
Attempting to make the responsibility for taxes retroactive puts an 
unreasonable financial burden on the companies impacted and throws into 
question their entire standing as a going concern, with a real 
possibility of making them unfinanceable or insolvent. Congress must 
explicitly take retroactivity off the table.

Some products are defined differently by different taxing 
jurisdictions, making it difficult for multi-category remote sellers to 
properly code their inventory to map to the correct tax rates. Even for 
merchants who seek to comply with laws and regulations, this absence of 
exactitude virtually guarantees mistakes will be made in ever-changing, 
dynamic inventories. Remote sellers will be creating unknown and 
unquantifiable future liabilities that will weaken their ability to 
properly finance their businesses.

The prospect of virtually unlimited audits from 46 tax-collecting 
states, 562 sovereign first people nations, and the numerous home rule 
jurisdictions in states such as Colorado and Alaska is indeed daunting. 
Remote sellers imagine commissioned ``bounty hunters'' demanding to 
enter their business locations at will to inspect their books and 
records, digging in until they find something they can claim to get a 
return on their time. Congress must specify a centralized audit 
mechanism to spare these companies from ceaseless harassment and 
inspection.

There is no standard in determining what the taxable amount of the 
transaction actually is. Some states force companies to tax on gross 
sales before discounts while others use net sales. Some include freight 
and handling while others do not. Some specify rounding rules not found 
in any mathematics textbook, as in the case of Maryland.\5\ There is 
enormous variation in how transactions are to be handled and tax 
collections are to be made, all of which need Congress to clarify going 
forward to create a uniform standard used across the land.
---------------------------------------------------------------------------
    \17\ https://sovos.com/blog/sut/five-common-sales-tax-
misconceptions-that-can-cost-your-busines/.

CSPs have long claimed they have the software capable of making this 
change easy and painless for remote sellers. Now is the time to 
challenge them to step up and show just how they plan to accomplish 
this. States must also consider the significant cost of CSPs and 
provide compensation to offset this cost. Congress needs to address 
---------------------------------------------------------------------------
these issues too.

Congress can act now and minimize confusion as thousands of different 
solutions, requirements and approaches will get adopted without federal 
clarification. While some of these can be expected to be challenged in 
court, this is an expensive, inefficient and time-consuming approach 
that will damage both companies and governments as it saddles them with 
unnecessary additional costs.

ACMA is open to a variety of different approaches and solutions to the 
present uncertainty. Some workable alternatives have been discussed 
that we can support. Catalogers would consider other new approaches. 
However, absent Congress clarifying exactly which rules apply following 
this sea change, the prospect for businesses and consumer harm is 
enormous. Remote selling, including catalog and Internet marketing, has 
obviously been a bright spot in our national economy for decades. It is 
critical that Congress protects this important engine of grown, 
entrepreneurial wealth creation and consumer product diversity that has 
developed to keep this massive change manageable and the new tax 
receipts being sought achievable.

On behalf of ACMA and our member companies, I applaud Chairman Wyden, 
Ranking Member Crapo, and the entire committee for bringing the impact 
of this on remote sales businesses to light. The current status quo 
clearly is a barrier to prosperity, employment and tax growth across an 
important segment of the U.S. economy, as it also provides unique 
products, services and conveniences to consumers. It deserves 
Congressional attention and a solution passed into law. Thank you for 
your attention to this issue.

Sincerely,

Hamilton Davison
President and Executive Director

                                 ______
                                 
                       American Institute of CPAs

                       1455 Pennsylvania Ave., NW

                       Washington, DC 20004-1081

                           T: +1 202-737-6600

                           F: +1 202-638-4512

                       https://www.aicpa.org/home

The following is a written statement provided by the American Institute 
of CPAs (``AICPA'') regarding the effect of the Wayfair Supreme Court 
decision on small businesses, in response to the June 14, 2022 hearing 
held by the United States Senate Committee on Finance on the subject.

The AICPA is the world's largest member association representing the 
accounting profession, with more than 421,000 members in the United 
States and worldwide, and a history of serving the public interest 
since 1887. Our members advise clients on federal, state, and 
international tax matters and prepare income and other tax returns for 
millions of Americans. Our members provide services to individuals, 
not-for-profit organizations, small and medium-sized businesses, as 
well as America's largest businesses.

Our written testimony focuses on what the U.S. Supreme Court 
specifically determined in Wayfair, the states' reaction to the case, 
and how small businesses are affected. We are also providing 
recommendations for Congress to assist in its consideration of whether 
federal legislation should address these pressing issues. AICPA 
previously testified on this issue at the March 3, 2020 hearing of the 
House Committee on Small Business Subcommittee on Economic Growth, Tax 
and Capital Access on the impact of the Wayfair decision on small 
businesses.\1\
---------------------------------------------------------------------------
    \1\ See AICPA oral and written testimony for the House Committee on 
Small Business Subcommittee on Economic Growth, Tax and Capital Access 
hearing on ``South Dakota v. Wayfair, Inc.: Online Sales Taxes and 
their Impact on Main Street,'' March 3, 2020.
---------------------------------------------------------------------------

Overview of the Wayfair Decision

On June 21, 2018, the U.S. Supreme Court issued its decision in South 
Dakota v. Wayfair Inc., overturning the long-standing ``physical 
presence'' nexus standard previously established under Court precedent. 
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 in the prior or current calendar 
year--either gross revenue from sales delivered into the state 
exceeding $100,000, or engaging in at least 200 separate transactions 
involving items delivered into the state.

In finding in favor of South Dakota, the Court noted that while small 
businesses benefitted from the historic physical presence rule, the 
South Dakota statute afforded small businesses ``a reasonable degree of 
protection'' from potential undue burdens caused by an economic 
presence rule. The Court stated that the South Dakota statute had three 
features designed to prevent discrimination or undue burdens on 
interstate commerce: (1) the economic thresholds protecting remote 
sellers that do not perform a considerable amount of business in the 
state; (2) the statute not applying retroactively; and (3) South 
Dakota's adoption of the Streamlined Sales and Use Tax Agreement. To 
the extent states might adopt economic presence rules that are 
burdensome on small businesses, the Court reasoned that reasonably 
priced software eventually would ease the burden. The Court also 
stressed that to the extent problems ensued, Congress had the ability 
to legislate in this area if it deemed necessary to enact such 
legislation.

States' Responses to the Wayfair Decision

Lack of Uniformity on the Level of Economic Thresholds
Collectively, we have seen swift and dramatic state legislative and 
administrative responses to Wayfair, but such responses are not 
entirely consistent from state to state. Every state imposing a general 
sales tax has adopted some form of economic presence requirement on 
remote sellers through new statutes, regulations, and/or policy. About 
half of the states adopted the same alternative economic thresholds at 
issue in Wayfair--more than $100,000 in sales or at least 200 separate 
transactions to the in-state market will subject a remote seller to the 
sales tax. The other half of the states have adopted discrete 
variations on what constitutes economic presence subjecting a remote 
seller to the sales tax, including: higher thresholds of $500,000 (such 
as, California and Texas); a requirement that both the transaction and 
sales thresholds are met (such as, Connecticut and New York); or an 
elimination of the transaction threshold with a retention of the sales 
threshold (such as, Wisconsin). It should also be noted that the 
Wayfair decision did not specifically conclude that South Dakota's 
$100,000 sales or 200 transaction threshold was a constitutional 
minimum, leaving open the possibility that a state could adopt a lower 
threshold in the future.
Lack of Uniformity in Determining How and When Economic Thresholds 
        Apply
In addition to the distinct differences between the economic threshold 
tests adopted by the states, there is a significant lack of uniformity 
in determining how the economic threshold tests are satisfied and when 
remote sellers need to comply with the sales tax. For example, in 
calculating the economic threshold based on sales, some states count 
only the amount of taxable sales that remote sellers have made to a 
state's customers (leaving the exempt sales out). Other states use the 
aggregate gross sales amount, raising the possibility that a remote 
seller must register (unless a state says otherwise), even in the case 
where most of the remote seller's sales are not subject to the sales 
tax because the item is for resale or subject to an exemption. Other 
states may specifically exclude sales for resale, but not other exempt 
sales, in the gross sales calculation.

In addition, for purposes of determining whether the transactional 
threshold has been met, businesses have no clear definition for the 
term ``transaction.'' It is unclear whether a transaction is considered 
each line within an invoice, an entire invoice or a contract that is 
billed in installments.

Since states adopted these provisions independently, different 
enactment and effective dates result in a lack of uniformity with 
respect to when each rule begins to apply, which forces taxpayers to 
navigate different implementation dates from state to state.
Expansion of Economic Nexus Beyond Wayfair Fact Pattern
Inconsistent economic presence thresholds among the states that impose 
a general sales and use tax only scratches the surface of what small 
businesses must deal with in a post-Wayfair landscape. The Wayfair 
decision has also inspired states to adopt economic nexus legislation 
that reaches well beyond the sales tax issues specifically addressed in 
Wayfair. For example, since Wayfair, nearly all the states that impose 
a sales tax have also adopted marketplace facilitator legislation, 
under which remote businesses that facilitate transactions on online 
platforms, often between unrelated purchasers and sellers, are required 
to register, collect and remit sales taxes on these transactions. 
Further, since Wayfair, several states, including Hawaii, 
Massachusetts, and Pennsylvania, have adopted legislation or policy 
imposing economic nexus standards subjecting remote businesses to these 
states' income taxes.

Issues for Small Businesses Since Wayfair

Given the rapid pace of change in the state and local tax treatment of 
remote sellers since Wayfair, small businesses and their accountants 
(many of which operate as, or are part of, small businesses themselves) 
face issues on several fronts. Prior to Wayfair, small businesses with 
physical presence in multiple jurisdictions already had to comply with 
a variety of sales tax registration requirements, taxability questions, 
invoice and exemption certificate management, collecting and remitting 
the proper amount of sales tax, filing returns in numerous state and 
local taxing jurisdictions, and responding to notices and audits from 
these jurisdictions. At the same time, small businesses also had to 
ensure compliance with widespread state and local income tax 
requirements.

Since Wayfair, it has become even more challenging to meet these 
requirements. Even those small businesses historically compliant in 
states where they are physically present are resource constrained and 
face financial limitations to either internally implement or outsource 
new and complex compliance processes. Wayfair and the states' response 
have resulted in a web of inconsistent, complicated, and burdensome 
state and local sales and income tax nexus rules across the country. 
The COVID-19 pandemic and an inflationary economy has amplified these 
concerns.
Prohibitive Expense of New Sales Tax Compliance Obligations
With the advent of remote seller and marketplace facilitator rules, it 
is markedly more expensive and time-consuming for small businesses to 
comply and ensure that the proper amount of sales tax is paid to state 
and local jurisdictions. Small businesses that traditionally maintained 
a small physical footprint in one or two states now must consider 
whether their sales to customers in a national marketplace subject them 
to the new rules. Small businesses must track ongoing developments in 
the states as remote seller legislation is addressed, while analyzing 
recent levels of sales and transactional data by state to determine if 
they have crossed an economic threshold. For small businesses that 
previously did not need to be concerned with collecting sales tax on 
remote sales, the four-year Wayfair lookback in many states now is a 
significant obstacle for these small businesses that want to be in 
compliance with the rules. These unsuspecting and overwhelmed small 
businesses are now finding that they must decide whether to take 
significant loans, liquidate assets, or sell their companies to satisfy 
prior sales tax burdens in states where the small businesses had no 
past physical presence of property or payroll. Other small businesses 
may find it necessary to close their doors with no way to fund the 
compliance costs and sales tax, facing interest and penalty liabilities 
that continue to mount in past periods when these sudden expenses were 
not budgeted.

If these small businesses are subject to the new rules, they must 
determine whether the products they sell are taxable or exempt 
depending on the existing rules in each state in which they are 
selling. To the extent such sales are exempt, small businesses must 
ensure that a proper exemption or resale certificate document is 
available. If the sales are taxable, small businesses must determine 
the correct state and local tax rates to collect and comply with each 
state's specific collection and remittance compliance obligations. 
Taken as a whole, there are often prohibitive costs attached to 
ensuring that the compliance is performed correctly, whether completed 
in-house with dedicated tax staff, or completely outsourced.

If left unchecked, the lack of uniformity in which the states have 
reacted to Wayfair could impair the ability of small businesses to grow 
or stay in business, result in a loss in productivity that impairs the 
broader economy, and hamper accountants' ability to efficiently and 
effectively advise these small businesses.
 Unnecessary Sales Tax Registration Requirements for Businesses Making 
        Exempt or Minimally Taxable Sales
While the post-Wayfair legislation adopted by the states was intended 
to capture additional sales tax revenue by requiring remote sellers to 
collect and remit sales taxes, there are instances in which remote 
seller registration has not led to additional revenue for the states. 
In states that have adopted remote seller legislation based on an 
economic presence threshold on the amount of gross revenue rather than 
taxable revenue, a small business that primarily sells goods for resale 
or is otherwise exempt from taxation may have to register for the sales 
tax and file ``zero dollar'' tax returns. In that case, the small 
business expends unnecessary time in complying with the law, and the 
state does not receive any additional revenue for those efforts.

Similar problems may arise when states utilize economic threshold tests 
based on a 200-transaction economic threshold standard rather than an 
economic threshold based on the value of the sales made to customers 
within the jurisdiction. For example, a small business selling a 
taxable product valued at $10 each to 200 customers in a state with an 
8% sales tax in a taxable year is required to register, collect and 
remit a grand total of $160 (8% of the aggregate $2,000 in sales) to 
the state. The cost of collection borne by the small business in this 
instance, which includes determining when the registration requirement 
became effective, the effort required to ensure that the transactions 
are taxable, the systemic changes that the small business must make to 
reflect the tax on transactions to a particular state, and the tax 
filings required to remit the tax amounts due, clearly exceeds the $160 
collected for the state.
Special Issues for Small Businesses Selling Directly and Through 
        Marketplaces
The new rules are particularly problematic for small businesses that 
sell through their own websites, as well as through unrelated online 
marketplaces. These remote sellers must determine and navigate 
burdensome compliance obligations under both the remote seller and 
marketplace facilitator rules that most states have adopted. Some 
states aggregate direct sales and marketplace sales to determine 
whether the remote seller meets the economic threshold, which 
disadvantages small businesses that make significant marketplace sales 
and only minor quantities of direct sales.
Effect of the COVID-19 Pandemic
The compliance obligations faced by small businesses following the 
Wayfair decision prior to the COVID-19 pandemic were considerable. The 
effect of the pandemic has made matters markedly more complicated for 
small businesses that had to suspend and then pivot their mode of 
operations in a short period of time to remain viable. At the same 
time, the pandemic forced consumers to make an increasing number of 
purchases via online remote sellers and marketplaces in lieu of in-
person purchases. The influx of remote sales to the small businesses 
lucky enough to survive the first few months of the pandemic caused 
more of these businesses to quickly reach remote seller sales and/or 
transactional thresholds in states requiring them to register, collect 
and remit sales taxes in more jurisdictions.\2\ This trend, which has 
continued into 2022, and has been exacerbated by the recent 
inflationary environment, has resulted in an even more elevated sales 
tax compliance burden for remote sellers, in terms of costs and time 
spent by already over-burdened in-house personnel. Generally, the lack 
of any window to come into compliance or amnesty period will pose sales 
tax surprises for many small businesses.
---------------------------------------------------------------------------
    \2\ While not specific to economic nexus, the pandemic also 
increased the likelihood that a business may have employees working in 
states where it previously had no physical presence. This may compound 
the complexity for small businesses already grappling to comply with 
sales tax obligations in the wake of Wayfair.

