House Judiciary Hearing Explores Alternatives to Marketplace Fairness Act
- By David Grogan
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On Wednesday, March 12, the U.S. House of Representatives Committee on the Judiciary held a full committee hearing on the issue of sales tax fairness. The hearing, “Exploring Alternative Solutions on the Internet Sales Tax Issue,” focused on various ideas for collecting sales tax on remote sales not covered in the Marketplace Fairness Act of 2013, which passed the Senate with wide, bipartisan support in May 2013.
Solutions that the panel of six experts brought to the committee included collecting sales tax based on the location of the seller, rather than the purchaser — referred to as “origin sourcing” — and finding better ways to collect use taxes, though there was no clear consensus among those who testified before the committee.
The American Booksellers Association and the Marketplace Fairness Coalition (a diverse group of retailers and trade associations of which ABA is a member) both submitted testimony to the committee that was entered into the record. Some 94 ABA member booksellers signed the Marketplace Fairness Coalition letter to the Judiciary Committee. (See list of bookseller signatories.)
In opening the hearing, Congressman Bob Goodlatte (R-VA) said that the committee was sympathetic to the plight of bricks-and-mortar retailers in regards to sales tax equity. “We are serious about a solution,” he said before cautioning that the issue was more complex than it appears at first glance. He also referred to his seven principles of sales tax fairness as a “fresh, creative solution.”
Congressman John Conyers (D-MI), the committee’s ranking member, stressed how important it is that Congress pass a federal framework for sales tax fairness this year, and he pointed out that, on average, sales and use taxes account for nearly one-third of states’ revenue. Conyers noted that he supports the Marketplace Fairness Act and would have preferred that the House vote on the Senate bill, but he said he welcomed the committee tackling the issue nonetheless.
In ABA’s letter to the committee, ABA CEO Oren Teicher wrote, “The time has come for Congress to act and pass legislation that would allow states to collect and remit sales tax if they so choose. Over the past decade, as e-commerce has grown in leaps and bounds, the problem of sales tax inequity has grown right along with it. More and more shoppers are choosing to buy online with the mistaken idea that they are not obligated to pay sales tax, thereby hurting local businesses and their surrounding communities. This growing inequity has resulted in stores losing significant sales, which has forced many owners to cut staff, staff hours, or benefits. The loss in tax revenue has forced states to cut essential services, increase taxes on residents, or, in many cases, both.” (Read ABA’s letter in full.)
At the hearing, William Moschella of Brownstein Hyatt Farber Schreck, speaking on behalf of the Simon Property Group, a company that owns and operates shopping malls across the country and which is also a member of the Marketplace Fairness Coalition, noted: “The Simon Property Group fully supports the Marketplace Fairness Act as passed by the Senate…. The Marketplace Fairness Act is a well-considered, bipartisan proposal which enjoys the support of a wide coalition, including Governors, brick-and-mortar retailers, and Internet-based retailers.” Moschella did stress, however, that given Chairman Goodlatte’s concerns over the Senate bill, “Simon Property endeavored to find other approaches that could address” his concerns and still achieve sales tax fairness.
Moschella suggested that Congress enforce sales tax similar to the way it enforces the remote sales of intoxicating liquors under the Webb-Kenyon Act of 1913, which was reaffirmed in 2000. “The Webb-Kenyon model is simple: it authorizes no new taxes; it recognizes the sovereign nature of state taxing decisions; it would not allow discriminatory sales taxes; and it should be politically acceptable because the Webb-Kenyon enforcement amendments garnered the support of this Committee and 310 Aye votes in the House of Representatives in … 1999.”
Today, Moschella continued, most regulation of alcohol occurs at the state level, and requires remote sellers to comply with a state’s laws to sell into that state. “In the same way that the Webb-Kenyon Act eliminated the regulatory advantage obtained through the ‘immunity characteristic’ of the Commerce Clause, today this Committee and Congress are considering ways to eliminate” the advantage that remote sellers have under the “contemporary Commerce Clause” to avoid following a state’s tax law. As such, Congress could pass a statute modeled after Webb-Kenyon that prohibits the direct or remote shipment of goods in violation of the tax laws of the receiving state.
