[Congressional Record Volume 159, Number 55 (Monday, April 22, 2013)]
[Senate]
[Pages S2820-S2823]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
MARKETPLACE FAIRNESS ACT
Mr. DURBIN. I note Senator Enzi is on the floor. At 5:30 p.m. we are
voting on a measure which will affect literally millions of Americans.
I will provide some illustration about this bill.
A close friend of mine is the mayor of Normal, IL. His name is Chris
Koos, and he is a local businessman. His business sells bicycles,
running shoes, running paraphernalia, and equipment. Chris has a good
business and has done well.
He told me that in the last 10 or 20 years things have changed. He
said, It is not unusual for someone to come into my store, ask to see a
pair of running shoes, try them on, look at the different colors, and
then leave without buying anything. Sometimes they will come back
several weeks later with shoes and they will say: Chris, we bought
these over the Internet, and they are not what we thought they would
be; what can we do about it?
This is called ``showrooming'' and is happening more and more. Why
would somebody try on the shoes, not purchase them, and then go to the
Internet? In many instances, it is because many Internet retailers do
not collect sales tax. In my State, this means 9 or 10 percent less
cost to purchase an item over the Internet.
This is the reality for most companies. Some companies, Internet
retailers, collect a sales tax. I recently purchased a book on Amazon,
and they
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charged the sales tax, which is appropriate in Illinois. Most companies
do not collect the sales tax.
I wish to tell another side of this story. When we are dealing with
the collection of this sales tax, we are dealing with existing
law. Forty-six States in America have sales tax. The States that do not
are Montana, Oregon, New Hampshire, and Delaware. Every other State has
either a sales tax or what they call a use tax, and the State law
requires all of us living in those States to pay a sales tax on
Internet purchases even if the seller didn't charge it.
In my State, people are supposed to pay it when they file their
annual State income tax return. There is a line: How much do you owe
for Illinois sales tax that should have been paid on remote purchases
or online purchases? It is really an honor system is what it comes down
to. Though there is a legal obligation, there is no direct enforcement.
It turns out that only 1 out of 20 people in Illinois even know this
exists. So only 5 percent of the population know.
As I mentioned several times, a few years ago my bookkeeper said--
when she was doing our taxes--Senator, do you want to pay the sales tax
you owe? I said: I think I do. I did, and we have ever since. But most
people aren't aware of it.
So here we have businesses all around America, on Main Streets and in
shopping malls, collecting sales tax on the things they sell and
competing with Internet retailers who do not collect the sales tax.
Secondly, we have individuals with an obligation to pay the sales tax,
but most of them do not. So the bill we will consider at 5:30 this
afternoon is going to try to resolve this problem.
Over 20 years ago the U.S. Supreme Court said: Congress, you have to
fix this. We are not going to fix it by court decision. The States
can't fix it because it affects retailers from all around the United
States. In the Quill decision before the Supreme Court, they said:
Congress, you have to fix it.
It was about that time my colleague, Senator Enzi of Wyoming, teamed
up with Senator Byron Dorgan of North Dakota to fix it. Many years have
passed and here we are today on the floor of the Senate trying to
finally resolve this issue. We have reached a good place. I think we
have a reasonable approach to it, and this is what it says: States have
to decide to opt in to our system. In other words, no mandate from the
Federal Government.
If States opt in to what we propose in this legislation, here is what
it means. It means States will be willing to provide the Internet
retailers with the software program so that when they sell into the
State of Illinois and the purchaser gives the home address, the program
will automatically calculate how much sales tax should be collected on
the sale. This is free to the retailers, and it allows them to collect
the sales tax and then remit the sales tax to the State of Illinois or
the other States in which they are selling.
We have worked with businesses--Internet businesses, obviously--and
have the support of amazon.com, the largest Internet retailer. For
years they have been fighting this battle State by State. As I said,
they are now in Illinois collecting sales tax on things they sell over
the Internet. But they have decided, and many others as well, it is
time to put an end to these statewide court battles, statewide
legislative battles, and finally have a national program to collect the
sales tax.
What it means is a lot of money for the States and localities. My
State is struggling with terrible budget problems. We are in the red
with deficits, our pension system is in trouble, and money that should
be collected for sales tax is not being collected. So what we are doing
with this bill is allowing States to have Internet retailers selling in
those States to collect the sales tax.