In summary, small sellers are subject to an extraordinarily fragmented 
landscape of inconsistent and varying compliance obligations in the 
post-Wayfair world. Nexus standards, threshold calculations, rate 
determinations, and filing compliance are only some of the burdens on 
remote businesses. Small businesses, in particular, do not have the 
necessary resources, revenue, or time to consistently and accurately 
comply with sales and use tax rules across the nation. These small 
businesses challenges are amplified now during the pandemic with 
increased remote work and in a time of historically high inflation. 
Small businesses must act quickly to replicate the resources more 
readily available to larger, more established multistate businesses or 
face significant penalties.

Recommended Legislative Solutions

The AICPA has several recommendations for Congress to consider if it 
decides to assist small businesses with state tax simplification post-
Wayfair. Overall, we suggest a reasonable balance between the states' 
rights to tax income and sales within their borders and the needs of 
individuals and businesses to operate efficiently in this economic 
climate. Our recommendations include a simple and reasonable economic 
threshold, applicable to income and sales taxes in a consistent manner 
across the states. In addition, we provide recommendations designed to 
simplify the sales tax treatment of marketplace facilitators and 
marketplace sellers and suggest guidelines for effective tax 
administration that will ease the burden on small businesses.
Consistency Between Sales and Income Tax Nexus Rules
The states' efforts to subject remote sellers to tax has highlighted 
for remote sellers the 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, and following Wayfair, there is a divergence 
between how the sales tax and income tax nexus rules work. On the sales 
tax side, there are widely divergent economic threshold tests in 
effect. On the income tax side, most states use ``doing business'' 
standards and a few states use economic threshold tests. In addition, 
there is an important protection that Congress has provided pursuant to 
Public Law 86-272, under which businesses with limited solicitation 
activities (within a state with respect to sales of tangible personal 
property shipped from outside the state) are not subject to the state's 
income tax.

While it is impossible to completely align all sales and income tax 
regimes into one set tax policy that is uniform for all states and in 
all circumstances, it is possible for Congress to address the minimum 
standards for which both income and sales taxes will apply to a remote 
seller.
 The MTC Factor Presence Nexus Standard for Business Activity Taxes as 
        a Starting Point for Determining Economic Nexus Thresholds
A natural starting point in considering a consistent set of minimum 
economic threshold standards is the model factor presence nexus 
standard established by the Multistate Tax Commission (MTC) in 2002 for 
business entities organized outside a state. The MTC's minimum 
standards provide the following bright-line safe harbor de minimis 
thresholds for small businesses for each state for the purposes of 
imposing business activity taxes: (i) $500,000 sales in the state; (ii) 
$50,000 in property in the state; (iii) $50,000 in payroll in the 
state; or (iv) 25% of total property, total payroll or total sales in 
the state.

The MTC's model presence nexus standard also has rules governing 
inflation adjustments, sourcing rules that help determine when the 
sales threshold is met, and confirmation that the protections under 
Public Law 86-272 still apply. We note, however, that on August 4, 
2021, the MTC revised its interpretation of Public Law 86-272, adding 
complexity for businesses.\3\ The inflation adjustment provision is 
particularly relevant given recent economic developments. This 
provision requires an annual adjustment to the above thresholds if the 
consumer price index (referenced as the CPI-U) has changed by 5% or 
more since either January 1, 2003, or the date that the thresholds were 
last adjusted.
---------------------------------------------------------------------------
    \3\ See MTC Statement of Information Concerning Practices of 
Multistate Tax Commission and Supporting States Under Public Law 86-
272, revised August 4, 2021.

Given that the MTC has not updated its factor presence nexus standard 
since its adoption in 2002, the AICPA recommends an update of the 
uniform minimum state economic nexus threshold that states could apply 
in a consistent manner for both the sales and income taxes. Under this 
recommendation, substantial nexus would apply on a prospective basis 
following adoption, only when at least one of the following three 
thresholds is met: (i) one designated threshold amount of taxable sales 
(for sales tax) or gross sales (for income tax) in the state; (ii) 
$100,000 property located in the state (for both sales and income tax); 
or (iii) $100,000 payroll located in the state (for both sales and 
---------------------------------------------------------------------------
income tax).

There are several potential approaches to determining an appropriate 
designated threshold amount of sales. As a minimum, the $500,000 amount 
used in the 2002 MTC's factor presence nexus standard equates to what 
some of the larger-market states have decided to use in their post-
Wayfair remote seller statutes. As an alternative approach, if 
inflation is taken into account since the MTC's adoption of its 
standard in 2002, the economic threshold would be approximately 
$800,000. As an additional approach, a $1 million in-state sales 
threshold is similar to the threshold for paying the Oregon gross 
receipts tax and would ensure that small businesses are protected from 
the substantial burdens of multistate sales and income tax compliance. 
The annual inflation adjustment should be applied to ensure that the 
sales threshold accounts for the ongoing inflationary environment faced 
by small businesses.

For the in-state sales threshold, because the taxable bases for the 
sales tax and the income tax substantially differ, we recommend the use 
of ``taxable sales'' for sales tax purposes, and ``gross sales'' 
sourced to the state for income tax purposes. The factor presence 
standard would eliminate the current transaction thresholds adopted by 
many states post-Wayfair that have negatively affected small 
businesses. Eliminating the transaction threshold, as several states 
have already done, would decrease the complexity and financial costs 
for small businesses, especially those businesses selling relatively 
low-priced products.

A factor presence threshold offers taxpayers transparency to understand 
when a tax is imposed, while offering state governments an appropriate 
level of predictability. It is rooted in ``bright-line'' standards 
adopted by the MTC nearly twenty years ago that would be increased for 
inflation and retain protections that Congress afforded to businesses 
in Public Law 86-272. A prospective application of the standards allows 
for taxpayer accountability when there is accessibility and visibility 
of information on tax laws. It also eliminates the use of the 
transactional economic threshold test that already has proven 
impractical for small businesses to apply, as reflected in several 
states rejecting the use of this test in their post-Wayfair 
legislation.
Consistent and Clear Definitions for Marketplace Facilitators
In the rush to adopt legislation post-Wayfair to cover the activities 
of marketplace facilitators, states adopted several approaches that 
make it exceedingly difficult on marketplace sellers that are already 
dealing with the remote seller rules for their own direct sales, as 
well as marketplace facilitators, which in many cases are small 
businesses themselves. As a means to simplify the analysis for 
marketplace sellers and facilitators and avoid situations in which the 
unintended double collection or non-collection of sales tax may occur, 
we recommend a consistent and clear definition of what constitutes a 
marketplace facilitator (or marketplace provider, the term that many 
states use in place of marketplace facilitator). New York's definition 
of ``marketplace provider'' requires that a business: (i) facilitate 
sales of tangible personal property via agreement with a marketplace 
seller; (ii) provide the forum in which the sale occurs; and (iii) 
collect receipts paid by a customer to a marketplace seller for a sale 
of tangible personal property (or contract with a third party to 
collect such receipts). To be required to register, collect and remit 
sales tax, marketplace providers with no physical presence in New York 
also must meet the economic threshold tests applicable to remote 
sellers. Congress should provide a set of rules defining (and providing 
a mechanism for determining) who (whether it is the seller or 
marketplace facilitator) is required to collect and remit sales tax. 
The rules should include an exception to (and waiver out of) the 
general rule, allowing the parties to enter into an agreement on who 
will collect and remit the sales tax. A set of uniform rules governing 
marketplace facilitators will result in equity, fairness and neutrality 
with respect to how taxpayers engage in marketplace transactions.
Encouraging Effective Tax Administration
Finally, while the above recommendations are integral in providing a 
measure of uniformity at the state and local level post-Wayfair, we 
suggest additional guidelines for effective tax administration that 
would ease the burden on small businesses and advisers alike.
            i. Standardized Measurement Periods for Measuring Economic 
                    Thresholds
We recommend a standardized measurement period for small businesses to 
determine if they exceeded economic thresholds. Specifically, the 
measurement period should look to the prior fiscal or calendar year to 
determine whether the business has met the economic thresholds for both 
the sales tax and income tax. That period would provide certainty, 
convenience, consistency, and sufficient time for small businesses to 
implement new systems and devise a workplan and minimize noncompliance.
            ii. 90-Day Grace Period Prior to Sales Tax Obligations
In many instances, small businesses will not know if they have reached 
the economic threshold in a particular state until the very end of the 
fiscal or calendar year. Given that uncertainty and the effort that it 
will take for a small business to comply with its sales tax 
obligations, any federal legislation should set forth an automatic 90-
day grace period following the close of the fiscal or calendar year 
before a remote seller is required to register to collect and remit the 
sales tax. Providing a remote seller 90 days after the prior year in 
which they exceed the threshold allows a reasonable amount of time for 
a remote seller to register, determine proper state and local sales tax 
rates to collect, and remit the sales tax to a new jurisdiction.
            iii. Taxability Matrices
Congress should also encourage all states to provide easily accessible 
taxability matrices that are updated on a regular basis to promote 
uniformity, certainty, and transparency. The matrices should contain 
definitions; treatment; statutory, administrative or other references; 
and comments to assist taxpayers in determining if a state includes or 
excludes an item from the sales price, and if a product or service is 
taxable or exempt. Such guidance and uniformity would substantially 
reduce complexity and result in easier and faster tax determinations, 
thereby encouraging overall taxpayer compliance as well as decreasing 
the burdens and costs associated with erroneous tax decisions.

                                 ______
                                 
                              Aqua Design

                   119 S. Valley Drive, Suite A, #179

                        Nampa, ID USA 83686-2985

                       E-mail: [email protected]

                        https://aquadesign.com/

June 17, 2022

U.S. Senate
Committee on Finance
Dirksen Senate Office Bldg.
Washington, DC 20510-6200

Dear Senate Committee on Finance,

I write to urge you to create legislation for comprehensive change to 
online sales and use taxes. I am an Idahoan living in Nampa and the CEO 
of a small e-
commerce business manufacturing and selling activewear apparel online 
since 2002. I participate in an e-commerce forum of hundreds of 
business owners, which Michelle Huie referenced in her testimony at the 
June 14, 2022 Senate Finance Committee Hearing regarding the impact of 
the South Dakota v. Wayfair Supreme Court ruling on small businesses.

I appreciated the Member Statements and Witness Testimonies that 
highlighted the issues facing small businesses nationwide since this 
onerous ruling in 2018.

Here are a few top priority pain points for Congress to resolve and 
give relief to small businesses:

Problem: Hundreds of Varying Tax Rates

        Michelle Huie testified, that many States have not one tax rate 
        but hundreds of different tax rates across the State. 
        Researching and complying with this complexity costs many hours 
        and dollars for each small business that has nexus in those 
        States. The cumulative effect of thousands of jurisdictions and 
        thousands of small businesses complying with tax rate 
        complexity is massive when considering the time and cost 
        expended. And this is a moving target, where tax rates can 
        change.

Solution: Mandate One Rate per State

        Introduce simplified tax rates, if possible reduced to one 
        online tax rate per State to ease the burden on small 
        businesses.

Problem: Marketplace Inventory Movement Triggering Physical Nexus

        According to various State laws, our small, Idaho-based 
        business, has physical nexus in 25 States due to our consigned 
        inventory in Amazon warehouses. Although we do not meet the 
        economic sales threshold in these States, our business is still 
        required to collect and remit sales tax from our website 
        transactions. We have no control over our consignment of 
        inventory movement within Amazon's network of warehouses. 
        Therefore, we must conduct a recurring audit to determine where 
        the marketplace may have shipped our goods to discover if a new 
        nexus jurisdiction has been triggered.

Solution: Eliminate Marketplace Inventory Movement as Physical Nexus

        Abolish physical nexus resulting from small business inventory 
        movement in marketplaces such as Amazon. As a seller on any 
        third-party marketplace, we have no control over the inventory 
        movement of our products once they are consigned into the 
        marketplace warehouse system.

Problem: Too Many Definitions of Economic Nexus

        Twenty-two States \1\ define economic nexus as a threshold of 
        $100,000 or 200 separate transactions per year. A threshold 
        that includes 200 transactions is too low, particularly for 
        low-cost items. For example, a $25 item @ 200 transactions per 
        year would amount to only $5,000 in annual sales, which would 
        trigger sales tax collection in these 22 States. Fortunately, 
        19 States \2\ do not include or have recently eliminated 
        transactions in their threshold, defining it simply as $100,000 
        gross, or more, income per year.
---------------------------------------------------------------------------
    \1\ Twenty-two States and the District of Columbia have a 
``$100,000 or 200 or more separate transactions'' threshold for remote 
sellers: AK, DC, GA, HI, IL, IN, KY, LA, MD, MI, MN, NE, NV, NJ, NC, 
OH, RI, SD, UT, VT, VA, WV, WY.
    \2\ Nineteen States have a ``$100,000 and 200 transactions'' 
threshold or a ``$100,000'' threshold only: AZ, CO, CT, FL, ID, IA, KS, 
ME, MA, MO, NM, NY, ND, OK, PA, SC, TN, WA, WI. Nexus transaction 
thresholds by State. Source: Economic Nexus State Chart--State by State 
Economic Nexus Rules | Sales Tax Institute.
---------------------------------------------------------------------------

Solution: Mandate Consistent Economic Nexus Thresholds

        Mandate consistent economic nexus thresholds for every State 
        based entirely on revenue, not order volume. The number of 
        transactions should not be used as a criterion for nexus.

 Problem: Small Business Owners are Responsible for Third-Party 
                    Software Discrepancies

        We use the popular Shopify e-commerce platform along with 
        TaxJar, a third-party sales tax filing remittance software that 
        can result in differing jurisdiction tax rate calculations. 
        Shopify adds sales tax to the transaction and TaxJar files and 
        remits sales tax to the States. Small businesses should not be 
        held liable for tax rate calculation discrepancies from 
        multiple software providers. Because of the lack of third-party 
        software that will automatically refund customers or remit 
        sales tax overages when discrepancies exist, we have made the 
        difficult decision to forward all aquadesign.com shoppers to 
        Amazon's marketplace until a tax rate simplification of the law 
        occurs or a software solution is available. The direct cost of 
        this decision to our business will exceed $25,000 per year.

 Solution: Provide Safe Harbor for Small Businesses Who Subscribe to 
                    Software Services for Sales and Tax Compliance

        Provide ``forgiveness'' to small businesses for remittance 
        liabilities resulting from third-party software calculation 
        discrepancies until State tax rates are simplified.

Problem: Sales Tax Registration Triggers Excessive Filings in Some 
                    States

        Sales tax registration and compliance should not trigger 
        additional requirements for filing excess returns, such as 
        corporate, income, withholding, franchise, or public 
        information returns.

        Currently, our Idaho-based small business is required to file 
        seven excess annual returns in Illinois, Kentucky, South 
        Carolina, and Texas.

 Solution: Mandate That Sales or Use Tax Registration Does Not Qualify 
                    States for Excess Filings

        Limit sales and use tax registration to sales tax filing only.

