[Congressional Record Volume 144, Number 3 (Thursday, January 29, 1998)]
[Senate]
[Pages S229-S232]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BUMPERS (for himself, Mr. Graham, Mr. Conrad, and Mr. 
        Inouye):
  S. 1586. A bill to authorize collection of certain State and local 
taxes with respect to the sale, delivery, and use of tangible personal 
property; to the Committee on Finance.


          THE CONSUMER AND MAIN STREET PROTECTION ACT OF 1998

  Mr. BUMPERS. Mr. President, I rise today to introduce legislation to 
resolve a serious problem facing consumers and Main Street businesses 
in America. This problem allows consumers to be misled regarding their 
tax liabilities and puts Main Street businesses at a competitive 
disadvantage vis-a-vis out-of-State companies. The problem of which I 
speak is the loophole that allows companies to ship goods across State 
lines without collecting the taxes due on those goods.
  My bill, The Consumer and Main Street Protection Act of 1998, will 
give States the option if they choose, of removing this unfair 
advantage enjoyed by out-of-State companies. The legal effect will be 
to authorize a State or

[[Page S230]]

local jurisdiction to require out-of-State companies to collect use 
taxes on sales of personal property delivered into that State or local 
jurisdiction, if that State taxes its own citizens on retail sales.
  This bill does not create a new tax. Indeed, it doesn't create a tax 
at all. It merely deals with how existing taxes are collected. 
Specifically, it would allow States, if they choose, to shift the 
burden of collecting and remitting use taxes from the consumer to the 
company.
  At this point, I should clarify the meaning of the term ``use tax.'' 
A use tax is a tax on goods purchased in one jurisdiction for use in 
another jurisdiction. For example, goods purchased in Tennessee for use 
in Arkansas are subject to an Arkansas use tax. Use taxes are used to 
keep people from avoiding sales taxes. If a State doesn't have a use 
tax, its citizens can avoid paying sales taxes by making purchases in 
another State. By imposing a use tax equal to its sales tax, States can 
remove the incentive to engage in tax circumvention.
  Therefore, in the 45 States which presently have sales and use taxes, 
consumers are legally obligated to pay those taxes, whether the 
purchases are made at a local department store, via mail order, or over 
the internet. Unfortunately, catalog companies typically do not make 
their customers aware of this obligation--in fact, some mislead 
customers into believing that out-of-State purchases are ``tax free.'' 
This, of course, is patently false. The company may be exempt from 
collecting use taxes, but the customer is still liable for paying those 
taxes directly to the State revenue department on every out-of-State 
purchase.
  This situation causes three serious problems. First, consumers are 
often shocked to discover that their ``tax-free'' purchase is not 
really tax free. State revenue departments inform tens of thousands of 
consumers every year of this sad fact. The consumer finds he is liable 
for back taxes, interest and penalties.
  Second, Main Street retailers are placed in an unfair position vis-a-
vis mail order houses. This occurs because mail order products if no 
tax is collected, are cheaper than if bought in Main Street department 
stores. Not only do most mail order houses not collect use taxes, they 
don't tell their customers that they are legally liable to pay the tax.
  Third, State and local governments lose revenues because billions of 
dollars of the taxes are never collected. According to the Advisory 
Commission on Intergovernmental Relations, State and local governments 
lose over $3.3 billion a year for this reason. This occurs, even as 
mail order companies impose significant costs on State and local 
governments by sending an avalanche of catalogs and product packaging 
to municipal landfills. Every year over 3 million tons of third class 
mail, most of which is catalogs, goes to landfills in this country. 
This is not surprising considering the billions of catalogs which 
consumers receive in the mail every year. One company alone, Fingerhut, 
Inc., mails out nearly 500 million catalogs annually. With mail order 
sales growing by approximately 6 percent per year, this burden on State 
and local government will increase significantly in coming years.