Among those also testifying at the House hearing was former Congressman Christopher Cox, counsel for NetChoice (a trade association of e-commerce businesses and online consumers) and partner with Bingham McCutchen LLP.
In looking for alternative sales tax fairness solutions, Cox suggested a sales tax system based on origin sourcing, where catalog, online, and brick-and-mortar sellers would, he explained, “use the tax rates and rules that apply where [sellers are] located, not where the customers reside.” In defending this idea, he noted that “using the tax rates and rules where the business is located is already the rule for all brick-and-mortar sales.”
Stephen P. Kranz, partner with McDermott Will & Emery, LLP, argued that asking states to move to origin sourcing was a non-starter. “An origin-based collection regime would constitute a complete overhaul of the nation’s existing sales tax system. This approach is so dramatic that it would likely result in the elimination of sales tax as a funding option for states. States that did not eliminate their sales tax would lose their business base as remote sellers set up operations in states without a sales tax.”
Kranz did stress that Congress must create a framework for remote sellers to collect sales tax if they are to truly “solve the Internet sales tax issue.” If Congress does not act, states will “certainly try to solve the issue on their own.” He added that the framework should be built around existing state tax policy decisions and should not “radically upend the sales tax regime as others would propose.”
ABA LETTER TO THE JUDICIARY COMMITTEE
The Honorable Bob Goodlatte, Chairman
House Judiciary Committee
U.S. House of Representatives
Washington, DC 20515
Dear Chairman Goodlatte:
On behalf of the American Booksellers Association (ABA), the not-for-profit trade association of independent bookstores across the country, we are writing today to voice our strong support for Internet sales tax fairness. Thank you for holding a hearing on this important issue. Sales tax inequity has been negatively impacting our independent bookstore retailer members for more than a decade now. The time has come for Congress to act and pass legislation that would allow states to collect and remit sales tax if they so choose.
Over the past decade, as e-commerce has grown in leaps and bounds, the problem of sales tax inequity has grown right along with it. More and more shoppers are choosing to buy online with the mistaken idea that they are not obligated to pay sales tax, thereby hurting local businesses and their surrounding communities. This growing inequity has resulted in stores losing significant sales, which has forced many owners to cut staff, staff hours, or benefits. The loss in tax revenue has forced states to cut essential services, increase taxes on residents, or, in many cases, both.
Opponents of sales tax fairness assert that this issue is being advocated by large chain retailers that want, in their words, “to crush” small businesses with burdensome tax regulations. This argument could not be further from the truth. ABA and its members has been advocating on behalf of sales tax fairness since 1999. Small business owners were the first to feel the effects of this unlevel playing field but, as e-commerce has grown, it is telling that it now affects retailers of all size.
We urge Congress to end the unjustified tax advantage currently afforded our online competitors. Let our members compete on true price, service, and selection without the government’s thumb on the scale. It’s time to update our sales tax laws to reflect today’s economic and technological realities.
We appreciate your efforts to build consensus and consider ways in which to modernize and update state tax codes to reflect new technologies and a dynamically changing economy. And we hope that the House of Representatives and your committee will move quickly and judiciously in 2014 to level the retail playing field. True free market competition will not only support America’s local businesses, but will strengthen our economy for everyone.
Please let us know if we can be of any assistance.