Problem: Offshore E-Commerce Sellers' Loopholes

        Address the offshore loopholes where online overseas e-commerce 
        sellers (China) do not comply with U.S. sales tax laws and pay 
        no income taxes. If these loopholes are left unchanged, U.S. 
        businesses will continue to be disadvantaged by these unfair 
        policies. The U.S. Government should be providing small 
        businesses in the U.S. as many advantages as possible and, at 
        the very least, making commerce a level playing field.

 Solution: Nullify De Minimis and Collect Sales Tax for Offshore 
                    Sellers Transactions

        Enforce state sales tax and duty collection for offshore 
        sellers who sell online in the United States. Also, abolish or 
        drastically modify the $800 de minimis rule that allows goods 
        to arrive in the U.S. sales tax and duty-free.

 Problem: Refunding Orders and Sales Tax Requires Excessive Red Tape 
                    and Amended Returns

        Anyone who purchases online knows that returns are a fact of e-
        commerce life. We, therefore, need to fix the pain point of 
        recovering sales tax paid on refunded orders. Manual inputting 
        returns to claw back taxes paid is cumbersome, expensive, and 
        overly burdensome for small businesses.

 Solution: Allow for Returns in the Current Filing from Sales in Prior 
                    Filings; Require States to Offer a Uniform API for 
                    Returns

        Adopt a uniform return API where sellers and software vendors 
        can easily enter returns in the current tax filing window 
        instead of creating amended returns dating back to the original 
        transaction date.

Other suggestions mentioned by the e-commerce forum:

      Adopt consistent taxable product definitions across all states
      Require all states to have a tax rate API available for all 
sellers and software vendors
      Create a safe harbor for using zip codes to calculate tax if an 
API is not available (the telecommunications industry already has this 
protection made by congress under the MTSA)
      Require consistent filing due date and time per State. Various 
States use the 15th of the month while others are the day before the 
20th. Some States have a 5 PM deadline while others close at midnight 
of the due date.
      Prepayments should be eliminated. They overcomplicate the 
process and just create more penalty revenue for the States.
      Consistently require only one return per State. Several States 
have separate local returns.
      Any tax penalties should be based on the tax amount due. Some 
States have a minimum penalty for not filing a return even when no tax 
is due.

Small businesses are started by entrepreneurs taking advantage of the 
opportunities that the United States offers. But the Wayfair decision 
has made the ``American Dream'' become the ``American Nightmare'' for 
many small businesses like ours. I trust in the Finance Committee's 
bipartisan leadership to engage this issue head-on and bring swift and 
effective relief to small businesses across the nation.

Sincerely,

Rex Bledsoe, CEO

                                 ______
                                 
                        Center for Fiscal Equity

                        14448 Parkvale Road, #6

                       Rockville, Maryland 20853

                      [email protected]

                    Statement of Michael G. Bindner

Chairman Wyden and Ranking Member Crapo, thank you for taking my 
comments for this hearing.

I have attached our tax reform proposals to provide context for our 
comments. Note that these proposals have been changed. Taxation of 
dividends and interest have been shifted to the high income surtax and 
higher tiers of the subtraction VAT. This is more appropriate because 
the S-VAT is designed to capture both capital and wage income. This 
change is consistent with that principle.

Fifty years ago, cash registers were not computerized. This forced 
cashiers to either use math to determine sales taxes or refer to a 
table provided by the state revenue department. We have come a long way 
since then. Online ordering programs now easily calculate and allocate 
sales tax payments on interstate transactions.

If goods and services value-added taxes were the rule, rather than 
sales taxes, the Wayfair case would not have come up. Taxes would have 
already been embedded in the price. There would have been no incentive 
for tax avoidance to keep customers happy. Instead, states would have 
been more aggressive in seeking interstate compacts to redistribute 
that last bit of value added at point of sale.

In the current regime, firms that collect sales taxes receive sales 
taxes paid out through their federal tax filing. In essence, the United 
States already has value-added taxes, except that they are also an 
intergovernmental transfer.

We advocate a national GST (invoice VAT) to fund military and civil 
discretionary spending. Adding a line item for taxes to the invoice 
creates downward pressure on such spending. Passing a constitutional 
amendment to allow regional excise taxes and spending would introduce 
competition to cut discretionary spending even more.

At the same time, adding a consumption tax reduces any advantage to 
borrow from assets to avoid taxes on current consumption or to seek tax 
advantage schemes to eliminate inheritance taxes. This includes life 
insurance, establishing trusts and advocating against the ``death 
tax.''

We also propose a subtraction value-added tax (S-VAT) to collect taxes 
to either be submitted to the government to fund social services, 
healthcare, family income and education or create tax expenditures so 
that employers would simply provide family income and services in lieu 
of paying higher taxes. In essence, this would be the Fair Tax without 
prebates or the covert effort to end support for needy families through 
the tax system.

The federal S-VAT is not relevant to our discussion. A local one is. 
There would be no interstate (or international) adjustment because a 
state and local S-VAT would be used to fund benefits to employees and 
their families. They are a placeholder for a cooperative economy in 
which employee-owned firms would provide health, social and educational 
services to employees and their families, as well as income support for 
larger families.

In a mature cooperative economy, a federal S-VAT would be unnecessary. 
Firms would simply do the right thing on family income in a way that is 
not possible today because of market disincentives to provide more 
family income, regardless of individual productivity. These 
circumstances are why the child tax credit at median income levels is 
the only moral choice.

Back to the matter at hand, firms that will charge no VAT will not 
report it, but this would deprive them and any of their customers the 
opportunity to take advantage of any VAT credit. We suspect most firms 
will register for a VAT number.

Thank you for this opportunity to share these ideas with the committee. 
As always, we are available to meet with members and staff or to 
provide direct testimony on any topic you wish.

Attachment--Tax Reform, Center for Fiscal Equity, June 10, 2022

Individual payroll taxes. Employee payroll tax of 7.2% for Old-Age and 
Survivors Insurance. Funds now collected as a matching premium to a 
consumption tax based contribution credited at an equal dollar rate for 
all workers qualified within a quarter. An employer-paid subtraction 
value-added tax would be used if offsets to private accounts are 
included. Without such accounts, the invoice value-added tax would 
collect these funds. No payroll tax would be collected from employees 
if all contributions are credited on an equal dollar basis. If employee 
taxes are retained, the ceiling would be lowered to $85,000 to reduce 
benefits paid to wealthier individuals and a $16,000 floor should be 
established so that Earned Income Tax Credits are no longer needed. 
Subsidies for single workers should be abandoned in favor of radically 
higher minimum wages. If a $10 minimum wage is passed, the employee 
contribution floor would increase to $20,000.

High-income Surtaxes. Individual income taxes on salaries, interest and 
dividends, which exclude business taxes, above an individual standard 
deduction of $85,000 per year, will range from 7.2% to 57.6%. This tax 
will fund net interest on the debt (which will no longer be rolled over 
into new borrowing), redemption of the Social Security Trust Fund, 
strategic, sea and non-continental U.S. military deployments, veterans' 
health benefits as the result of battlefield injuries, including mental 
health and addiction and eventual debt reduction.

Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes 
and the estate tax. It will apply to asset sales, exercised options, 
inherited and gifted assets and the profits from short sales. Tax 
payments for option exercises, IPOs, inherited, gifted and donated 
assets will be marked to market, with prior tax payments for that asset 
eliminated so that the seller gets no benefit from them. In this 
perspective, it is the owner's increase in value that is taxed. As with 
any sale of liquid or real assets, sales to a qualified broad-based 
Employee Stock Ownership Plan will be tax free. These taxes will fund 
the same spending items as income or S-VAT surtaxes.

This tax will end Tax Gap issues owed by high income individuals. A 26% 
rate is between the GOP 23.8% rate (including ACA-SM surtax) and the 
Democratic 28.8% rate as proposed in the Build Back Better Act. It's 
time to quit playing football with tax rates to attract side bets. A 
single rate also stops gaming forms of ownership. Lower rates are not 
as regressive as they seem. Only the wealthy have capital gains in any 
significant amount. The de facto rate for everyone else is zero. For 
now, however, a 28.8% rate is assumed if reform is enacted by a 
Democratic majority in both Houses.

Subtraction Value-Added Tax (S-VAT). These are employer paid Net 
Business Receipts Taxes. S-VAT is a vehicle for tax benefits, including

      Health insurance or direct care, including veterans' health care 
for non-
battlefield injuries and long-term care.
      Employer-paid educational costs in lieu of taxes are provided as 
either 
employee-directed contributions to the public or private unionized 
school of their choice or direct tuition payments for employee children 
or for workers (including ESL and remedial skills). Wages will be paid 
to students to meet opportunity costs.
      Most importantly, a refundable child tax credit at median income 
levels (with inflation adjustments) distributed with pay.

Subsistence-level benefits force the poor into servile labor. Wages and 
benefits must be high enough to provide justice and human dignity. This 
allows the ending of state administered subsidy programs and 
discourages abortions, and as such enactment must be scored as a must 
pass in voting rankings by pro-life organizations (and feminist 
organizations as well). To assure child subsidies are distributed, S-
VAT will not be border adjustable.

The S-VAT is also used for personal accounts in Social Security, 
provided that these accounts are insured through an insurance fund for 
all such accounts, that accounts go toward employee ownership rather 
than for a subsidy for the investment industry. Both employers and 
employees must consent to a shift to these accounts, which will occur 
if corporate democracy in existing ESOPs is given a thorough test. So 
far it has not. S-VAT funded retirement accounts will be equal-dollar 
credited for every worker. They also have the advantage of drawing on 
both payroll and profit, making it less regressive.

A multi-tier S-VAT could replace income surtaxes in the same range. 
Some will use corporations to avoid these taxes, but that corporation 
would then pay all invoice and subtraction VAT payments (which would 
distribute tax benefits). Distributions from such corporations will be 
considered salary, not dividends.

Invoice Value-Added Tax (I-VAT). Border adjustable taxes will appear on 
purchase invoices. The rate varies according to what is being financed. 
If Medicare for All does not contain offsets for employers who fund 
their own medical personnel or for personal retirement accounts, both 
of which would otherwise be funded by an S-VAT, then they would be 
funded by the I-VAT to take advantage of border adjustability. I-VAT 
also forces everyone, from the working poor to the beneficiaries of 
inherited wealth, to pay taxes and share in the cost of government. 
Enactment of both the A-VAT and I-VAT ends the need for capital gains 
and inheritance taxes (apart from any initial payout). This tax would 
take care of the low-income Tax Gap.

I-VAT will fund domestic discretionary spending, equal dollar employer 
OASI contributions, and non-nuclear, non-deployed military spending, 
possibly on a regional basis. Regional I-VAT would both require a 
constitutional amendment to change the requirement that all excises be 
national and to discourage unnecessary spending, especially when 
allocated for electoral reasons rather than program needs. The latter 
could also be funded by the asset VAT (decreasing the rate by from 
19.5% to 13%).

As part of enactment, gross wages will be reduced to take into account 
the shift to S-VAT and I-VAT, however net income will be increased by 
the same percentage as the I-VAT. Adoption of S-VAT and I-VAT will 
replace pass-through and proprietary business and corporate income 
taxes.

Carbon Added Tax (C-AT). A Carbon tax with receipt visibility, which 
allows comparison shopping based on carbon content, even if it means a 
more expensive item with lower carbon is purchased. C-AT would also 
replace fuel taxes. It will fund transportation costs, including mass 
transit, and research into alternative fuels (including fusion). This 
tax would not be border adjustable unless it is in other nations, 
however in this case the imposition of this tax at the border will be 
noted, with the U.S. tax applied to the overseas base..

Tax Reform Summary

This plan can be summarized as a list of specific actions:

    1.  Increase the standard deduction to workers making salaried 
income of $33,500 and over, shifting business filing to a separate tax 
on employers and eliminating all credits and deductions--starting at 
7.2%, going up to 28.8%, in $50,000 brackets.

    2.  Shift special rate taxes on capital income and gains from the 
income tax to an asset VAT. Expand the exclusion for sales to an ESOP 
to cooperatives and include sales of common and preferred stock. Mark 
option exercise and the first sale after inheritance, gift or donation 
to market.

    3.  Employers distribute the child tax credit with wages as an 
offset to their quarterly tax filing (ending annual filings).

    4.  Employers collect and pay lower tier income taxes, starting at 
$85,000 at 7.2%, with an increase to 14.4% for all salary payments over 
$135,000 going up 7.2% for every $50,000- up to $235,000.

    5.  Shift payment of HI, DI, SM (ACA) payroll taxes to employers, 
remove caps on employer payroll taxes and credit them to workers on an 
equal dollar basis.

    6.  Employer paid taxes could as easily be called a subtraction 
VAT, abolishing corporate income taxes. These should not be zero rated 
at the border.

    7.  Expand current state/federal intergovernmental subtraction VAT 
to a full GST with limited exclusions (food would be taxed) and add a 
federal portion, which would also be collected by the states. Make 
these taxes zero rated at the border. Rate should be 19.5% and replace 
employer OASI contributions. Credit workers on an equal dollar basis.

    8.  Change employee OASI of 7.2% from $18,000 ($20,000 for $10 
minimum wage) to $85,000 of wage income.

                                 ______
                                 
                   Letter Submitted by Meredith Erin
Dear Representative:

My husband and I started our small California-based e-commerce business 
in our garage in 2013. Our company has since grown to a thriving 
business supporting us and 8 other full time employees. While we are 
proud of our growth and success, we are still very much a small 
business and my husband and I work long hours managing operations, 
marketing, product design, etc.

Since the Wayfair court case, we have had to worry about whether we 
will be able to stay in business due to new burdensome demands that we 
collect and remit sales tax for every jurisdiction in the country. I 
know people have made claims that software makes this quick and easy 
but this isn't true. Here's what would be expected of our small 
business staffed with just 10 full time employees:

      ANY jurisdiction can make a change to sales tax rates and we 
have to update sales tax settings for our customers. So not only do we 
have to keep track of changes in thousands of jurisdictions, but we'd 
also have to do the work to update our sales tax settings an unlimited 
number of times per year.

      You cannot just collect and pay sales tax. Every state and 
jurisdiction has their own set of permits you need to collect and remit 
sales tax and they all have their own filing schedules. The states and 
cities all charge fees for those permits. The cost to get the permits 
alone is not affordable for a small business. Even if we could afford 
those permits, the labor cost to prepare all those tax returns and keep 
track of all those filing schedules would be so burdensome we don't 
have the manpower to handle the task. It also paves the way for making 
me pay income tax in states I don't operate in, don't vote in, and 
don't have inventory or employees or any presence in.

      We are now open to audits from every foreign state and tax 
jurisdiction in the country, even if we sold only $1,000 worth of goods 
into their state. Does it seem reasonable for us to undergo countless 
potential audits for such small amounts of money?

We are not a huge corporation with the budget to take on this level of 
regulatory complexity and at our revenue level (low seven figures in 
gross sales) it doesn't even make sense for us to take all of this on.

Once you carved up the actual gross sales on a state by state level the 
amount due to each state would be fairly insignificant. We are already 
based in California (the most populous state) and collect and remit 
sales tax here. Our home state represents 15% of our retail sales. That 
means most states that charge sales tax would be out on average $20,000 
of taxable revenue--considering sales tax rates, we would end up 
probably paying the remaining states $1,000/year each in sales tax at 
most. Our $1,000/year in sales tax revenue is not a significant enough 
amount of revenue for those states for us to take on a regulatory 
burden so wildly expensive. The issue isn't paying a small amount of 
sales tax, the issue is the level of complexity and amount of time 
needed to comply. It would easily cost us 10x that much to handle the 
compliance.