                    THE BELLAS HESS AND QUILL CASES

  A short discussion of case law is in order to explain why this matter 
requires Congressional intervention. The Supreme Court has twice 
considered the question of whether a State may impose tax collections 
duties on an out-of-State mail order company. In 1967, the Court ruled 
in National Bellas Hess v. Department of Revenue that such a State 
action violated both the Due Process Clause and the Commerce Clause of 
the United States Constitution. Bellas Hess therefore made it 
impossible for Congress to craft a legislative solution to the problem: 
although the Commerce Clause is the exclusive domain of Congress, the 
Due Process Clause is not subject to Congressional discretion. As long 
as the due process holding from Bellas Hess remained good law, 
Congress' hands were tied.

  In 1992, however, the Supreme Court overruled the due process portion 
of Bellas Hess. In Quill Corporation versus North Dakota, the Court 
revisited the issue of mail order tax collection and, applying a more 
modern due process analysis, concluded that mail order activities now 
constitute a sufficient connection to the State to justify the tax 
collection requirement. In other words, a State's imposition of tax 
collection requirements on an out-of-State mail order company no longer 
offends due process.
  The Quill case therefore clears the way for Congress to act on this 
issue.
  Although Quill did not overrule the Commerce Clause portion of Bellas 
Hess, that holding does not preclude Congressional action. As I 
mentioned earlier, because the Commerce Clause grants Congress 
exclusive authority over interstate commerce, Congress may, if it 
chooses, grant the States the authority to require out-of-State tax 
collection. Indeed, the Supreme Court expressly acknowledged in Quill 
that ``Congress is now free to decide whether, when, and to what extent 
the States may burden interstate mail-order concerns with a duty to 
collect use taxes.''


             Protections Against Undue Burdens on Business

  In writing this bill, I have taken great care to insure that it does 
not place an undue burden on business--particularly small business. I 
have included four provisions designed to protect against an 
overburdensome effect: (1) De minimus provision--The Act expressly 
exempts any company whose total U.S. revenue is less than $3 million. 
The exemption will not apply, however, in any State where the company's 
revenue exceeds $100,000; (2) One-rate-per-State provision--In 
situations where an out-of-State company is subject to multiple local 
tax rates in a single State, the company will have the option of paying 
each applicable local rate or paying one standard rate, called an ``in-
lieu fee;'' (3) Filing frequency limitation--States may not require 
out-of-State companies to file tax returns more than once per quarter; 
(4) Mandatory information service--States must maintain a toll-free 
telephone service to provide out-of-State companies with necessary tax 
information and forms.


                       What The Bill Does Not Do

  The intent of this bill is not to injure the mail order industry. 
There are many fine mail order companies in America which offer many 
useful products, and I have no quarrel with any of them aside from 
their exemption from collecting use taxes. The intent of the bill is 
merely to insure that consumers are protected and Main Street 
businesses are treated equitably in relation to companies located out-
of-State.
  Let me repeat, this bill does not create a new tax. It merely allows 
for the fair and equitable collection of existing taxes. If the 
residents of a State do not wish to pay a use tax, then they can repeal 
that use tax. That is their prerogative. But if they choose to have a 
use tax, the Federal Government should allow them to enforce it. That 
is what this bill does--it authorizes the States to collect taxes 
fairly and evenly from all who conduct business in the State.
  Finally, this bill is not a preemption of the States' power to tax. 
In fact, States are not required to take any action as a result of this 
bill. They may completely ignore this legislation and continue their 
present tax collection methods. This bill merely grants the States a 
power presently denied under the Commerce Clause and imposes the 
limitations on that power which are necessary to insure that the 
resulting burden on out-of-State companies is not unreasonable.


                             Broad Support

  This measure has already gained extensive support. The legislation 
was crafted with the input of a broad-based coalition of business and 
governmental associations. They represent large constituencies in every 
State, all of which actively and vocally support the bill. Mr. 
President, I ask unanimous consent that a list of these organizations 
be printed in the Record.
  There being no objection, the list was ordered to be printed in the 
Record, as follows:


   SUPPORTERS OF THE CONSUMER AND MAIN STREET PROTECTION ACT OF 1998

                         Business Associations

       Home Furnishing International
       International Council of Shopping Centers
       Jewelers of America
       Marine Operators Association of America
       Marine Retailers Association of America
       National Floor Covering Association
       National Home Furnishings Association
       North American Retail Dealers Association

[[Page S231]]

