House Judiciary Committee Holds Hearing on Sales Tax Fairness

Fresh off the heels of Cyber Monday, on Wednesday, November 30, the U.S. House Committee on the Judiciary held a hearing to discuss the authority of states to collect sales tax on online purchases. The hearing was spurred, in part, by sales tax fairness legislation in both the House (The Marketplace Equity Act) and Senate (The Marketplace Fairness Act) that would provide states with the authority to require remote sellers to collect and remit sales tax.

Notably, Paul Misener, vice president of World-Wide Public Policy for Amazon.com, stated that Amazon.com supported a federal solution to the issue of sales tax inequity, though he strongly reiterated the company’s denial that Amazon.com is evading sales tax laws in states where many tax law experts and retail associations, including the American Booksellers Association, argue that it has nexus through either warehouses or online affiliates acting as sales agents.

In his testimony, Misener said that there is no e-commerce “loophole” in states’ sales tax laws and posited that “the constitutional limitation on states’ authority to collect sales tax is at the core of our nation’s founding principles. For this reason, Amazon.com has steadfastly opposed state attempts to require out-of-state sellers to collect absent congressional authorization.” He then urged Congress to authorize states to require collections “with the great objects of protecting states’ rights, addressing the states’ needs, and leveling the playing field for all sellers.”

“We welcome Amazon.com’s public testimony in support of sales tax fairness legislation currently under consideration,” said ABA CEO Oren Teicher. “However, considering the provisions of the proposed bills in the House and Senate, which leaves it up to states to require remote sellers to collect and remit sales tax, we fully expect Amazon.com to go on record in support of these future efforts that will be required by state legislatures in adopting the final federal legislation once it is passed.”

Also appearing before the committee were: Indiana state Senator Luke Kenley (R-District 20) on behalf of Streamlined Sales Tax Governing Board; Texas state Rep. John Otto (R-Dayton); Dan Marshall, owner of Marshall Music, on behalf of the Michigan Retailers’ Association; Patrick Byrne, chairman and CEO, Overstock.com; Tod Cohen, vice president and deputy general counsel of global government relations, intellectual property, regulatory and asset protection, eBay.

Dan Marshall of Marshall’s Music, which has seven bricks-and-mortar stores located throughout Michigan, noted, “Today, bricks-and-mortar stores like ours are becoming the showrooms for online-only companies like Overstock, Amazon and eBay. Customers literally come into our stores every single day to play, touch, look at, and evaluate higher-end musical equipment, only to walk out of the store and go home to purchase the item from an online retailer that does not collect the state sales tax at the point of purchase.”

Marshall also pointed out that “when I collect it at the register I do a service for both the state and the customer, relieving for the latter the burden of collecting receipts and calculating their sales tax — something they are legally required (but rarely do) for online purchases.” He reported that a “recent national survey” found that three-quarters of consumers were not even aware they had this obligation when filing state tax returns.

Ultimately a large portion of the hearing was spent debating the small seller exception and what yearly gross sales amount constituted a small business.

Rep. Mike Pence (R-IN), who described himself as a conservative who is opposed to new taxes, stressed that, while he long opposed taxing the Internet, “it does strike me though, that as this marketplace has matured there is an argument for us to consider letting states decide.” He then asked the witnesses for their thoughts on the small-business exemption, saying there should be no undue burden on commerce.

Pence continued: “I don’t think Congress should be in the business of picking winners and losers and inaction by Congress today results in a system that does pick winners and losers.”

While eBay sought an exemption in the range of the $31 million in distance sales, Amazon.com’s Misener urged that it should be kept “very low” and that Amazon.com is prepared to make its sales-tax collection technology “available as a service to help sellers by collecting sales tax for them.” Marshall of Marshall’s Music argued that there should be no small-seller exemption at all as it would only reverse the uneven playing field, but not solve the issue.