Having a national streamlined sales tax would certainly be easier for 
businesses like mine to comply with. If we just had to keep track of 
ONE permit and ONE filing schedule outside of California, that would be 
doable. Keeping track of and complying with 44 states and their 
attendant city/county tax rates and requirements is not reasonable. 
Some states have dozens of city and county level tax rates and 
policies.

If you exempted smaller companies like mine from collecting sales tax 
for states where we have no physical presence at all, that would also 
ensure companies doing significant sales volume (hundreds of millions 
or more) would pay their fair share, without imposing this undue burden 
on small companies like mine. It would give companies like mine the 
freedom to grow to a size where it would make sense for us to take on 
this regulatory burden.

I would also like to point out that currently Chinese e-commerce 
merchants are basically able to ship to the U.S. nearly free of charge 
thanks to epacket. I pay more to mail a package within my own city than 
they pay to mail packages to my city. They steal our intellectual 
property and ignore product safety laws and most certainly do not pay 
ANY taxes (including sales tax) or create ANY American jobs. Foisting 
this unreasonable regulatory burden on us while doing nothing to stem 
the flow of counterfeit and dangerous goods from the Chinese who are 
NOT subject to any of these burdens does nothing to help American jobs 
or entrepreneurs. This is just another hand out to a country that does 
nothing but steal from us and a loophole for consumers to avoid sales 
tax by shopping directly with Chinese merchants instead of American 
businesses.

Please consider exempting smaller companies (at least those under 
$10,000,000 in annual gross revenue) from this expectation to collect 
sales tax for every state and jurisdiction in the country. This is not 
a reasonable undertaking for companies our size and stifles job growth, 
entrepreneurship, and innovation. If this is not possible, please 
consider a single online sales tax system so companies like mine can 
collect and remit tax to one entity on one schedule. We are not opposed 
to paying our fair share, but we are very much opposed to the 
burdensome level of cost and complexity involved with doing so.

Regards,

Meredith Erin

                                 ______
                                 
                             Expedia Group

                      1111 Expedia Group Way West

                           Seattle, WA, 98119

                           T +1 206-481-7200

                           F +1 206-481-7240

                       https://expediagroup.com/

June 28, 2022

The Honorable Ron Wyden
Chairman
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

The Honorable Mike Crapo
Ranking Member
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

Re: Examining the Impact of South Dakota v. Wayfair on Small Businesses 
and Remote Sales, June 14, 2022

Dear Chairman Wyden and Ranking Member Crapo:

We are writing regarding the Senate Finance Committee's recent hearing 
that was held on June 14, 2022, to examine the impacts and challenges 
created by the U.S. Supreme Court's decision in South Dakota v. Wayfair 
(``Wayfair'') on small businesses for purposes of state and local 
retail sales and use tax compliance. While Expedia Group itself is not 
a small business, we are an integral part of the small business 
commercial ecosystem as a provider of an e-commerce platform that 
allows travelers to research, plan and book reservations at lodging 
accommodations owned and operated by small business proprietors, 
including short-term vacation rental properties (hereinafter ``short-
term rentals'') and independent boutique hotels. We see first-hand how 
the patchwork of disparate state and local retail sales and use tax 
laws impacting the travel industry create substantial burdens, 
uncertainties, and material financial risks for these small businesses. 
We are reaching out to share our observations on the practical impacts 
of Wayfair to further support the important work the Committee has 
completed to date.

As noted in the hearing, states' responses to Wayfair have gone beyond 
remote seller filing obligations. States have also amended their laws 
to require ``marketplace facilitators'' to collect and remit state and/
or local retail sales, use and other transaction taxes on sales of 
goods and services facilitated through their platforms. While these 
requirements do not fully mitigate the tax compliance burdens on small 
businesses, well-designed marketplace facilitator requirements can 
significantly alleviate burdens on small businesses using e-commerce 
platforms while ensuring the state and local governments are 
efficiently receiving all applicable taxes they are entitled to. 
Unfortunately, these requirements are not uniform amongst the states, 
adding further complexity for both marketplace sellers offering goods 
or services on the platform, and for the platform itself. We 
respectfully request the Committee expand its examination of this 
important issue to include how marketplace facilitator laws could also 
be simplified and standardized relieving burdens to businesses of all 
sizes.

Expedia Group generally supports state marketplace facilitator laws 
making us the tax-responsible party required to collect and remit 
applicable state-administered transaction taxes for bookings 
facilitated on our platform. We are a vocal advocate for efforts to 
promote more state-level uniformity, simplification, and tax-compliance 
efficiencies to reduce compliance burdens not only for ourselves but 
also for suppliers of travel products and services, many of which are 
small businesses. However, we also believe there are undue burdens on 
interstate commerce embedded in certain state laws that have been 
modified to comport with Wayfair. Specifically, the current marketplace 
facilitator laws were designed to address more traditional e-commerce 
platforms that facilitate the sale of tangible personal property 
delivered by common carrier. They often fail to address the 
complexities when the marketplace seller has a physical location in the 
state leaving both the platform and its sellers to comply with laws.

These burdens are exacerbated by the new trend of industry-specific 
laws enacted at both the state and local level that target the travel 
industry, and specifically short-term rental hosts. These laws require 
a specialized marketplace facilitator booking sales of transient 
accommodations to collect and remit locally administered accommodation 
taxes. These laws often fail to consider the simplification protections 
that the Wayfair Court highlighted as reasons South Dakota's law did 
not place an unconstitutional undue burden on interstate commerce, most 
notably the state administration of local taxes.

Expedia Group believes it has a unique perspective to offer the 
Committee's working group, and therefore respectfully requests an 
opportunity to be a resource to you and the Committee providing 
pragmatic industry insight on these important issues and potential 
solutions. We have a robust state and local transaction tax function, 
and therefore have a deep understanding of the national landscape post-
Wayfair.

We look forward to the opportunity to be of service to the Committee as 
it examines the impact of the Wayfair case not only for small 
businesses, but also for all business enterprises affected by these 
laws.

Sincerely,

Jason Park
Director, Government and Corporate Affairs

                                 ______
                                 
          Fair Access to Interstate Remedies (FAIR) Coalition

                101 Constitution Avenue, NW, Suite 675E

                          Washington DC 20001

June 14, 2022

The Honorable Ron Wyden             The Honorable Mike Crapo
Chairman                            Ranking Member
U.S. Senate                         U.S. Senate
Committee on Finance                Committee on Finance
Washington, DC 20510                Washington, DC 20510

Re: Full Committee Hearing: Examining the Impact of South Dakota v. 
Wayfair on Small Businesses and Remote Sales

Introduction

    The Fair Access to Interstate Remedies (FAIR) Coalition appreciates 
the opportunity to comment on the impact of the Wayfair \1\ decision 
and the concomitant need to modernize the Tax Injunction Act (TIA) \2\ 
to allow for expanded federal court jurisdiction in certain state and 
local tax cases.\3\ The TIA was adopted in 1937 at a time when 
interstate commerce was far less prevalent and states were generally 
precluded from imposing taxes on interstate commerce. The Supreme Court 
in Wayfair found that the physical presence standard was anachronistic 
and ``removed from economic reality.''\4\ The same can be said of the 
rationale for the TIA, particularly in light of the Wayfair decision. 
Businesses will be required to litigate common federal questions in 
multiple state and local jurisdictions, even where they have no 
physical presence. This will impose a particular financial strain on 
smaller businesses. Consequently, the FAIR Coalition believes the TIA 
should be amended to allow businesses access to federal courts in cases 
where state tax issues raise substantial federal questions--such as 
those requiring interpretation of either the U.S. Constitution or 
federal law.
---------------------------------------------------------------------------
    \1\ 138 S. Ct. 2080 (2018).
    \2\ 28 U.S.C. Sec. 1341.
    \3\ For additional information about the FAIR Coalition, see 
https://www.thefaircoalition.
com/.
    \4\ 138 S. Ct. 2080, 2092 (2018).
---------------------------------------------------------------------------

 Wayfair Has Expanded the Need for Access to Federal Courts in State 
                    Tax Matters

    The Supreme Court's decision in Wayfair left open many questions, 
creating tremendous uncertainty for interstate businesses. The 
expansion of the definition of nexus due to Wayfair has caused the 
issues surrounding ``burdens on interstate commerce'' to reach a 
tipping point and access to a federal forum has never been more 
important.

    Since 1937, the TIA has prevented access to federal courts to 
resolve state tax disputes. In 1937, the rationale for TIA was clear--
taxpayers had used diversity jurisdiction to force states to litigate 
beyond their borders at a time when the state taxation of interstate 
commerce was extremely limited. Eighty-five years later, however, the 
landscape could not be more different. By and large, commerce today is 
interstate due to the Internet and expansion of the global economy. 
Also, in 1977, the states' ability to impose taxes on interstate 
commerce was greatly expanded.\5\
---------------------------------------------------------------------------
    \5\ Complete Auto Transit v. Brady, 430 U.S. 274 (1977) (This case 
established the Complete Auto doctrine as the guiding principle for 
examining the validity of a state tax impacting interstate commerce. 
The Complete Auto doctrine provides that a state's taxation of 
interstate commerce may be upheld against a Commerce Clause challenge 
when the tax is applied to an activity with a substantial nexus with 
the taxing State, is fairly apportioned, does not discriminate against 
interstate commerce, and is fairly related to the services provided by 
the State. Prior to the decision in Complete Auto, the states ability 
to tax interstate commerce was much more limited.)

    In 1988, businesses lost the automatic right to U.S. Supreme Court 
review of state tax cases that involve a challenge based on federal 
law.\6\ And, of course, most recently, Wayfair allowed states to tax 
businesses engaged in interstate commerce, even absent a physical 
presence in that state.
---------------------------------------------------------------------------
    \6\ The change to the Supreme Court's mandatory review was made by 
Congress as part of Pub. L. 100-352. Supreme Court Case Selections Act 
of 1988, Pub. L. No. 100-352, 102 Stat. 662 (codified at 28 U.S.C. 
Sec. Sec. 1254, 1257-58, 2104 (1994)).

    Businesses engaged in interstate commerce may now be faced with 
pursuing legal challenges to tax assessment regimes in 45 states,\7\ 
resulting in a proliferation of state filings and increased 
administrative burdens, particularly for small businesses. Currently, 
because the TIA is outdated and does not reflect new ``economic 
realities,'' businesses faced with state tax burdens that raise 
constitutional or other federal questions are required to litigate 
those disputes in many or all states in which the businesses' customers 
reside. And, under the new Wayfair nexus standard, this has already led 
to litigation in jurisdictions where a business has no physical 
presence.
---------------------------------------------------------------------------
    \7\ Five states do not impose any sales tax: Alaska, Delaware, 
Montana, New Hampshire, and Oregon.

    The lack of federal court oversight of federal questions regarding 
state taxation has left a spiderweb of inconsistent state court rulings 
on federal law, which only further complicates the application of, and 
compliance with, various state tax laws. As a general matter, after 
Wayfair, a small business attempting to operate across the country will 
face the increased burden of being required to have an intimate working 
knowledge of each state's tax laws, including the specific nuances of 
each state's court cases, to properly comply. Because of the TIA, each 
state court is generally free to interpret federal law (including both 
the U.S. Constitution and federal statutes) as it sees proper, and, 
without greater oversight of the federal courts, we will continue to 
see state courts inconsistently apply federal law. Simple changes to 
the TIA could alleviate these issues and create greater uniformity for 
---------------------------------------------------------------------------
businesses throughout the country.

    The Wayfair decision opens the door for states to further impose 
state sales tax collection and filing obligations (and possibly other 
direct state taxes) on businesses--making as few as $100,000 of sales 
into a state. Consequently, there has never been a time in which it was 
more imperative for taxpayers to have access to the federal courts. 
This access is needed in order to provide guidance and direction 
regarding the constitutional and other federal limitations on the 
ability of the states to require compliance with their tax laws.

    In addition, states themselves are becoming increasingly frustrated 
when their constituents are taxed by out-of-state tax authorities with 
respect to in-state business activity. States have filed legal 
challenges with the Supreme Court, but, so far, the Court has declined 
to review such cases.\8\ States have also enacted legislation in an 
attempt to protect in-state businesses and individuals from taxation by 
other jurisdictions.\9\
---------------------------------------------------------------------------
    \8\ See, e.g., New Hampshire v. Massachusetts, 141 S. Ct. 2848 
(2021) (challenge to Massachusetts' regulation providing for taxation 
of employees of Massachusetts businesses working remotely in New 
Hampshire during pandemic); Arizona v. California, 140 S. Ct. 684 
(2020) (challenge to imposition of California minimum franchise tax on 
Arizona LLCs ``doing business'' in CA). The Supreme Court did not take 
either case and as a result, nexus and potential double taxation 
concerns remain unresolved.
    \9\ See, e.g., Idaho H.B. 677 (2022) (providing that no out-of-
state taxing authorities may impose tax on an Idaho business for 
conducting sales or other business taking place within Idaho between an 
Idaho business and a nonresident who is physically present in Idaho 
while engaging in the business transaction).
---------------------------------------------------------------------------

 Modernizing the TIA--Let's Create a System That Works for Today's 
                    Economy

    Under the current system, barring federal courts from reviewing and 
ruling on state tax matters that involve federal questions creates 
inconsistent outcomes. A more efficient and equitable way to address 
the potential growing state conflicts would be to allow taxpayers 
access to federal court to resolve state tax issues that present 
federal questions.

    Simply put, this is an issue of fairness. Federal courts are best 
situated to interpret Congressional intent regarding federal laws 
regulating state taxation. This would put tax issues on a parity with 
other issues. To our knowledge, all non-tax cases at the state level 
involving a federal question have access to federal courts. In 
contrast, challenges to state tax laws that potentially violate federal 
law are barred from federal court. Given the current economic 
realities, we see no reason for continuing this outdated distinction. 
Businesses with these types of federal issues at the state level should 
be allowed access to federal courts. This proposed change is also 
consistent with prior bipartisan laws that created exceptions to the 
TIA to expand access to federal courts to address federal 
questions.\10\
---------------------------------------------------------------------------
    \10\ See, e.g., Railroad Revitalization and Regulatory Reform Act 
(``4-R Act''), 49 U.S.C. Sec. 11501(b), (c). Other federal statutes 
where Congress has provided for federal court jurisdiction for state 
tax disputes include motor carriers and wireless telecommunications 
providers.

    To increase certainty and consistency for both taxpayers and states 
and to help ensure that the states' expanded authority to tax 
interstate commerce does not unduly burden interstate and foreign 
commerce or violate taxpayers' Due Process and Fourteenth Amendment 
rights, taxpayers should be provided greater access to federal courts.

Conclusion

    Businesses engaged in interstate commerce have long faced state 
taxes that raise Due Process and Commerce Clause concerns. 
Technological, legal, and economic changes in recent years have enabled 
taxpayers to expand their businesses across state and national 
boundaries. And the Supreme Court's decision in Wayfair has emboldened 
the states in their taxation of interstate commerce. As a result, 
businesses of all sizes engaged in interstate commerce now face the 
daunting burden of complying with complex and constantly evolving tax 
laws across multiple jurisdictions, which may require litigation. Under 
the TIA, a business--regardless of its size--will be required to 
litigate the same federal issue in each state that has a taxing scheme 
or law regardless of whether that business has a physical presence in 
that state. Although the broad ambit of the TIA once made sense, that 
is no longer the case.