       Performance Warehouse Association
       Computing Technology Industry Association
       National Association of Retail Druggists
       National Office Products Association
       National Small Business United
       International Home Furnishings Representatives Association


                State and Local Government Associations

       National Governors' Association
       National Conference of State Legislatures
       National Association of Counties
       National League of Cities
       U.S. Conference of Mayors
       Multistate Tax Commission
       Federation of Tax Administrators
       Government Finance Officers Association
       National Association of State Budget Officers
       National Association of State Auditors, Comptrollers and 
     Treasurers
       National Association of State Treasurers


                   Education and Labor Organizations

       AFL-CIO Public Employees Department
       American Federation of State, County and Municipal 
     Employees
       American Federation of Teachers
       National School Boards Association
       American Association of School Administrators
       National Education Association

  Mr. BUMPERS. Mr. President, I urge my colleagues in the Senate to 
carefully consider this issue. It is very important for the continued 
vitality of Main Street America, and I invite you to join in this 
effort to ensure fair competition in American business.
  Mr. President, I ask unanimous consent that the bill and outline be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1586

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Consumer and Main Street 
     Protection Act of 1997''.

     SEC. 2. FINDINGS.

       The Congress finds that--
       (1) merchandise purchased from out-of-State firms is 
     subject to State and local sales taxes in the same manner as 
     merchandise purchased from in-State firms,
       (2) State and local governments generally are unable to 
     compel out-of-State firms to collect and remit such taxes, 
     and consequently, many out-of-State firms choose not to 
     collect State and local taxes on merchandise delivered across 
     State lines,
       (3) moreover, many out-of-State firms fail to inform their 
     customers that such taxes exist, with some firms even falsely 
     claim that merchandise purchased out-of-State is tax-free, 
     and consequently, many consumers unknowingly incur tax 
     liabilities, including interest and penalty charges,
       (4) Congress has a duty to protect consumers from explicit 
     or implicit misrepresentations of State and local sales tax 
     obligations,
       (5) small businesses, which are compelled to collect State 
     and local sales taxes, are subject to unfair competition when 
     out-of-State firms cannot be compelled to collect and remit 
     such taxes on their sales to residents of the State,
       (6) State and local governments provide a number of 
     resources to out-of-State firms including government services 
     relating to disposal of tons of catalogs, mail delivery, 
     communications, and bank and court systems,
       (7) the inability of State and local governments to require 
     out-of-State firms to collect and remit sales taxes deprives 
     State and local governments of needed revenue and forces such 
     State and local governments to raise taxes on taxpayers, 
     including consumers and small businesses, in such State,
       (8) the Supreme Court ruled in Quill Corporation v. North 
     Dakota, 112 S. Ct. 1904 (1992) that the due process clause of 
     the Constitution does not prohibit a State government from 
     imposing personal jurisdiction and tax obligations on out-of-
     State firms that purposefully solicit sales from residents 
     therein, and that the Congress has the power to authorize 
     State governments to require out-of-State firms to collect 
     State and local sales taxes, and
       (9) as a matter of federalism, the Federal Government has a 
     duty to assist State and local governments in collecting 
     sales taxes on sales from out-of-State firms.

     SEC. 3. AUTHORITY FOR COLLECTION OF SALES TAX.

       (a) In General.--A State is authorized to require a person 
     who is subject to the personal jurisdiction of the State to 
     collect and remit a State sales tax, a local sales tax, or 
     both, with respect to tangible personal property if--
       (1) the destination of the tangible personal property is in 
     the State,
       (2) during the 1-year period ending on September 30 of the 
     calendar year preceding the calendar year in which the 
     taxable event occurs, the person has gross receipts from 
     sales of such tangible personal property--
       (A) in the United States exceeding $3,000,000, or
       (B) in the State exceeding $100,000, and
       (3) the State, on behalf of its local jurisdictions, 
     collects and administers all local sales taxes imposed 
     pursuant to this Act.
       (b) States Must Collect Local Sales Taxes.-- Except as 
     provided in section 4(d), a State in which both State and 
     local sales taxes are imposed may not require State sales 
     taxes to be collected and remitted under subsection (a) 
     unless the State also requires the local sales taxes to be 
     collected and remitted under subsection (a).
       (c) Aggregation Rules.--All persons that would be treated 
     as a single employer under section 52 (a) or (b) of the 
     Internal Revenue Code of 1986 shall be treated as one person 
     for purposes of subsection (a).
       (d) Destination.--For purposes of subsection (a), the 
     destination of tangible personal property is the State or 
     local jurisdiction which is the final location to which the 
     seller ships or delivers the property, or to which the seller 
     causes the property to be shipped or delivered, regardless of 
     the means of shipment or delivery or the location of the 
     buyer.