Several of my colleagues will come to the floor to oppose this, and
they have one thing in common. Most of them--I think virtually all of
them--live in States that don't have a sales tax. So what about those
States? If we say Internet retailers can collect a sales tax, what does
that mean in the State of Montana, for example? It means nothing
changes for the people living in Montana. If there is no State sales
tax they have to pay in their stores, this bill is not going to impose
any new sales tax on the people of Montana.
So, then, why are the Senators from Montana opposing it? They are
arguing their Internet retailers should not have to collect a sales tax
for sales made in States that do have a sales tax. My answer to that
is, if you wanted to do business in Illinois--if you wanted to move
your shoe store to Illinois--you would have to follow Illinois law; you
would have to play by Illinois rules--you would have to pay your
property tax and collect the sales tax. That is accepted. If you want
to do business in our State or any other State, those are the rules. We
think the same thing should apply when it comes to Internet sales.
If a Montana Internet retailer, a State with no sales tax--Montana
has no sales tax--wants to sell in Illinois, we are saying they need to
collect money from the Illinois purchaser--not from the Montana
purchaser but from the Illinois purchaser--for the sales tax and remit
that back to the State of Illinois. If they do not want to do that or
sell in Illinois or any State with a sales tax, that is their right.
But if they do, for the privilege of selling in our State, we are
saying they will pay this sales tax.
Mr. President, I ask unanimous consent to have printed in the Record
a column from last week, April 21, from the Wall Street Journal,
entitled ``Tax Internet Sales, Stimulate Growth.''
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the Wall Street Journal, Apr. 17, 2013]
Tax Internet Sales, Stimulate Growth
(By Arthur B. Laffer)
States can cut their income-tax rates if Web vendors
collect the sales taxes that are legally due.
Reinvigorating the economy should be priority No. 1 for
federal and state leaders. After enjoying an average growth
rate above 3.5% per year between 1960 and 1999, Americans
have had to make do with less than one-half that pace since
2000.
The consequences are already dramatic and will become even
more so over time. Overall we are 20% poorer today than we
would be had the pre-2000 growth rate persisted. All other
things being equal, less national income also means federal
and state fiscal problems are more intractable.
At the state level, there are reforms that can alleviate
the problems associated with declining sales-tax bases and,
at the same time, allow the states to move closer to a pro-
growth tax system. One such reform would be to have Internet
sellers collect the sales taxes that are owed by in-state
consumers when they purchase goods over the Web.
So-called e-fairness legislation addresses the inequitable
treatment of retailers based on whether they are located in-
state (either a traditional brick-and-mortar store or an
Internet retailer with a physical presence in the state) or
out of state (again as a brick-and-mortar establishment or on
the Internet).
In-state retailers collect sales taxes at the time of
purchase. When residents purchase from retailers out of state
(including over the Internet) they are supposed to report
these purchases and pay the sales taxes owed--which are
typically referred to as a ``use tax.'' As you can imagine,
few people do.
The result is to narrow a state's sales-tax base. It also
leads to several inefficiencies that, on net, diminish
potential job and economic growth.
Exempting Internet purchases from the sales tax naturally
encourages consumers to buy goods over the Web; worse, the
exemption incentivizes consumers to use in-state retailers as
a showroom before they do so. This increases in-state
retailers' overall costs and reduces their overall
productivity.
The exemption of Internet and out-of-state retailers from
collecting state sales taxes reduced state revenues by $23.3
billion in 2012 alone, according to an estimate by the
National Conference of State Legislatures. The absence of
these revenues has not served to put a lid on state-
government spending. Instead, it has led to higher marginal
rates in the 43 states that levy income taxes.
Therefore--as with any pro-growth tax reform--the sales tax
base in the states should be broadened by treating Internet
retailers similarly to in-state retailers, and the marginal
income-tax rate should be reduced such that the total static
revenue collected by the state government is held constant.
One difficulty in imposing an Internet sales tax is the
existence of dozens, if not hundreds, of sales-tax
jurisdictions in many states, often with the tax rates and
tax classification of the same goods varying by jurisdiction.
It is overly burdensome to task companies with remitting
sales taxes to more than 9,500 such tax jurisdictions.
Instead, each state should set up a single sales-tax system,
making compliance as easy as possible for today's modern
sellers.
Addressing e-fairness from a pro-growth perspective creates
several benefits for the
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economy. A gross inequity is addressed--all retailers would
be treated equally under state law. It also provides states
with the opportunity to make their tax systems more efficient
and better aligned toward economic growth, as well as improve
the productivity of local retailers.