    The FAIR Coalition thanks Chairman Wyden and Ranking Member Crapo 
for the opportunity to comment on the impact of Wayfair on interstate 
commerce and the need for expanded federal court jurisdiction in 
certain state and local tax cases. We strongly believe the time for 
relief is now and updating the TIA is the most simple and efficient way 
to achieve this goal. We look forward to working with the Committee and 
Congress on this vital issue.

    Sincerely,

    The FAIR Coalition

                                 ______
                                 
                           Halstead Bead Inc.

                           6650 Inter Cal Way

                           Prescott, AZ 86301

                              800-528-0535

                          Office: 928-350-3570

                     https://www.halsteadbead.com/

Chairman Wyden, Ranking Member Crapo, and Members of the Committee:

Thank you for the opportunity to share written testimony on today's 
critically important hearing, ``Examining the Impact of South Dakota v. 
Wayfair on Small Businesses and Remote Sales Tax.'' My name is Brad 
Scott, and I am the Director of Finance at Arizona-based small business 
Halstead Bead. Remote sales tax compliance is expensive, for Halstead 
Bead and many other small businesses. Since the South Dakota v. 
Wayfair, Inc. decision came down on June 21, 2018, Halstead Bead has 
spent $341,066 and 9,054 hours to collect $147,261.\1\ The complexity 
of compliance is enormous. We spend $2.32 for every $1.00 that we 
collect.
---------------------------------------------------------------------------
    \1\ Summary of Costs to Halstead since the Wayfair Decision 
available by request.

Since May of 2019, I estimate that I have had at least 200 meetings 
with legislative offices in Washington, DC about this issue. In most of 
those meetings, I am asked about the scale of the problem. In their 
October 2020 FAQ sheet,\2\ the SBA Office of Advocacy said there were 
31.7 million small businesses in the U.S. In a recent Tax Notes 
article,\3\ Craig Johnson, Streamlined Sales Tax Governing Board 
Executive Director,\4\ said, ``Streamlined now has more than 18,000 
active registrations.''
---------------------------------------------------------------------------
    \2\ U.S. Small Business Administration Office of Advocacy, 
Frequently Asked Question, October 2020, https://cdn.advocacy.sba.gov/
wp-content/uploads/2020/11/05122043/Small-Business-FAQ-2020.pdf.
    \3\ Tax Notes, ``Streamlined Governing Board Considering Post-
Wayfair Amnesty for Remote Sellers,'' Amy Hamilton, May 26, 2022, 
https://www.taxnotes.com/tax-notes-today-state/electronic-commerce-
taxation/streamlined-governing-board-considering-post-wayfair-amnesty-
remote-sellers/2022/05/26/7dj78.
    \4\ Streamlined Sales Tax Governing Board, Inc., https://
www.streamlinedsalestax.org/contacts/contact-us.

Many businesses are still not aware of their compliance obligations. 
Others are aware, but are out of compliance and fearful or embarrassed. 
And for those that cannot cover the assessments levied against them, 
small businesses die quietly: one day they are open, the next they are 
gone. By then, it is too late for government intervention.

A Different Perspective on Scale

The Wayfair decision was made in the context of the largest online 
retailers in the country, the plaintiff being a multibillion-dollar 
company. The states made a big deal over capturing sales tax revenue 
from online sales made by companies like Amazon, Home Depot, and 
Walmart. However, the decision applies equally to small businesses like 
ours. It is critical that as you develop the solutions, you consider 
that those solutions must be size-appropriate.

From the time of the Wayfair ruling in 2018 through the end of 2021, 
Halstead Bead's gross revenue was $23 million. In that time, we spent 
$310,955 and 8,080 hours on remote sales tax compliance. By comparison, 
Amazon's gross revenue was $1.27 trillion.\5\
---------------------------------------------------------------------------
    \5\ Macrotrends LLC, https://www.macrotrends.net/stocks/charts/
AMZN/amazon/revenue.

If compliance costs were proportional, Amazon's costs would look 
---------------------------------------------------------------------------
different.


------------------------------------------------------------------------
                          Revenue         Compliance Costs      Hours
------------------------------------------------------------------------
Halstead                    $23,060,000            $310,955        8,080
------------------------------------------------------------------------
Amazon               $1,861,207,000,000     $25,097,633,042  652,108,498
------------------------------------------------------------------------

I encourage you to put small businesses front-of-mind as you work on 
solutions today and following this hearing.

Who is Halstead Bead, Inc.

We are a second-generation, privately owned, small business. The 
company was started in 1973 by my wife's parents who made jewelry as a 
hobby. They sold their wares at local weekend craft fairs, gradually 
building their fledgling business. In time, Halstead Bead transitioned 
from retailing finished jewelry to wholesaling components and materials 
to other jewelers as a mail order catalog company. Over nearly five 
decades, it steadily grew from two people to the team of 25 employees 
we have today.

During the 1990s the company adapted to globalization and the Internet 
age. We still publish a catalog, but today, 95% of our sales originate 
from our website. We distribute raw materials and supplies to silver 
jewelers around the world. Our clients include micro-businesses that 
sell art jewelry on sites like Etsy or at craft shows as well as 
traditional brick and mortar jewelry retailers.

We have spent decades developing a website and IT infrastructure to 
maintain full control over our business model. This was, and still is, 
a strategic decision to maintain our independence and autonomy. We do 
not sell through any marketplace facilitator websites. Rather than pay 
a commission to a marketplace facilitator, we offer employment 
opportunities to our local economy.

What Sales Tax Compliance Looks Like from 30,000 Feet

Remote seller sales tax compliance is complex. It includes a patchwork 
of laws, guidelines, and forms. It requires an elaborate and expensive 
solution, with or without software. It demands constant vigilance and 
continuing education for small business leaders. It exposes owners to 
unprecedented liability to continue operating.

Our case highlights one of the ironies of the remote seller 
environment. We sell mostly wholesale, yet we face a disproportionate 
burden for compliance in order to collect a very small amount of sales 
tax revenue for states.

Each state's sales tax laws viewed in isolation seem reasonable. But, 
when you look at the breadth and depth of the complete set of 51 
laws,\6\ it is completely overwhelming.
---------------------------------------------------------------------------
    \6\ Fifty states and the District of Columbia.
---------------------------------------------------------------------------

Size Matters

In June 2018, when the Supreme Court handed down the South Dakota v. 
Wayfair Inc. decision, Wayfair Inc.\7\ was a $6.8 billion dollar 
corporation. Wayfair was almost 1,100 times larger than Halstead 
Bead.\8\ Despite that difference in scale, the same compliance 
expectations apply to a company our size with only a tiny fraction of 
their resources.
---------------------------------------------------------------------------
    \7\ Business Wire, https://www.businesswire.com/news/home/
20190222005060/en/Wayfair-Announces-Fourth-Quarter-Full-Year-2018, 
February 22, 2019.
    \8\ Halstead Bead, Inc. Earnings January 1, 2018 through December 
31, 2018 were $6.2 million.

Large corporations already had many employees in state and local tax 
(SALT) departments prior to Wayfair. Our company had one part-time 
person to handle all our accounting, tax, payroll, benefits, accounts 
payable, and finance requirements. I am that person. We do not have a 
tax attorney, a compliance officer, or a certified public accountant 
---------------------------------------------------------------------------
(CPA) on staff.

The expectation is that one person at a small business can get the 
company 50-state compliant. That expectation is unrealistic even if 
that one person dedicates 100% of their attention to it at the expense 
of all their other responsibilities.

Halstead Bead had a record-breaking 2021. Between January and December, 
we did $7.34 million in revenue. Over the same period, Amazon did close 
to $470 billion.\9\ Every 8 minutes and 13 seconds, Amazon's revenue 
surpassed those of Halstead's annual figures during our best year on 
record.
---------------------------------------------------------------------------
    \9\ Macrotrends, Amazon Revenue 2010-2022--AMZN, https://
www.macrotrends.net/stocks/charts/AMZN/amazon/revenue.

When devising legislative solutions to complex problems, it is 
imperative that Congress and State Legislatures consider that one size 
does not fit all.

Summary of Our Experience with Remote Seller Compliance

In the 4 years since the Wayfair decision, we have received only one 
notice from any state (Pennsylvania) informing us of the new remote 
seller landscape. Many small businesses are unaware of the changes.

We acted quickly after the Wayfair ruling to find software and to begin 
our compliance efforts. Following a rushed integration project, we 
launched sales tax software in October 2018 to begin collecting sales 
tax on transactions where we did not have valid exemption certificates 
on file. We believed software would ``automate'' compliance. We were 
wrong. The available software is either prohibitively expensive or 
inadequate for our needs.

We sought help from local CPAs, but we found that they were not fully 
informed or capable of assisting us with other states. When we 
approached large, national accounting firms, most would not even speak 
with us because our business is too small. We were caught in a 
dangerous gap in professional services.

What Does Compliance Look Like from the Ground?

Nexus Review--Before we could formulate a game plan for compliance, we 
first had to understand our exposure.

The thresholds range from $100,000 to $500,000 in annual sales. In some 
states, transaction count thresholds that must be considered. For 
example, Halstead would exceed Virginia's economic threshold with 
either $100,000 in sales or 200 separate transactions. This matters 
because we could potentially ship 200 $20 packages to Virginia causing 
Halstead to exceed Virginia's economic nexus threshold despite only 
recognizing $4,000 in gross revenue.

The measurement period varies state-by-state, too. It could be the 
previous calendar year (Michigan). It could be the twelve-month period 
ending on the last day of the most recently completed calendar quarter 
(Minnesota). It could be the previous or current calendar year 
(Kentucky). It could be the preceding 12-month period (Illinois), or 
the 12-month period ending on September 30 (Connecticut). These 
differences mean that we must run multiple sales reports each month and 
reconcile them against one another. Further, each month has its own 
reconciliation process to account for the different state schedules.

Vermont and Washington State have notice and reporting requirements 
that begin at $10,000 in sales, effectively reducing the economic nexus 
threshold to $10,000.

Once a company has exceeded a state's economic nexus threshold, it must 
begin collecting, reporting, and remitting sales tax on a variety of 
schedules ranging from the next transaction (Arkansas) to January 1 
following the year the threshold is exceeded (Alabama).

Nexus studies are not one-time investments. Every month, we run sales 
reports by state to compare against thresholds requirements and testing 
period definitions that are shifting constantly. Guidelines issued by 
the various departments of revenue are often incomplete and unclear. 
This work must be completed with the use of customized reports 
generated with our ERP software.

There is no official resource that helps a business to understand all 
the states' economic nexus rules and regulations. Prior to Wayfair, 
small businesses were not required to monitor state laws unless they 
had a physical presence in a state. It is an unrealistic expectation 
that small business owners can stay on top of state tax law and 
guidance changes posted on 51 different department of revenue websites 
at irregular intervals.

Account Management (Exemption Certificate)--Because we sell into every 
state, we could potentially exceed economic nexus thresholds in any 
state at any time during the year. Economic nexus could be triggered by 
the activities of a couple of large accounts. To ensure that we are 
able to quickly get up and running in a state once we are obligated to 
comply, we maintain exemption certificates for customers in every state 
where sales tax collection could be possible.

Exemption certificate management consumes the most labor hours (61% of 
compliance hours) and exposes our company to the highest risks for 
audit assessments. That's because any small technicality on an 
exemption certificate form removes the buyer's sales tax liability puts 
it on the remote seller.

Most of our sales are B2B and exempt from sales tax. The documents that 
we are required to collect and maintain vary between states and can be 
quite confusing. There are exception scenarios that complicate the 
automation of exemption certificate management. For example, Maryland 
exemption certificates are only valid for invoices over $200; any 
invoice for less than that amount is subject to sales tax even for 
wholesale accounts purchasing for resale.

We have approximately 4,300 active customer accounts. Of those, roughly 
80% have a valid exemption certificate on file. We receive between 25 
to 40 new exemption certificates each week. Of those, about 85% will be 
complete and valid. Because many of these forms and license types are 
confusing, it may take several rounds of submissions from our customers 
before we have the documents filled out correctly.

While exemption certificate forms may seem like an administrative 
detail, due to the enormous liability involved with exemption 
certificate management, they become a key part of Wayfair compliance 
risk. It is important to understand the mechanics of exemptions and the 
opportunities for them to go awry.

Exemption Certificate Forms and Data--Generally speaking, there are 
three different types of exemption certificate that a state will 
accept. Not all states accept every type of exemption certificate, so 
we prioritize which we accept depending on a customer's delivery 
address.

      1st priority: an Exemption Certificate form created by the 
specific state where the shipment will be delivered, such as an Arizona 
Form 5000A;\10\
---------------------------------------------------------------------------
    \10\ Arizona Form 5000A Arizona Resale Certificate, Arizona Dept. 
of Revenue, May 1, 2017 included as Appendix H.
---------------------------------------------------------------------------
      2nd priority: an SSTA issued Exemption Certificate for 
participating states (F0003);\11\
---------------------------------------------------------------------------
    \11\ Streamlined Sales Tax Agreement Certificate of Exemption, 
SSTGB included as Appendix I.
---------------------------------------------------------------------------
      3rd priority: an MTC Uniform Sales and Use Tax Exemption 
Certificate \12\ for participating states. This exemption certificate 
covers 37 states and the AML, but it includes 31 different itemized 
exceptions that require additional consideration.
---------------------------------------------------------------------------
    \12\ Multistate Tax Commission, https://www.mtc.gov/getattachment/
Resources/Uniform-Sales-Use-Tax-Resale-Certificate/Unif-Resale-Cert-
final-2-4-2022-(1).pdf.aspx.

We digitize a copy of every exemption certificate to attach to a 
customer's profile in our ERP (Enterprise Resource Planning software, 
aka our inventory and accounting software). Because our ERP is ``in the 
cloud,'' we also store a physical hardcopy on premises in the event 
that a catastrophic failure with our software occurs and we need to be 
---------------------------------------------------------------------------
able to defend our invoice history during an audit.

Exemption Certificate Business Identifiers--For exemption certificates 
to be valid, they must include a business entity identifier. Different 
states have different laws allowing one or more of the following. We 
must know which identifiers are acceptable in each.

      A state issued general Business License number;
      A state issued Sales Tax License, Reseller Permit, Use Tax 
License, Certificate of Authority, or Seller's Permit Number; and/or
      A Federal Employers Identification Number (FEIN).

Exemption Certificate Verification Requirements--Once we have the 
documentation in hand and correctly completed, some states require us 
to verify that the exemption certificate is valid. This is a manual 
process that varies by state. Exemption certificate processing and 
verification takes at best 15 minutes each. At worst, it can take as 
long as a week when repeated back and forth is required with the client 
and the state. Expiration dates of varying intervals mean even more 
paper shuffling.

Exemption Certificate Record Storage--When we are satisfied that an 
exemption certificate is valid, we must determine what to store for 
audit requirements. This varies by state.

      Louisiana's department of revenue requires a hard paper copy 
with a ``wet'' signature in pen ink;
      The Colorado and Maryland departments of revenue require 
printable formatted data;
      Washington requires proof of exemption certificate verification;
      New Mexico requires verification with a confirmation code; and
      35 states require only data, which is ideal.