     SEC. 4. TREATMENT OF LOCAL SALES TAXES.

       (a) Uniform Local Sales Taxes.--
       (1) In general.--Sales taxes imposed by local jurisdictions 
     of a State shall be deemed to be uniform for purposes of this 
     Act and shall be collected under this Act in the same manner 
     as State sales taxes if--
       (A) such local sales taxes are imposed at the same rate and 
     on identical transactions in all geographic areas in the 
     State, and
       (B) such local sales taxes imposed on sales by out-of-State 
     persons are collected and administered by the State.
       (2) Application to border jurisdiction tax rates.--A State 
     shall not be treated as failing to meet the requirements of 
     paragraph (1)(A) if, with respect to a local jurisdiction 
     which borders on another State, such State or local 
     jurisdiction--
       (A) either reduces or increases the local sales tax in 
     order to achieve a rate of tax equal to that imposed by the 
     bordering State on identical transactions, or
       (B) exempts from the tax transactions which are exempt from 
     tax in the bordering State.
       (b) Nonuniform Local Sales Taxes.--
       (1) In general.--Except as provided in subsection (d), 
     nonuniform local sales taxes required to be collected 
     pursuant to this Act shall be collected under one of the 
     options provided under paragraph (2).
       (2) Election.--For purposes of paragraph (1), any person 
     required under authority of this Act to collect nonuniform 
     local sales taxes shall elect to collect either--
       (A) all nonuniform local sales taxes applicable to 
     transactions in the State, or
       (B) a fee (at the rate determined under paragraph (3)) 
     which shall be in lieu of the nonuniform local sales taxes 
     described in subparagraph (A).

     Such election shall require the person to use the method 
     elected for all transactions in the State while the election 
     is in effect.
       (3) Rate of in-lieu fee.--For purposes of paragraph (2)(B), 
     the rate of the in-lieu fee for any calendar year shall be an 
     amount equal to the product of--
       (A) the amount determined by dividing total nonuniform 
     local sales tax revenues collected in the State for the most 
     recently completed State fiscal year for which data is 
     available by total State sales tax revenues for the same 
     year, and

       (B) the State sales tax rate.
     Such amount shall be rounded to the nearest 0.25 percent.
       (4) Nonuniform local sales taxes.--For purposes of this 
     Act, nonuniform local sales taxes are local sales taxes which 
     do not meet the requirements of subsection (a).
       (c) Distribution of Local Sales Taxes.--
       (1) In general.--Except as provided in subsection (d), a 
     State shall distribute to local jurisdictions a portion of 
     the amounts collected pursuant to this Act determined on the 
     basis of--
       (A) in the case of uniform local sales taxes, the 
     proportion which each local jurisdiction receives of uniform 
     local sales taxes not collected pursuant to this Act,
       (B) in the case of in-lieu fees described in subsection 
     (b)(2)(B), the proportion which each local jurisdiction's 
     nonuniform local sales tax receipts bears to the total 
     nonuniform local sales tax receipts in the State, and
       (C) in the case of any nonuniform local sales tax collected 
     pursuant to this Act, the geographical location of the 
     transaction on which the tax was imposed.

     The amounts determined under subparagraphs (A) and (B) shall 
     be calculated on the basis of data for the most recently 
     completed State fiscal year for which the data is available.
       (2) Timing.--Amounts described in paragraph (1) (B) or (C) 
     shall be distributed by a State to its local jurisdictions in 
     accordance with State timetables for distributing local sales 
     taxes, but not less frequently than every calendar quarter. 
     Amounts described in paragraph (1)(A) shall be distributed by 
     a State as provided under State law.
       (3) Transition rule.--If, upon the effective date of this 
     Act, a State has a State law in effect providing a method for 
     distributing local sales taxes other than the method under 
     this subsection, then this subsection shall not apply to that 
     State until the 91st day following the adjournment sine die 
     of that State's next regular legislative session which 
     convenes after the effective date of this Act (or such 
     earlier date as State law may provide). Local sales taxes 
     collected pursuant to this Act prior to the application of 
     this subsection shall be distributed as provided by State 
     law.