The principle of levying the lowest possible tax rate on
the broadest possible tax base is the way to improve the
incentives to work, save and produce--which are necessary to
reinvigorate the American economy and cope with the nation's
fiscal problems. Properly addressing the problem of e-
fairness on the state level is a small, but important, step
toward achieving this goal.
Mr. DURBIN. There are differences of opinion about this, but here are
several things we should make clear. This is not a new tax. The bill we
have before us will not create any new tax. It creates a method for
compliance or collection of an existing tax.
Secondly, it is only fair to the businesses across America--the
entrepreneurs who open their stores every morning and do business. If
they are required to collect a sales tax on their sales, it is only
fair those who are competing with them do the same.
Also, I might add, it is naive to believe the Internet retailers are
selling into States and not using the benefits of the State. When I buy
a book on Amazon or wherever it happens to be, ultimately it may be
delivered by UPS, for example. That UPS truck is going to use the
streets of Chicago and the streets of Springfield. It will use all the
basic infrastructure of the cities and the State of Illinois to deliver
its product. I don't think it is unreasonable they collect taxes to
support the State and the city where they are making their sales, and
that is what this is about.
I also note, Mr. President, that today the White House announced the
President supports this bill to give States the authority to collect
sales tax from Internet retailers. The White House spokesman said: The
Senate bill will level the playing field for small businesses and
brick-and-mortar retailers undercut by online retailers. Governors and
mayors are overwhelmingly in support of this bill. They told the White
House the bill is needed. The States are losing out on revenues that
can go to education, law enforcement, infrastructure investments, and
health care.
We have a wide array of businesses supporting this. You can imagine.
Retailers large and small are supporting it. Labor unions are
supporting it as well. Business and labor have come together. They
believe this is only a matter of fairness.
I want to thank my colleague, Senator Enzi of Wyoming--and then I
will yield the floor for him--for his leadership, persistence, and
patience on this issue. It has been a long time. Senator Enzi was in
the retail business before he came to the Senate, and he was one of the
earliest supporters of this measure. When Senator Dorgan retired, I
asked Mike if I could join him in this effort, and he has been a
terrific ally.
At this point, Mr. President, I yield the floor for my colleague and
friend from Wyoming.
The PRESIDING OFFICER. The Senator from Wyoming.
Mr. ENZI. I thank the Senator from Illinois, Mr. Durbin, for his
interest and participation in this issue, his ability to explain it,
and for the way he has brought a lot of people along in helping out
with this bill. He has been a great replacement, and we have made more
progress than we ever have in the other 14 years of working on the
bill. So I thank him for that and for his ability to explain things so
clearly.
I also want to thank Senator Lamar Alexander who helped us change
this bill in the last year from about an 80-page bill to an 11-page
bill and made it States rights. As Senator Durbin so eloquently
explained, this takes action by the States. This is just to clear up
the Quill case that made it a little confusing about whether they could
charge a tax and then challenged Congress to fix the problem.
The solution Senator Alexander came up with condensed the bill
considerably and made it a lot easier. But it made it a States rights
issue so that the States have to take some action.
I thank Senator Heitkamp as well. She is brandnew to the bill but has
more years of experience than anybody because she was a part of the
Quill case when it came up. She was representing North Dakota in that
case, and that is the other side of the case. She can explain the
intricacies of that and the challenge we were given, and the number of
reasons why it didn't happen earlier.
One of the reasons is that 20 years ago the Internet was in its
infancy and nobody knew what its capabilities were going to be. Most
people didn't even know it was out there. That has changed over quite a
period of time to where it is now one of the handy tools everybody
uses. We have come to recognize there are apps that are available that
will answer any question and sources of information that will provide
us with what we need to know on virtually any subject. I think that has
probably put some encyclopedias out of business, but it has made
information more readily available, and it has made products available
that people didn't have the availability of before. But it is creating
a bit of a dilemma that marketplace fairness straightens out.
Today we are scheduled to vote on the motion to proceed to the bill
at 5:30, and I do strongly encourage my colleagues to vote yes. Let me
explain why.
As Senator Durbin said, I have been working on this sales tax
fairness issue since joining the Senate in 1997, and I may have a
unique perspective on the dozens of proposals that have been
introduced. For instance, I have worked sales tax from a number of
different aspects. I worked the sales tax issue when I was in the
Wyoming Legislature. I know when our legislators were considering sales
tax they didn't intend to discriminate against the people in the
communities, those who hire the people in the communities and pay the
property tax to the communities and participate in all of the community
events. They definitely didn't anticipate they were going to be the
source where people could come in and feel and touch and try on the
product and then check the bar code with their cell phone--one of the
advances made possible now through Internet use--and then find out if
there is a lower price, which is usually based on no sales tax.