The exemption certificate management requirements shift the 
administrative costs and burdens from state departments of revenue to 
small businesses like ours. It also moves back taxes, penalties, and 
interest liability away from the buyer and onto out-of-state remote 
sellers. We should not shoulder the liability for this complicated 
vetting process when state systems are often poorly conceived and 
crafted. We were once subject to audits in just Arizona where we have 
physical presence, now we must be audit-ready for every state in the 
country.

Registration and Filing--There are a few paths a business can take to 
register as a remote seller with the 45 sales tax states, the District 
of Columbia, and the Alaskan Municipal League. The path a company 
chooses will depend on the results of their nexus review. A company 
could choose:
      To use a Streamlined Sales Tax Governing Board \13\ (SST) 
Certified Service Provider \14\ (CSP) to assist in compliance with all, 
some, or none of the states in which they must comply;
---------------------------------------------------------------------------
    \13\ Streamlined Sales Tax Governing Board, Inc., https://
www.streamlinedsalestax.org/home.
    \14\ Streamlined Sales Tax Governing Board, What is a Certified 
Service Provider (CSP), https://www.streamlinedsalestax.org/certified-
service-providers/what-is-a-csp.
---------------------------------------------------------------------------
      To use a sales tax audit firm to assist with all, some, or none 
of the states in which they must comply; and/or
      To do everything in-house.

At Halstead Bead, we use a hybrid approach, using the services of a 
sales tax audit firm, TaxValet,\15\ to handle registration, filing and 
remittance for 14 of the 20 states in which we comply. We manage 
registration, filing, and remittance for the remaining 6 states.
---------------------------------------------------------------------------
    \15\ TaxValet, https://thetaxvalet.com/.

The current monthly filing procedure is detailed below. Sales tax 
---------------------------------------------------------------------------
filing requires between 6-12 hours each month in-house.

    1)  Our account software automatically emails several custom 
reports to our Exemption Certificate Manager and me. We invested time 
and money to develop these custom reports as well as the programming to 
automate it.
        a.  Three different threshold reports each separating retail 
and wholesale customer classes. Again, we paid to develop these 
reports: 1) a 12-Month Rolling State Threshold Report; 2) a Year-to-
Date State Threshold Report; 3) a Year-to-Date International Threshold 
Report.
    2)  With assistance from our Exemption Certificate Manager, we:
        a.  Review the Sales Tax Report and correct errors;
        b.  Sort all domestic transactions by shipping method to review 
tax on shipping by state;
             i.  Apply the handling surcharge that we assess to every 
shipment. This varies by shipping method. Generally, it is a small 
amount, but in some states, handling is taxed while shipping is not
        c.  Sort invoices by state (by where Halstead files and remits, 
where TaxValet files and remits, and where Halstead does not meet the 
threshold);
        d.  Create separate spreadsheets for each of the groups above;
        e.  Create a spreadsheet for all new exemption certificates, 
whether from new customers or renewals for existing customers; and
        f.  Create spreadsheets for each of the states where we file 
(CA, HI, MA, MD, PA, VA).
             i.  California (the most complicated state we manage) 
requires us to file quarterly (the state had 401 different sales tax 
jurisdictions as of October 14, 2020),\16\ but pay monthly;
---------------------------------------------------------------------------
    \16\ The Tax Foundation, How Many Sales Tax Jurisdictions Does Your 
State Have?, Janelle Cammenga, October 14, 2020, https://
taxfoundation.org/state-sales-tax-jurisdictions-in-the-us-2020/.
---------------------------------------------------------------------------
                1.  The first time I attempted to complete these 
reports, it took three days to understand how to accurately input the 
data for California alone.
            ii.  Maryland and Massachusetts (the least difficult states 
we manage) require us to file and remit on a monthly basis. Both of 
these states have a single sales tax rate. As a result, I must report 
our gross sales and our retail sales to each state. These states have 
made it much easier for a small business with limited resources to 
efficiently comply with their sales tax regimes.

This monthly process took years to establish and refine, and it is 
continually adapted to the changing conditions created by shifting 
sales patterns and the whims of the departments of revenue. It is not 
easy, it is not free, and requires an immense sales tax specific 
knowledge to get right. Software companies told the Supreme Court 
Justices that they made ``free and easy'' software that could do this 
job. Our experience dispels that notion.

Underpinning Compliance: Software--The nationwide remote seller sales 
tax regime is so complicated that software is necessary. We used one 
software provider between October 1, 2018 and December 31, 2020, and 
experienced significant performance problems with that software. We 
registered with the SSTA in September 2018 and selected our CSP. We 
later learned that there was a communication breakdown between the two. 
Throughout 2019, we received 35 notices from SSTA states that taxes we 
collected were not filed and/or remitted. These notices were in regards 
to errors committed by the software provider, not Halstead Bead. We 
left that software provider at the end of 2020.

The integration cost with our first software provider cost us 
approximately $27,900 in 2018.

We were able to do this because of the highly skilled Information 
Systems Manager that works at Halstead Bead. The skillset that he 
brings to our company is an unusual asset for a company of our size. He 
has been with Halstead since 2003 and has been instrumental in both the 
selection and design of our ERP, e-Commerce website, email marketing 
solution, sales tax service, and all other software related 
technologies. He is also responsible for the communications between the 
various technologies that we use, including the communications between 
our sales tax API (Zip-Tax), our ERP, and our e-Commerce website.

Many of the software companies make it sound as though their product 
can be plugged into an existing IT framework with minimal effort, 
allowing remote sellers to be accurately collecting sales tax for as 
many as 12,000 jurisdictions in no time. They describe it like it's a 
smartphone app. This is simply not true.

Of note, we sell jewelry components that all fall under the same 
Taxability Information Code (TIC). Having only one TIC to manage allows 
us to maintain a simpler integration. Prior to Wayfair, we sold 
jeweler's tools. Doing so allowed us to better serve our customers, but 
the increase in integration and implementation costs associated with 
sales tax collection for a second TIC would have been greater than the 
profit we generated from tool sales, so we discontinued selling them.

The diagram below shows the complex system integrations and data flow 
required for proper sales tax collection and reporting in our IT 
architecture.

[GRAPHIC] [TIFF OMITTED] T1422.011


.epsCompliance Software--I requested a quote from another SST CSP in 
March. To get onto their platform, we would have to spend $41,535 in 
the first year with that CSP. This figure does not include programming 
time required from both our own Information Systems Manager or the 
outside consultants needed for integration development work. We 
estimate that this additional time would cost us another $12,000 to 
$20,000. This is not affordable, so we ruled it out.

Litigation

Halstead Bead, Inc. filed a Federal lawsuit, Halstead Bead, Inc. v. 
Kevin Richards,\17\ in his official capacity as Louisiana Secretary of 
Revenue, et al., on November 15, 2021.
---------------------------------------------------------------------------
    \17\ Halstead Bead, Inc. v. Kevin Richards (formerly Kimberly 
Lewis), in his official capacity as Louisiana Secretary of Revenue, et 
al., https://www.ntu.org/library/doclib/2021/11/Halstead-Verified-
Complaint.pdf, filed November 15, 2021 in The United State District 
Court for Eastern District of Louisiana.

On December 6, 2021, we cut off sales to Louisiana customers. We sent a 
---------------------------------------------------------------------------
letter to those customers to explain, which read, in part:

        We are suddenly approaching Louisiana sales tax thresholds that 
        would dramatically impact our state compliance obligations. We 
        will not be able to ship any orders into the state until next 
        month when we begin the New Year. We hoped to avoid cutting off 
        sales into the state but are unfortunately at that point. This 
        is a temporary disruption that will resolve at the end of the 
        calendar year.

        Louisiana has the most complex and archaic sales tax laws in 
        the country. The cost of compliance is more than we can tackle. 
        We must keep our Louisiana sales below thresholds in order to 
        avoid state notice and reporting, registrations, and filings.

We expected a string of angry emails from our Louisiana customers. 
Instead, we received letters of understanding.

The lawsuit was dismissed in on May 23, 2022 on the grounds that we do 
not have standing due to the Tax Anti-Injunction Act. We see this as a 
lack of access to due process and will appeal. Federal legislation is 
needed to unify state policies to reduce these new barriers to 
competition and commerce.

Congress, through Article I, Section 8, Clause 3 of the United State 
Constitution,\18\ has the power ``to Regulate Commerce with foreign 
Nations, and among the several States.'' The application of the 
Commerce Clause is necessary to prohibit the state level erection of 
barriers that would inhibit interstate commerce. The post-Wayfair 
status quo creates substantial barriers to entry and growth. These 
barriers benefit national mass retailers by imposing undue burdens on 
small businesses. They destroy competition by snuffing out upstarts and 
smaller players. Foreign competitors now have a greater competitive 
advantage over U.S. businesses because international compliance is not 
enforceable.
---------------------------------------------------------------------------
    \18\ United States Constitution, https://constitution.congress.gov/
browse/essay/artI_S8_C3_1
_2/.
---------------------------------------------------------------------------

 Pub. L. 86-272, Income and Gross Receipts Taxes, Multistate Tax 
                    Commission (MTC)

The United States was founded on the principle of ``no taxation without 
representation.'' For 253 years, Congress and the United States Supreme 
Court prevented states from expanding their tax regimes and regulatory 
demands beyond their jurisdictional borders. The Wayfair decision ended 
that. By sanctifying economic nexus, the Supreme Court opened the 
floodgates. Wayfair was only limited to sales tax until the ink was dry 
on the decision; it was a trojan horse. Since June of 2018, states have 
expanded their compliance obligations in a number of areas. One such 
area is income tax.

In 1959, the Federal Government sought to protect businesses without a 
physical presence in a state from aggressive state taxation by passing 
Pub. L. 86-272,\19\ which prevented income taxes on activities limited 
to the solicitation of sales on tangible personal property.
---------------------------------------------------------------------------
    \19\ Public Law 86-272, passed by Congress on September 14, 1959, 
https://www.govinfo.gov/content/pkg/STATUTE-73/pdf/STATUTE-73-
Pg555.pdf#page=1.

On August 4, 2021, The Multistate Tax Commission \20\ (MTC) voted 20-0 
to adopt its latest revision of the Statement of Information Concerning 
Practices of Multistate Tax Commission and Supporting States Under 
Public Law 86-272.\21\ Buried on pages 8 and 9 of the 17-page document, 
it becomes clear that any online seller that engages in good customer 
service should henceforth lose the protections of Pub. L. 86-272. The 
protections of Pub. L. 86-272 are being eroded. In February, the 
California Franchise Tax Board issued a technical advice memorandum 
(TAM) detailing the business activities that would render the 
protections of Pub. L. 86-272 invalid.\22\ More recently, New York \23\ 
has followed suit, again seeking to limit the protections of Pub. L. 
86-272 in an effort to gain greater access to income tax from 
businesses without a physical presence in the state.
---------------------------------------------------------------------------
    \20\ Multistate Tax Commission (MTC), https://www.mtc.gov/.
    \21\ Tax Notes, ``MTC Adopts Updated Guidance on Pub. L. 86-272,'' 
https://www.taxnotes.com/tax-notes-state/corporate-taxation/mtc-adopts-
updated-guidance-pl-86-272/2021/08/09/76zr1?
highlight=mtc, Author Amy Hamilton, published August 9, 2021, Document 
Service, Doc 2021-30692, Multistate Tax Commission, Statement of 
Information Concerning Practices of Multistate Tax Commission and 
Supporting States Under Public Law 86-272, pages 8-9.
    \22\ Tax Notes, ``California FTB Provides Guidance on Protections 
of Pub. L. 86-272,'' https://www.taxnotes.com/tax-notes-today-state/
sales-and-use-taxation/california-ftb-provides-guidance-protections-pl-
86-272/2022/02/22/7d6f9, published February 14, 2022.
    \23\ Tax Notes, ``New York Seeks Limits to Online Sellers' 
Protection Under Pub. L. 86-272,'' https://www.taxnotes.com/tax-notes-
state/jurisdiction-tax/new-york-seeks-limits-online-sellers-protection-
under-pl-86-272/2022/05/16/
7dgyf?highlight=California%20Franchise%20Tax%20
Board, Author Paul Jones, published May 16, 2022.
---------------------------------------------------------------------------

Colorado Delivery Fee

Colorado's $0.27 Retail Delivery Fee \24\ becomes effective on July 1, 
2022. On that date, Colorado will impose a $0.27 ``retail delivery fee 
on all deliveries by motor vehicle to a location in Colorado with at 
least one item of tangible personal property subject to state sales or 
use tax.'' The new tax will need to be shown as additional invoice item 
called ``retail delivery fee'' and collected and remitted by the 
seller. This was not the intent of the Wayfair decision. It is not a 
sales or use tax. Further, it is not a law passed by the Colorado 
legislature, it is a regulation created by an agency.
---------------------------------------------------------------------------
    \24\ Colorado Department of Revenue, Retail Delivery Fee, https://
tax.colorado.gov/retail-delivery-fee.

In reviewing the Colorado Department of Revenue website, there is no de 
minimis threshold, meaning this fee will apply to all retail deliveries 
to a Colorado address.

Policy Solutions for Congress and the States

    1.  Remote Seller Tax Rate Options--Single Rate: Texas allows two 
collection options for remote sellers to choose from:

          A single municipal tax rate equal to the weighted-average 
rate of all municipal tax rates in the state for Tangible Personal 
Property; or
          The actual municipal rate in each taxing jurisdiction within 
the state.

       This allows local municipalities to maintain their current tax 
regime while providing simplicity to remote sellers.

    2.  Centralized Administration for Registration and Filing--Similar 
to the International Fuel Tax Agreement (IFTA), this allows remote 
sellers to streamline communications by one of two methods:

          Initially, remote sellers may communicate exclusively with 
their home base state's department of revenue, which will then 
communicate directly with the other departments of revenue; or
          At such a time as a central clearinghouse is established, 
remote sellers may communicate exclusively through the central clearing 
house.

       This significantly reduces the volume of communications between 
remote sellers and the state departments of revenue. It may also 
increase the capture rate for state tax collectors.

    3.  Congressionally Defined Economic Nexus Threshold Measurement 
Period--A nexus review should only have to completed by a company once 
per year. Congress should establish a measurement period for all states 
that aligns with the calendar year running January 1 through December 
31.

    4.  Only Taxable Sales Contribute Towards Economic Nexus 
Threshold--By using only taxable (retail) sales as the measurement 
metric, zero-dollar filers and mixed-model, low yield, remote sellers 
would be eliminated from the mix.

    5.  One Nationally Accepted Compliant Purchaser Certificate--
Replaces the 50 current Exemption Certificates.

Expansion of Economic Nexus

        Pub. L. 86-272, the law passed by Congress in 1959 and cited 
        above, sought to protect businesses without a physical presence 
        in a state from aggressive state taxation.\25\ Congress told 
        businesses and states that selling goods across state lines did 
        not generate an income tax liability provided there was no 
        other activity in a state. In the years since, the states have 
        found creative ways to circumvent the law. Since the Wayfair 
        decision, some states are asserting their will and may be 
        breaking federal law. In the process, the states are disrupting 
        interstate commerce. It is still Congress, though, through 
        Article I, Section 8, Clause 3 of the Constitution,\26\ that 
        has the power ``to Regulate Commerce with foreign Nations, and 
        among the several States.''
---------------------------------------------------------------------------
    \25\ Public Law 86-272, passed by Congress on September 14, 1959, 
https://www.govinfo.gov/content/pkg/STATUTE-73/pdf/STATUTE-73-
Pg555.pdf#page=1.
    \26\ United States Constitution, https://constitution.congress.gov/
browse/essay/artI_S8_C3_1_
2/.