[[Page S232]]

       (d) Exception Where State Board Collects Taxes.--
     Notwithstanding section 3(b) and subsections (b) and (c) of 
     this section, if a State had in effect on January 1, 1995, a 
     State law which provides that local sales taxes are collected 
     and remitted by a board of elected States officers, then for 
     any period during which such law continues in effect--
       (1) the State may require the collection and remittance 
     under this Act of only the State sales taxes and the uniform 
     portion of local sales taxes, and
       (2) the State may distribute any local sales taxes 
     collected pursuant to this Act in accordance with State law.

     SEC. 5. RETURN AND REMITTANCE REQUIREMENTS.

       (a) In General.--A State may not require any person subject 
     to this Act--
       (1) to file a return reporting the amount of any tax 
     collected or required to be collected under this Act, or to 
     remit the receipts of such tax, more frequently than once 
     with respect to sales in a calendar quarter, or
       (2) to file the initial such return, or to make the initial 
     such remittance, before the 90th day after the person's first 
     taxable transaction under this Act.
       (b) Local Taxes.--The provisions of subsection (a) shall 
     also apply to any person required by a State acting under 
     authority of this Act to collect a local sales tax or in-lieu 
     fee.

     SEC. 6. NONDISCRIMINATION AND EXEMPTIONS.

       Any State which exercises any authority granted under this 
     Act shall allow to all persons subject to this Act all 
     exemptions or other exceptions to State and local sales taxes 
     which are allowed to persons located within the State or 
     local jurisdiction.

     SEC. 7. APPLICATION OF STATE LAW.

       (a) Persons Required To Collect State or Local Sales Tax.--
     Any person required by section 3 to collect a State or local 
     sales tax shall be subject to the laws of such State relating 
     to such sales tax to the extent that such laws are consistent 
     with the limitations contained in this Act.
       (b) Limitations.--Except as provided in subsection (a), 
     nothing in this Act shall be construed to permit a State--
       (1) to license or regulate any person,
       (2) to require any person to qualify to transact intrastate 
     business, or
       (3) to subject any person to State taxes not related to the 
     sales of tangible personnel property.
       (c) Preemption.--Except as otherwise provided in this Act, 
     this Act shall not be construed to preempt or limit any power 
     exercised or to be exercised by a State or local jurisdiction 
     under the law of such State or local jurisdiction or under 
     any other Federal law.

     SEC. 8. TOLL-FREE INFORMATION SERVICE.

       A State shall not have power under this Act to require any 
     person to collect a State or local sales tax on any sale 
     unless, at the time of such sale, such State has a toll-free 
     telephone service available to provide such person 
     information relating to collection of such State or local 
     sales tax. Such information shall include, at a minimum, all 
     applicable tax rates, return and remittance addresses and 
     deadlines, and penalty and interest information. As part of 
     the service, the State shall also provide all necessary forms 
     and instructions at no cost to any person using the service. 
     The State shall prominently display the toll-free telephone 
     number on all correspondence with any person using the 
     service. This service may be provided jointly with other 
     States.

     SEC. 9. DEFINITIONS.

