House Judiciary Hears Testimony on Marketplace Equity Act

On Tuesday, July 24, the U.S. House of Representatives Committee on the Judiciary held a full committee hearing on the Marketplace Equity Act (H.R. 3179), which seeks to level the playing field in regard to the equitable collection of sales tax for online purchases.

The day’s testimony made clear that most committee members agreed that bricks-and-mortar retailers were operating under unfair conditions regarding the collection of sales tax, especially as an increasing number of consumers are browsing physical stores to make purchase decisions before buying items online. However, at the end of the hearing, there was no consensus on how, or if, Congress could best solve the issue.

Testifying on the first of the day’s two panels were the bill’s sponsors, Representatives Steve Womack (R-AR) and Jackie Speier (D-CA). The witnesses testifying on the second panel were Tennessee Gov. Bill Haslam (R); Utah state Rep. Wayne Harper, incoming president of the Streamlined Sales and Use Tax Governing Board; Hans Kuttner, visiting fellow of the Hudson Institute; Joseph Henchman, vice president, legal and state projects, and operations, the Tax Foundation; and Steve DelBianco, executive director, NetChoice.

The Marketplace Equity Act (MEA) would give states the right to require remote, online retailers to collect and remit sales tax on in-state purchases. In introducing the hearing, Committee Chairman Lamar Smith (R-TX) stressed that “any bill to enable the collection of sales tax should contain a robust exemption” for small businesses. The bill has a small-business exemption of $1 million.

“Tax-free sales on the Internet may be coming to an end,” stated ranking committee member John Conyers (D-MI). “This should be a boost to states … to help create more jobs. The important thing is that retailers should compete on things other than sales-tax policy.” He then asked to the committee to ensure a level playing field by passing “this bipartisan legislation.”

Rep. Womack stated that the current sales tax inequity is an issue that “Congress – and only Congress – can resolve.” He noted that while the collection of sales tax is a requirement of bricks-and-mortar stores, there is “no requirement, however, for online, remote retailers…. The burden of remitting these ‘use’ taxes falls on the consumer, not the retailer, and the realistic effect of this situation is bad for our traditional retailers, bad for cities, counties and states who levy sales taxes, and bad for consumers who are unwittingly exposed to potential tax-evasion issues.”

Womack noted that retail stores have become showrooms for online retailers.  “It is time this loophole is closed,” he said.

Rep. Speier echoed Womack in stressing that this was an issue that Congress must solve. “If a Republican from Arkansas and a Democrat from California can come together on a bill that deals with tax issues, then the time has come to finally resolve the issue.” She stressed that the bill does not implement a new tax. “Consumers owe sales and use tax for these purchases in all states with a sales tax, but only about one percent actually pays them. This is an issue of collection and fairness.”

Gov. Haslam, testifying on behalf of the National Governors Association, said, “I am a Republican governor who does not believe in increasing taxes…. This discussion isn’t about raising taxes or adding new taxes. This is about states having the flexibility and authority to collect taxes that are already owed by their own in-state residents.”

Haslam also stressed that software has made the collection and remittance of sales tax far less complex. “Current software covers over 12,000 state and local tax rates, and there are at least eight companies already competing to provide software that is affordable to even the smallest businesses.”

However, the Tax Foundation’s Joseph Henchman noted that sales tax software isn’t completely foolproof and that it can be tough for providers to keep up with the myriad sales tax changes that occur each year. He stressed that “effective [state sales tax law] simplification … must be part of any solution,” but acknowledged that MEA comes closer to this than any previous incarnation. 

Opposing MEA was DelBianco of NetChoice, a coalition of online consumers, e-commerce companies, and trade associations, whose members include AOL, eBay, Facebook, NewsCorp, Overstock, and Yahoo.

In testimony presented on behalf of NetChoice as well as the new Coalition for the True Simplification of Sales Tax, DelBianco disagreed with the co-sponsors of the bill, Gov. Haslam and Rep. Harper, by insisting that MEA imposed a new and unfair tax on remote online retailers.

Contending that the issue had generated a good deal of contradictory information, DelBianco said that the Judiciary Committee deserved some “straight answers today.”  Noting that “equity is when everyone plays by the same rules and that’s the situation today,” DelBianco said, “This bill requires remote businesses to pay sales tax based on where the customer lives. Now if you really wanted equity, let’s force all stores to do sales tax that way.”

Rep. Conyers concluded that the “fairness issue overrides everything else,” so a solution to level the playing field for bricks-and-mortar stores must be worked out by Congress.