        The force of Pub. L. 86-272 needs to be renewed. But Congress 
        also needs to enhance the law to prevent states from finding 
        loopholes to further impinge upon interstate commerce between 
        small and medium-sized businesses, loopholes like Colorado's 
        new $0.27 Retail Delivery Fee. Wayfair allowed states to compel 
        remotes sellers to collect sales tax, nothing else. Congress 
        must state that emphatically.

Other Factors

        Software Should Not be Required if Policy is Good--The use of 
        software is an attempt to retrofit an archaic locally 
        controlled sales tax system into the modern business world. 
        Focusing on policies driven by uniformity and simplicity would 
        make software a luxury, not a necessity. If one person cannot 
        bring a company into 50-state compliance, then the complexity 
        is too high; software is not the answer.

        Tax Anti-Injunction Act (TIA)--In the years since the Tax Anti 
        Injunction Act (TIA) became law, the U.S. business environment 
        has changed dramatically.

        Since we became aware of our compliance obligations because of 
        the Wayfair decision, we have learned a lot about not just 
        sales tax rules and regulations, but about the legal system 
        that makes it nearly impossible for a company of our size to 
        gain access to due process.

        There need to be reforms to TIA to allow more interstate tax 
        cases entry into the federal court system.

        Amnesty--To date, four years after the Wayfair decision, 
        Halstead Bead has still only been notified by one state 
        (Pennsylvania) that we may have a compliance obligation. The 
        new compliance obligation created by the Wayfair decision is an 
        extraordinary deviation from the old status quo, one that small 
        businesses would not ordinarily expect.

        Recently, Craig Johnson, Executive Director of the Streamlined 
        Sales Tax Governing Board, recommended amnesty for remote 
        sellers who have not come forward yet.\27\ Given how little 
        states have done to notify businesses, this is only fair.
---------------------------------------------------------------------------
    \27\ Tax Notes, ``Streamlined Governing Board Considering Post-
Wayfair Amnesty for Remote Sellers,'' Amy Hamilton, May 26, 2022, 
https://www.taxnotes.com/tax-notes-today-state/electronic-commerce-
taxation/streamlined-governing-board-considering-post-wayfair-amnesty-
remote-sellers/2022/05/26/7dj78.
---------------------------------------------------------------------------

Connect With Me

I have been engaged in this arena since mid-2019. I am committed to 
positive solutions that benefit remote sellers and the states. I am 
happy to engage in further discussions and to be a resource for the 
Committee as you move forward on any remote seller sales tax 
legislation.

Sincerely,

Brad Scott
Director of Finance

                                 ______
                                 
                  National Taxpayers Union Foundation

                        122 C St., NW, Suite 650

                          Washington, DC 20001

The Honorable Ron Wyden             The Honorable Mike Crapo
Chair                               Ranking Member
U.S. Senate                         U.S. Senate
Committee on Finance                Committee on Finance
219 Dirksen Senate Office Building  219 Dirksen Senate Office Building
Washington, DC 20510                Washington, DC 20510

Dear Chair Wyden, Ranking Member Crapo, and Members of the Committee:

On behalf of National Taxpayers Union Foundation (NTUF), we write 
regarding your June 14th hearing, ``Examining the Impact of South 
Dakota v. Wayfair on Small Businesses and Remote Sales.''\1\ This topic 
is critically important and has a measurable economic impact on 
hundreds of thousands of small businesses across the country, so we 
commend you for devoting time during a packed legislative agenda to 
hearing the concerns of experts and stakeholders.
---------------------------------------------------------------------------
    \1\ Senate Committee on Finance. ``Examining the Impact of South 
Dakota v. Wayfair on Small Businesses and Remote Sales.'' June 14, 
2022. Retrieved from: https://www.finance.senate.gov/hearings/
examining-the-impact-of-south-dakota-v-wayfair-on-small-businesses-and-
remote-sales (accessed June 8, 2022).

NTUF wishes to offer its viewpoints and reform recommendations to the 
Committee as a supplement to the valuable information you will receive 
from witnesses today. Two separate initiatives at NTUF, our Taxpayer 
Defense Center and our Interstate Commerce Initiative, are engaged with 
the impacts of a post-Wayfair landscape on a regular basis. NTUF's 
Interstate Commerce Initiative (ICI) has offered expert opinion on 
state efforts to tax remote sales since before the Supreme Court's 
ruling in South Dakota v. Wayfair, and has published several papers on 
the impact of the Wayfair ruling and recommendations for Congress and 
states moving forward,\2\ while our Taxpayer Defense Center (TDC) has 
litigated the significant implications for how states administer sales 
taxes in the post-Wayfair world.\3\
---------------------------------------------------------------------------
    \2\ Moylan, Andrew, and Wilford, Andrew. ``South Dakota v. Wayfair: 
What It Means.'' NTUF, August 22, 2018. Retrieved from: https://
www.ntu.org/foundation/detail/south-dakota-v-wayfair-what-it-means; 
Moylan, Andrew, and Wilford, Andrew. ``Congressional Responses to 
Wayfair.'' September 26, 2018. Retrieved from: https://www.ntu.org/
foundation/detail/congressional-responses-to-wayfair.
    \3\ NTUF. ``NTUF Files Landmark Federal Lawsuit To End Sales Tax 
Nightmare for Small Businesses.'' November 15, 2021. Retrieved from: 
https://www.ntu.org/foundation/detail/ntuf-files-landmark-federal-
lawsuit-to-end-sales-tax-nightmare-for-small-businesses.

Our years of experience on these matters and our engagement with a 
variety of business and policymaking stakeholders have informed the 
recommendations we offer the Committee today. We appreciate your 
ongoing engagement on issues involving the taxation of remote sales.

 Problems That Small Businesses Face Following the South Dakota v. 
                    Wayfair Ruling

The Wayfair Ruling and Small Business Compliance in the 50 States
The Internet has proved to be a great equalizer in terms of enabling 
businesses with smaller operations to access a far broader market than 
they once could. With the Wayfair decision, new compliance burdens 
threaten to constrain smaller operations' ability to reach a national 
market.

E-retail businesses with employees and property in just one or two 
states previously had a far more manageable tax compliance burden, 
having to collect and remit sales taxes on behalf of just those states. 
Now, the smallest of small businesses find themselves having to 
navigate the differences in tax definitions, exemptions, rules, and 
rates for states all around the country.

While the largest retailers already had physical presence or had 
entered into voluntary collection agreements with states nationwide 
prior to Wayfair, the biggest change came for these smaller businesses. 
Research has long established that tax compliance costs are regressive, 
causing greater relative harm to smaller businesses without the 
accounting resources of larger businesses, which have the advantage of 
economies of scale.\4\ Thomson Reuters estimated soon after the Wayfair 
decision that just eight percent of mid-sized firms were prepared to 
handle the increased compliance burdens.\5\
---------------------------------------------------------------------------
    \4\ Donald B. Marron. ``Tax Issues Facing Small Business.'' Urban 
Institute and Urban-
Brookings Tax Policy Center, April 9, 2014. Retrieved from: https://
www.taxpolicycenter.org/sites/default/files/alfresco/publication-pdfs/
904621-Tax-Issues-Facing-Small-Business.PDF (accessed June 8, 2022).
    \5\ Thomson Reuters. ``Tax day of reckoning comes for e-commerce 
companies.'' August 2018. Retrieved from: https://
www.thomsonreuters.com/en-us/posts/news-and-media/tax-day-of-reckoning-
comes-for-e-commerce-companies/ (accessed June 8, 2022).

Lacking Congressional guidelines, states have not done enough to limit 
these compliance burdens. Features of the South Dakota law at issue in 
Wayfair that the Supreme Court specifically cited as reducing 
compliance burdens on small businesses, including a sizeable de minimis 
threshold, a statutory ban on retroactive enforcement, state-level 
sales tax administration, uniform definitions of products and services, 
a simplified tax rate structure, access to sales tax compliance 
software provided by the state, and immunity from liability for errors 
made by the software or state,\6\ have been interpreted by many states 
as suggestions rather than requirements.
---------------------------------------------------------------------------
    \6\ South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 2099-2100 
(2018).
---------------------------------------------------------------------------
Outlier States and the Halstead Bead Case
Bad policy in one state can create outsized impacts on compliance 
burdens. Kansas, for instance, implemented economic nexus rules via a 
Department of Revenue guidance that neglected to include a safe harbor 
for small sellers--an oversight that was only corrected in 2019.\7\ 
California, meanwhile, has pursued effectively retroactive enforcement 
of economic nexus rules by attempting to apply a voluntary agreement 
made with Amazon to third-party sellers on the platform going back to 
2012. These outlier states create magnified compliance burdens as every 
seller in the country now has an obligation to meet what they require.
---------------------------------------------------------------------------
    \7\ Moylan, Andrew and Wilford, Andrew. ``Kansas Must Act to 
Protect Small Sellers from Remote Sales Tax Law.'' National Taxpayers 
Union Foundation, March 22, 2021, https://www.ntu.org/foundation/
detail/kansas-must-act-to-protect-small-sellers-from-remote-sales-tax-
law.

Most harmful, however, have been cases where states failed to provide 
state-level administration of sales taxes. For example, Louisiana's 
sales tax system is uniquely difficult to use due to a parish-by-parish 
registration and reporting requirement, distinct exclusions and 
exemptions adopted by local ordinance, taxing jurisdictions within 
parishes that do not align with zip code lines, and other burdens to 
out-of-state sellers. Sellers need to register and file with the state 
and any of the 63 parishes in the state that collect their own sales 
tax and the parishes can be aggressive in auditing any wayward sellers. 
Unlike South Dakota, Louisiana is not part of the Streamlined Sales and 
---------------------------------------------------------------------------
Use Tax Agreement.

Louisiana's system is so onerous that it generated the first post-
Wayfair challenge to a state's sales tax registration and remitting 
system. Halstead Bead v. Richard, filed by NTUF's Taxpayer Defense 
Center alongside the Goldwater Institute and the Pelican Institute, is 
a constitutional challenge to the burdens of Louisiana's tax compliance 
system.

Halstead Bead is a family owned and operated jewelry and craft supplier 
based in Arizona. The company's nationwide sales are online or via 
catalog. Married couple Hillary Halstead Scott and Robert (``Brad'') 
Scott are the company's principal officers, serving as President and 
Treasurer, respectively. Hillary oversees many aspects of the business 
founded by her parents. Brad, who married into the family business, is 
the one-man compliance and finance department: he handles payroll and 
employee benefits, company finances, and tax compliance. But 
Louisiana's system is too complicated--Brad estimates that it will cost 
about $11,000 to register and comply with Louisiana's system over the 
next three years, all to only remit a few hundred dollars in sales tax 
revenue that will be split among the various local parishes.

This situation violates the Commerce Clause of the Constitution and 
deprives the family-operated supplier of their Due Process rights under 
the Fourteenth Amendment. The federal court in the Eastern District of 
Louisiana ruled against Halstead Bead on technical grounds under the 
Tax Injunction Act; appeal of that decision will be before the United 
States Court of Appeals for the Fifth Circuit.
States' Revenue Estimates Since Wayfair
What's more, these added burdens on e-retail businesses have not 
yielded the revenue windfalls that advocates of economic nexus rules 
claimed they would prior to Wayfair--estimates that played a major part 
in the Court deciding how it did in Wayfair. A year after Wayfair, NTUF 
conducted a study of official state estimates of post-Wayfair revenue 
collections from economic nexus rules and found that they were far 
lower than were estimated prior to Wayfair.

The 32 official post-Wayfair state estimates of added revenue that NTUF 
found totaled just $3.6 billion. In those same 32 states, the National 
Conference of State Legislatures had estimated that additional revenues 
would total $19 billion, while the Government Accountability Office's 
more moderate estimate was still far too high at $8.6 billion. In those 
32 states, $3.6 billion represented an average of less than a percent 
of general fund revenue.\8\
---------------------------------------------------------------------------
    \8\ Moylan, Andrew and Wilford, Andrew. ``Wayfair Revenue Estimates 
Come Up Short.'' National Taxpayers Union Foundation, August 19, 2021, 
https://www.ntu.org/foundation/detail/wayfair-revenue-estimates-come-
up-short.

In short, compared to the assumptions underlying the Wayfair decision, 
compliance burdens for small businesses have been higher and the 
increase to state revenue has been lower. As such, it now falls to 
Congress to rectify this imbalance in priorities and reduce the burden 
on interstate commerce and small businesses.

Policy Recommendations for States and Congress

 Streamlined Sales and Use Tax Agreement (SSUTA) Membership and 
        Economic Nexus
The most frictionless path forward for Congress and the states would be 
to mandate or incentivize states to join the Streamlined Sales and Use 
Tax Agreement (SSUTA), which has existed for decades to ``simplify and 
make more uniform the sales and use tax collection and administration 
for retailers and states.''\9\ The Supreme Court's ruling in South 
Dakota v. Wayfair cited South Dakota's membership in SSUTA as a 
``feature'' of South Dakota's tax system ``that appear[s] designed to 
prevent discrimination against or undue burdens upon interstate 
commerce.''\10\ The Court wrote:
---------------------------------------------------------------------------
    \9\ Streamlined Sales Tax Governing Board, Inc. ``FAQs--General 
Information About Streamlined.'' June 2022. Retrieved from: https://
www.streamlinedsalestax.org/Shared-Pages/faqs/faqs---about-streamlined 
(accessed June 8, 2022).
    \10\ Wayfair, 138 S. Ct. at 2099.

        South Dakota is one of more than 20 States that have adopted 
        the Streamlined Sales and Use Tax Agreement. This system 
        standardizes taxes to reduce administrative and compliance 
        costs: It requires a single, state level tax administration, 
        uniform definitions of products and services, simplified tax 
        rate structures, and other uniform rules. It also provides 
        sellers access to sales tax administration software paid for by 
        the State. Sellers who choose to use such software are immune 
        from audit liability.\11\
---------------------------------------------------------------------------
    \11\ Id. at 2099-2100.

However, even as each state with a sales tax has adopted economic nexus 
rules since the Wayfair ruling, no new states have joined the SSUTA 
since Wayfair.\12\
---------------------------------------------------------------------------
    \12\ There were 23 full member states in SSUTA as of the Supreme 
Court's Wayfair ruling in 2018. There are still 23 member states as of 
this writing. See: Chamseddine, Jad. ``Streamlined States Emerge as 
Winners After Wayfair Ruling.'' Tax Analysts, June 26, 2018. Retrieved 
from: https://www.sullivanlaw.com/assets/htmldocuments/B2297988.pdf 
(accessed June 8, 2022); see also: supra note 10.

Congress should either require states to become SSUTA members or to 
adopt substantially similar protections by a given date in order to 
continue to enforce economic nexus rules against sellers out of state. 
Congress could provide two options: membership in the SSUTA, or 
adoption of significant tax simplification efforts for out-of-state 
---------------------------------------------------------------------------
sellers.