       For the purposes of this Act--
       (1) the term ``compensating use tax'' means a tax imposed 
     on or incident to the use, storage, consumption, 
     distribution, or other use within a State or local 
     jurisdiction or other area of a State, of tangible personal 
     property;
       (2) the term ``local sales tax'' means a sales tax imposed 
     in a local jurisdiction or area of a State and includes, but 
     is not limited to--
       (A) a sales tax or in-lieu fee imposed in a local 
     jurisdiction or area of a State by the State on behalf of 
     such jurisdiction or area, and
       (B) a sales tax imposed by a local jurisdiction or other 
     State-authorized entity pursuant to the authority of State 
     law, local law, or both;
       (3) the term ``person'' means an individual, a trust, 
     estate, partnership, society, association, company (including 
     a limited liability company) or corporation, whether or not 
     acting in a fiduciary or representative capacity, and any 
     combination of the foregoing;
       (4) the term ``sales tax'' means a tax, including a 
     compensating use tax, that is--
       (A) imposed on or incident to the sale, purchase, storage, 
     consumption, distribution, or other use of tangible personal 
     property as may be defined or specified under the laws 
     imposing such tax, and
       (B) measured by the amount of the sales price, cost, charge 
     or other value of or for such property; and
       (5) the term ``State'' means any of the several States of 
     the United States, the District of Columbia, the Commonwealth 
     of Puerto Rico, and any territory or possession of the United 
     States.

     SEC. 10. EFFECTIVE DATE.

       This Act shall take effect 180 days after the date of the 
     enactment of this Act. In no event shall this Act apply to 
     any sale occurring before such effective date.


     OUTLINE OF THE CONSUMER AND MAIN STREET PROTECTION ACT OF 1998

       Effect: Congress would give states the authority to require 
     out-of-state sellers to collect the sales taxes due on goods 
     shipped into the state. Under current law, out-of-state 
     companies are exempt from collecting these taxes, even though 
     consumers must pay them. This places an inappropriate burden 
     on the consumer and places local retailers at a competitive 
     disadvantage.
       Not a New Tax: The Act does not create a new tax. It merely 
     deals with how existing taxes are collected, shifting the 
     burden of collecting those taxes from the consumer to the 
     company.
       Small Companies Exempted: A company will be exempt if its 
     nationwide sales are less than $3 million. The exemption will 
     not apply in any state where the company's sales exceed 
     $100,000.
       One Rate Per State: The Act will not require complicated 
     tax calculations. Rather than dealing with a variety of state 
     and local rates, companies will have the option of collecting 
     a single blended rate for each state into which products are 
     shipped.
       Filing Frequency: Under the Act, out-of-state companies 
     will only have to file tax returns once per quarter.
       Toll-Free Information Service: To utilize the Act, states 
     must establish a toll-free information service to provide 
     out-of-state companies with necessary information and forms.
       Distribution of Local Sales Taxes: State governments must 
     remit to local jurisdictions the appropriate local share of 
     taxes collected from out-of-state companies. To ensure this, 
     the Act requires states to distribute local taxes collected 
     out-of-state in the same proportion as local taxes collected 
     in-state. Distributions must occur at least once every 
     calendar quarter.

           Uncollected Sales Taxes on Mail Order Goods, 1994

                                                               Millions
Alabama...........................................................$48.6
Arizona............................................................44.4
Arkansas...........................................................19.6
California........................................................482.8
Colorado...........................................................47.9
Connecticut........................................................50.4
D.C.................................................................9.9
Florida...........................................................168.9
Georgia............................................................72.9
Hawaii..............................................................9.8
Idaho...............................................................9.7
Illinois..........................................................233.1
Indiana............................................................54.5
Iowa...............................................................28.3
Kansas.............................................................33.5
Kentucky...........................................................41.7
Louisiana..........................................................61.9
Maine..............................................................13.3
Maryland...........................................................60.1
Massachusetts......................................................69.0
Michigan..........................................................108.4
Minnesota..........................................................53.1
Mississippi........................................................28.0
Missouri...........................................................63.5
Nebraska...........................................................17.4
Nevada.............................................................17.4
New Jersey........................................................112.2
New Mexico.........................................................16.8
New York..........................................................359.4
North Carolina.....................................................71.1
North Dakota........................................................5.8
Ohio..............................................................116.3
Oklahoma...........................................................41.8
Pennsylvania......................................................145.0
Rhode Island.......................................................14.2
South Carolina.....................................................31.3
South Dakota........................................................7.3
Tennessee..........................................................68.8
Texas.............................................................235.2
Utah...............................................................16.8
Vermont.............................................................6.0
Virginia...........................................................59.9
Washington.........................................................76.2
West Virginia......................................................18.6
Wisconsin..........................................................46.6
Wyoming.............................................................4.4
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