I am pleased some businesses across the Nation have said that isn't
fair and have decided to voluntarily do the sales tax. And there is no
problem with them doing that.
I have also been a retailer, so I know that feeling. My wife and I
had a shoe store, so I know the feeling, again, the Senator from
Illinois described, of people coming in, trying it on, feeling it,
making sure it is the right size and then checking to see where else it
is available. It is discouraging when the sales tax is the difference.
So as a former small business owner, I believe it is important to level
that playing field for all retailers--the in-store, the catalogue, and
the online--so an outdated rule for sales tax collection doesn't
adversely impact particularly small businesses and Main Street
retailers.
I know a lot of year books would never be published if it wasn't for
the support of some of the local businesses. Thousands of these local
businesses are forced to do business at a competitive disadvantage
because they have to collect a sales tax or a use tax and remote
sellers don't. In some States that can mean a 5- to 10-percent price
disadvantage. We should not be subsidizing some taxpayers at the
expense of others. All businesses and their retail sales should be
treated equally.
As a former mayor, I know sales taxes go to State and local
governments to bring in needed revenue for maintaining schools, fixing
our roads, supporting law enforcement, fire protection, those first
responders we are always so conscious of, particularly today and
through this last week. If Congress fails to authorize States to
collect tax on remote sales, and electronic commerce continues to grow,
we are implicitly blessing a situation where States will be forced to
raise other taxes, such as income and property taxes, to offset the
growing loss of sales tax revenue. Do we want that to happen? I don't
think so. We need to promote economic growth, not stifle it.
As the Supreme Court identified in the Quill v. North Dakota decision
in 1992, the Quill decision challenged Congress to come up with a
better system, a way of making it fair. The local brick-and-mortar
retailers collect sales taxes, while many online and catalog retailers
are exempt from collecting the same tax as a result of that case, and
that was based on whether they
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had a nexus. The nexus has changed dramatically since that time. That
used to be where you would go and actually pick up something, but now
it is where you can order something and that can be even moved around
the country virtually at will. So we designated some States as not
having to do it. Web sites could be set up in that State for people to
sell through from anywhere.
So the taxes need to be collected. It needs to be fair, and right now
it is not only fundamentally unfair to Main Street retailers, but it is
costing States and localities billions in lost revenue. The Supreme
Court invited Congress to address this issue, and we stalled. We know
that early on the Internet was new, but now everything is done on the
Internet. So now is the time for Congress to act.
Many Americans don't realize that when they buy something online or
order something from the catalog of a business outside their own State,
they still owe the sales tax. I know from being a legislator that was
part of what we put in place. There is a form in Wyoming that you can
fill out and pay your tax. It is pretty hard to keep track of,
particularly on smaller items, but it ought to be easier on big items.
And I do know there are about three people who comply with that.
For over a decade Congress has been debating how to best allow States
to collect sales tax from the online retailers in a way that puts Main
Street businesses on a level playing field with the online retailers.
So on February 14, 2013, the bicameral--House and Senate--and
bipartisan--Republicans and Democrats--put together the Marketplace
Fairness Act that was introduced to close that 20-year loophole that
distorts the American marketplace by picking winners and losers, by
subsidizing some businesses at the expense of other businesses and
subsidizing some taxpayers at the expense of other taxpayers. All
businesses in retail sales and all consumers and their purchases should
be treated equally.
The bill also empowers States to make the decision themselves. This
is not Congress saying what has to be done or whether they collect
them. If they choose to collect already existing sales taxes on all
online purchases regardless of whether the sale was online or in-store,
States will be able to if this bill passes. If they want to keep things
the way they are, that is the State's choice. That is why this bill is
the States rights bill.
The Marketplace Fairness Act does not tax Internet use, it does not
tax Internet services, and it does not raise taxes. It gives States the
right to collect what is owed by the purchasing individuals. Some argue
that the bill is a disguise to create taxes. It is not. Consumers are
already supposed to pay taxes and use taxes in most States for
purchases made over the phone, by mail, or by way of the Internet.
Mr. President, in a couple of minutes we are going to have a moment
of silence for the tragic events that happened. I yield the floor for
the time to be able to do that.
Mr. REID. Mr. President, I ask unanimous consent for a moment of
silence and that the Senator from Wyoming then be again recognized.
The PRESIDING OFFICER. Without objection, it is so ordered.
____________________