For the latter track, Congress should require the following:

      One-Step State-Level Tax Administration: While the vast majority 
of states do this now, administering their sales tax registration, 
filing, rulemaking, and auditing at the state level, the few states 
that do not represent a disproportionately large sales tax compliance 
burden for out-of-state businesses.\13\ Louisiana is currently the 
greatest offender in this regard, requiring out-of-state businesses to 
comply with not only the state sales tax regime, but also those of 63 
local parishes.\14\ Some ``home rule'' states have made efforts to 
reduce the compliance burden for out-of-state sellers already, such as 
Alabama and Colorado. Nevertheless, federal legislation should require 
state-level tax administration--which should include state-level 
uniformity in tax definitions, exemptions, and rates, and a single 
point of contact for collection and audit procedures--as a requirement 
for enforcing economic nexus rules.
---------------------------------------------------------------------------
    \13\ As the Sales Tax Institute, a witness at this hearing, has 
written: ``some states permit local administration of these taxes, 
which requires the taxpayer to register with the locality and remit the 
tax directly to it. We refer to these states as `Home Rule' states. The 
primary home rule states that allow local authorities to enact and 
administer their own general sales and use taxes are Alabama, Alaska, 
Arizona, Colorado and Louisiana.'' See: ``What states impose sales/use 
tax?'' Sales Tax Institute. June 2022. Retrieved from: https://
www.salestaxinstitute.com/sales_tax_faqs/
what_states_impose_sales_use_tax (accessed June 8, 2022).
    \14\ Verified Complaint  49-65, Halstead Bead v. Richard et al., 
No. 2:21-cv-02106-JTM-KWR (E.D. La. Nov. 15, 2021) available at: 
https://www.ntu.org/library/doclib/2021/11/Halstead-Verified-
Complaint.pdf.
---------------------------------------------------------------------------
      Uniform Sourcing Rules: States should have to abide by a single, 
federally specified definition of where remote sales are to be sourced: 
namely, the location of the address to where the product is to be 
delivered.
      Single Local Sales Tax Rate Option: Remote sellers must track 
over 10,000 sales tax jurisdictions nationwide, many with different 
rates and not aligning with zip code boundaries. Congress should 
require states to provide an option to remote sellers to collect a 
single weighted-average rate of all local rates in the state, or to 
collect actual rates in every jurisdiction, at the seller's choice. 
Texas already does this.
      Access to Free Tax Compliance Software: States should certify 
and defray the cost of sales tax compliance software for out-of-state 
sellers.
Beyond SSUTA
Even beyond requiring states to either join SSUTA or conform to certain 
minimum requirements in enforcing economic nexus rules post-Wayfair, 
Congress should protect interstate commerce by requiring the following 
reforms:

      Require a National Sales Threshold for Facing Economic Nexus Tax 
Collection Obligations: Though the Supreme Court approved of a de 
minimis threshold of $100,000 in sales or 200 transactions in South 
Dakota v. Wayfair,\15\ this threshold applied to the 48th-largest state 
in the Union in terms of GDP \16\ and 46th-largest in population.\17\ 
Many states such as California and New York have recognized this and 
adopted larger thresholds, but many large states have followed this de 
minimis threshold with no attempt to adjust for differences in size, 
such as Pennsylvania, Illinois, and Florida. This trend also holds for 
marketplace facilitator laws. Congress should set a national threshold 
that businesses must reach before they can be subjected to tax 
collection and remittance responsibilities on the basis of economic 
nexus or marketplace facilitator laws, even if they reach state-level 
thresholds. At a minimum, Congress should also require states to 
maintain a state-level de minimis threshold that matches South Dakota's 
threshold. The threshold should also be uniformly calculated on a 
calendar year basis.
---------------------------------------------------------------------------
    \15\ Wayfair, 138 S. Ct. at 2099.
    \16\ Bureau of Economic Analysis. ``SAGDP1 Gross Domestic Product 
(GDP) summary, annual by state.'' March 31, 2022. Retrieved from: 
https://apps.bea.gov/iTable/iTable.cfm?reqid=70&
step=1&isuri=1&acrdn=1#reqid=70&step=1&isuri=1&acrdn=1 (accessed June 
8, 2022).
    \17\ United States Census. ``State Population Totals and Components 
of Change: 2020-2021.'' June 2022. Retrieved from: https://
www.census.gov/data/tables/time-series/demo/popest/2020s-state-
total.html#par_textimage_1574439295 (accessed June 8, 2022).

      Require States to Only Count Taxable Sales Towards Nexus 
Thresholds: Most states do not exempt non-taxable sales from counting 
towards their economic nexus thresholds. This can lead to situations 
where out-of-state wholesalers with no taxable sales nevertheless have 
to file sales tax returns in a state in order to comply with that 
state's economic nexus law, meaning compliance burdens for no tax 
collected. Congress should mandate that states count only taxable sales 
towards their economic nexus threshold. Should Congress adopt a 
national threshold as mentioned above, this likewise should exempt non-
---------------------------------------------------------------------------
taxable sales.

      Require Additional Compliance Software Provisions: Both remote 
sellers and compliance software providers should be protected from 
liability in the case of mistakes made by the other or by the state.

      Allow Taxpayers to Challenge State Economic Nexus Laws in 
Federal Court: It is very difficult for taxpayers to challenge state 
tax laws in federal court even where they deal with federal 
constitutional or statutory matters. This is despite the fact that 
state economic nexus taxation has raised many issues of federal law. In 
effect, taxpayers must challenge state laws that raise issues of 
federal law in each individual state court, even if it deals with the 
same issue that has already been tried in other state courts. Congress 
should provide taxpayers with the ability to be heard in federal courts 
instead, when raising a federal issue.

      Amnesty for Out-of-Compliance Sellers: Businesses that have not 
been aware of or have not been able to comply with state sales tax 
obligations may have accumulated vast amounts of sales tax liability, 
liabilities for which they did not have a chance to collect from their 
customers. Unfortunately, states have thus far declined to provide this 
form of reasonable accommodation. Absent intervention from Congress, 
overwhelmed small business owners could be subject to personal 
financial ruin on top of business failure.

Conclusion

NTUF appreciates the opportunity to provide our research and 
perspectives on how state sales tax rules affect remote and online 
sellers in a post-Wayfair landscape. Should you have any questions or 
wish to discuss our recommendations further, please do not hesitate to 
contact Andrew Lautz at [email protected].

Sincerely,
Joe Bishop-Henchman
Executive Vice President

Tyler Martinez
Senior Attorney

Andrew Wilford
Director of Interstate Commerce Initiative

Andrew Lautz
Director of Federal Policy

                                 ______
                                 
                            Rio Grande Inc.

                         7500 Bluewater Rd., NW

                         Albuquerque, NM 87121

June 27, 2022

U.S. Senate
Committee on Finance

Honorable committee members,

Rio Grande is a remote seller based in Albuquerque, New Mexico with no 
nexus in other states prior to the United States Supreme Court ruling 
in South Dakota v. Wayfair, Inc. When that decision was made, we 
Immediately started working to figure out how we would comply with 
collecting sales tax in nearly every state.

We first had to determine which software vendor we could work with to 
get a quality product at the best price possible. We spent months doing 
this search and contracting with the chosen vendor. While doing this it 
was apparent that the vendors had all the business they could handle 
already. Software companies were adding business every day, making any 
accelerated implementation challenging. It is unlikely that any of the 
states could have made even the simplest change to their systems in the 
time frame they expect remote business to comply with their demands.

Compliance in the first 12 months following the decision was easily 
over half a million dollars in direct expenses and internal labor that 
was redirected to accomplish the task. Most people now think this is 
the end of it and we can move on doing business wherever and how ever 
we like. That is not true and can easily get an unsuspecting company in 
a lot of additional tax trouble. With employees now wanting to work 
remotely it is very easy to inadvertently create nexus for payroll tax 
and state income tax as well.

Now states are also inventing new taxes and giving companies almost no 
time to prepare and comply. For example: Colorado's new Retail Delivery 
charge tax. Colorado with its home rule jurisdictions is already the 
most difficult state to comply with. Massachusetts invented Cookie 
nexus before the Wayfair decision and lost in their own state court but 
is still unwilling to give up on it. This creates a perpetual open 
statute of limitation for many companies since they had no prior need 
to file tax returns starting the clock on the limitation period.

There must be some protection from this abuse of power.

The Solutions

It is imperative that Congress act in the interest of businesses and 
their employees to set some semblance of standardizations around these 
issues. Any of the following solutions would save countless hours and 
dollars in costs to comply and might even provide assurances that these 
businesses will be around for years to follow.

Importantly, greatly simplifying compliance will also drive state tax 
revenues.

      Reinforce the limitation in Public Law 86-272 on a state's right 
to impose income or another direct tax on a seller who does not engage 
in any activities in a state other than the solicitation of sales and 
indeed expand the protections of the federal law to other business 
activity taxes such as gross receipts, franchise, privilege, or income 
taxes.
      An Agreement by the Streamlined Sales Tax Governing Board (SST), 
a sales tax regulatory body recognized by its 24 member states, forces 
member states to adopt specific practices that make compliance within 
its membership uniform.
      The International Fuel Tax Agreement (IFTA) set a precedent 
whereby businesses could report to a single location (their base 
state). Allow each business to report all sales tax collections to 
their home DOR.
      Prevent any states from requiring remote sellers to collect and 
remit sales taxes prior to Wayfair.
      Allow for the creation of a central clearing house or Expand the 
Streamlined Sales Tax Governing Board's (SST) role to include that of a 
clearing house; codify federal protections for remote sellers into 
statute.
      Allow remote sellers to collect a single sales tax rate for each 
state.
          Reduces the jurisdiction count from 12,000 to 
fewer than 60.
          Eliminates the need for costly software.
          Create a single, remote seller item code that is 
standard across all taxable goods.
      Define a standard threshold determined by retail sales volume; 
eliminate transaction counts.
      Define a standard threshold that is consistent across all states 
(population or GDP adjusted).
      Define the threshold measurement period as the previous calendar 
year. This would allow businesses to do a complete nexus audit once a 
year. Allow for 
penalty-free voluntary, retroactive payment as safe harbor.
      Create a single, nationally accepted purchaser exemption 
certificate. Put the onus of proof of validity on the entity providing 
the certificate, not the recipient.
      Limit audit liability to one per year per business, to be 
executed by a business' home state DOR.
      Oblige each state to officially notify all businesses within 
their borders on behalf of all other states of any new tax obligation. 
Each state's DOR could thoroughly and efficiently notify their home 
state businesses more easily than under current practice. Once 
notified, businesses should have nine months to make the required 
changes to their business practices before they must collect.
      Ensure the Office of Advocacy within the Small Business 
Administration is fully funded and appropriately staffed to conduct 
their mission.Thank you for reviewing this important topic.

Sincerely,

Danny R. Cox
VP of Finance

                                 ______
                                 
                           Spirit Pieces LLC

                 4810 Spicewood Springs Road, Suite 150

                            Austin, TX 78759

                            June 13th, 2022

This is a supporting response to the hearing on June 13th regarding the 
2018 Wayfair decision and the impact of on small businesses. While the 
specifics discussed here are facts regarding the business of the author 
(Spirit Pieces), the issues discussed are ubiquitous across the 
ecommerce landscape.

Spirit Pieces, a Texas based LLC ecommerce firm, prior to 2018 filed 
solely in Texas and a yearly filing cost of $180 plus another $240 to 
support a Taxjar subscription; a total of $420 dollars.

Since that time, we've had our filing costs balloon to over $6,000 a 
year as we now report in over two dozen states, many with filing 
requirements below the $200k/200 transactions a year threshold of South 
Dakotah. This represents a 10x increase in filing costs and additional 
time and cost (salary) spent by management to be in compliance.

However, the issue at hand is not one of hard costs but of the ability 
to be compliant with ever increasing complexity of sales tax reporting. 
We continue to see the evolution and creative application of sales tax 
laws across the states and cities.

For example, Colorado recently added a 27-cent delivery tax to their 
already complicated home rule sales tax reporting structure. 
California, Colorado, Alaska and Louisiana have multiple tax reporting 
structures in place across the organizational municipal structure and 
cities are now starting to require their own individual reporting.

Sales tax, up until 25 years ago, was for most small businesses 
reported local to their county and city. Due to the limited nature of 
where to file, having unique reporting and filing requirements and the 
state through municipal level carried a minimal compliance cost.

This structure of compliance does not fit in a world where eCommerce 
exists, especially as we see cities and counties start requiring their 
own reporting. It carries a significant cost of doing business for any 
eCommerce company and limits competition as only the biggest companies 
(Amazon) would have the legal and financial ability to stay in 
compliance in a world where hundreds of governmental entities require 
unique filing.

I should be clear in that the issue at hand is cost of, and ability to, 
comply without undo burden. It should be noted Avalara, a major player 
in the tax reporting space, has seen its revenue triple from 200M to 
600M since Wayfair. While not all of this 400M is due to increased fee 
collection from the Wayfair, I'm sure a large part of it is. And they 
are just one player in the space (Taxjar, Valet, Book-keepers, etc)

My humble suggestion is to pass a national sales tax registry for out 
of state sellers where payments are made into a single point of payment 
and distributed to the states. As tax collection is a government role, 
the cost of implementing new tax collection schemes (Wayfair) should be 
borne by the government, not the individual companies (as it is now.)

Thank you for your attention to this urgent matter.

Warmest regards,

Dave Blake
Owner

                                 ______
                                 
                           Strybuc Industries

                           2006 Elmwood Ave.

                         Sharon Hill, PA 19079

                           PH (484) 652-0449

                           FX (610) 522-2820

My name is John Connolly, and I just watched the Committee hearing on 
the ``Examining the Impact of South Dakota v. Wafair on Small Business 
and Remote Sales.'' I am the controller for Strybuc Industries, a 
wholesale distributor of window and door hardware, and the Wayfair 
decision has been one huge onerous task that I have been struggling 
with for years. Simplification is definitely needed in this matter. I 
totally agree with the testimony of John Hennessey and Michelle Huie, 
and Diane Yetter. In my opinion, the most helpful thing would be a 
single sale tax rate for remote sellers.

I agree with the recommendations that were offered and I have a few 
additional comments:

Eliminating monthly returns would be helpful. Making an estimated 
payment each month followed by either a quarterly, semi-annual, or 
annual return would simplify things. This would be a tremendous time 
saver to the small business and at the same time it would not impact 
the state's cash flow.

The most challenging part of sales tax compliance for me, is knowing 
that I am collecting and remitting the correct tax amount based on the 
ship to location. For example, the City of Atlanta Georgia Is in the 
counties of Dekalb and Fulton. Each county is considered a different 
tax jurisdiction. How do you know which county the Atlanta ship to 
address is in? This situation occurs hundreds, if not thousands of 
times. Many states offer a sales tax lookup feature. That is fine if 
you have a couple addresses, but in our case we have over 2,000 Georgia 
address! I purchased a third-party software package to help me with 
this. After comparing their data to the states data, I determined there 
were too many discrepancies to consider that software reliable. If the 
state can provide a location code for one address for more than 2,000 
businesses, why can't it provide location codes for more than 2,000 
addresses for one business? The states have the data; they just are not 
providing it in the way that remote sellers need it. The state of 
Washington had this tool when I registered as a remote seller but has 
since removed it from their web site. I believe companies that offer 
tax compliant software overcharge their customers, and they use their 
prospective customer's lack of knowledge and fear as marketing tools. I 
also believe these companies have something to do with the fact that 
the needed tool I describe above is not available on any state website.

                                  [all]