Sincerely,
Oren Teicher, CEO
American Booksellers Association
- [words] Bookstore, Maplewood, NJ
- Bay Book & Tobacco Co., Half Moon Bay, CA
- Bayou Book Co., Niceville, FL
- Bell’s Books, Palo Alto, CA
- Between the Covers, Harbor Springs, MI
- Big Blue Marble Bookstore, Philadelphia, PA
- Book Bin, Onley, VA
- Book House of Stuyvesant Plaza, Albany, NY
- Book Mouse, Ottawa, IL
- Bookbug, Kalamazoo, MI
- BookPeople, Austin, TX
- Books & Co., Oconomowoc, WI
- Books Connection, Livonia, MI
- Books Inc., Mountain View, CA
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- Books Unlimited, Inc., Franklin, NC
- Bookshop Santa Cruz, Santa Cruz, CA
- BookSmart Enterprises Inc., Morgan Hill, CA
- Bookstore, Elko, NV
- Bookworks, Albuquerque, NM
- Boomerang Booksellers, Northampton, MA
- Boulder Book Store, Boulder, CO
- Brace Books & More, Ponca City, OK
- Bunch of Grapes Bookstore, Vineyard Haven, MA
- Changing Hands Bookstore, Tempe, AZ
- Chapter 2, Cashiers, NC
- Chaucer’s Books, Santa Barbara, CA
- City Lights Booksellers and Publishers, San Francisco, CA
- Clinton Book Shop, Clinton NJ
- Covered Treasures Bookstore, Monument, CO
- Curious Iguana, Frederick, MD
- Dimple Records & Books, Sacramento, CA
- Eagle Eye Book Shop, Decatur, GA
- Eight Cousins Books, Falmouth, MA
- Elysian Fields Books & Gifts, Sarasota, FL
- Garden District Book Shop, New Orleans, LA
- Gibson’s Bookstore, Concord, NH
- GiovanniVs Room, Philadelphia, PA
- Great Northern Books and Hobbies, Oscoda, MI
- Harvard Book Store, Cambridge, MA
- hello hello books, Rockland, ME
- Hooked on Books, Islamorada, FL
- Indy Reads Books, Indianapolis, IN
- Island Bound Bookstore, Block Island, RI
- Lake Forest Book Store, Lake Forest, IL
- Let’s Play Books!, Emmaus, PA
- Letterpress Books, Inc., Portland, ME
- Mac’s Backs Books on Coventry, Cleveland Heights, OH
- Mostly Books, Tucson, AZ
- Mysterious Galaxy, San Diego, Redondo Beach, CA
- Newtown Bookshop, Newtown, PA
- Oblong Books & Music, Millerton, NY
- Octavia Books, New Orleans, LA
- Off the Beaten Path Bookstore, Coffeehouse and Bakery, Steamboat Springs, CO
- Pages on Livernois, Detroit, MI
- Pages: A Bookstore, Manhattan Beach, CA
- Parnassus Books, Nashville, TN
- Politics & Prose Bookstore, Washington, DC
- Poor Richard’s Books, Frankfort, KY
- Prairie Bookshop, Mt. Horeb, WI
- Prince Books, Norfolk, VA
- Red Balloon Bookshop, St. Paul, MN
- Saturn Booksellers, Gaylord, MI
- Skylight Books, Los Angeles, CA
- Snowbound Books, LLC, Marquette, MI
- Sparta Books, Sparta, NJ
- Spellbound Children's Bookshop, Asheville, NC
- Square Books, Oxford, MS
- Sundance Books and Music, Reno, NV
- Talking Leaves...Books, Buffalo, NY
- Teaching for Change Bookstore, Washington, DC
- The Bear and the Books, Hopewell, NJ
- The Book Shoppe, Inc., Boone, IA
- The Bookshelf, Cincinnati, Ohio
- The Bookworm, Bernardsville, NJ
- The Children’s Bookstore, Baltimore, MD
- The Cottage Book Shop, Glen Arbor, MI
- The Doylestown Bookshop, Doylestown, PA
- The Flintridge Bookstore & Coffeehouse, La Cañada Flintridge, CA
- The Grove, San Diego, CA
- The Hickory Stick Bookshop, Washington Depot, CT
- The Learned Owl Book Shop, Hudson, OH
- The Plains Trading Company, Valentine, NE
- the river'V end bookstore, Oswego, NY
- The Velveteen Rabbit Bookshop & Guest House, Fort Atkinson, WI
- TitcombVs Bookshop, East Sandwich, MA
- Towne Center Books, Pleasanton, CA
- Turnrow Book Co., Greenwood, MS
- UCLA Store BookZone, Los Angeles, CA
- VonVs Book Shop, West Lafayette, IN
- Women & Children First, Chicago, IL
- Ye Olde Warwick Book Shoppe, Warwick, NY