Hearing Statement for the Senate Committee on Commerce, Science, and Transportation
“Marketplace Fairness: Leveling the Playing Field for Small Business”
U.S. Senator Michael B. Enzi
August 1, 2012
Thank you, Chairman Rockefeller and Ranking Member Hutchison for holding this hearing today on an important policy issue to retailers, state and local governments, and consumers – S. 1832, The Marketplace Fairness Act.
I have been working on this sales tax fairness issue since joining the U.S. Senate in 1997. As a former small business owner, it is important to level the playing field for all retailers – in-store, catalog, and online – so an outdated rule for sales tax collection does not adversely impact small businesses and Main Street retailers. As a state legislator in Wyoming, we did not pass laws that burden the people who pay property tax, hire residents and participate in community events while telling those businesses from out of state that we want them to have our money. Take money from the local community, but you don’t have to do anything in return? We never intended to give out-of-state businesses an advantage over those businesses that are a part of the community. Yet that is exactly where we sit unless Congress allows states the opportunity to fix it if they so choose.
For the past 20 years, States have been unable to enforce their own sales and use tax laws on sales by out-of-state, catalog, and online sellers due to the 1992 Supreme Court decision Quill Corp. v. North Dakota. In 1992, The Supreme Court stated that the Congress needs to decide how to move forward.
I strongly believe that now is the time for Congress to act. Many Americans do not realize that when they buy something online or order something from a catalog from a business outside of their own State that they still owe the State sales tax. This is not a new tax – it is a tax owed. The bill does NOT tax internet use. The bill does NOT tax internet services. The bill does NOT raise taxes - it collects what is owed by the purchasing individual.
Last year, Senator Durbin, Senator Alexander, Senator Tim Johnson and I introduced – with six of our other colleagues - the Marketplace Fairness Act to close the 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 taxpayers at the expense of other taxpayers. All businesses and their retail sales and all consumers and their purchases should be treated equally and fairly.
I want to provide you with some highlights of what the Marketplace Fairness Act accomplishes:
• The Marketplace Fairness Act allows States, if they choose to do so, to have out-of-state retailers collect the sales tax that is due on all sales – online sales, catalog sales and in-store sales.
• The legislation would streamline the country’s more than 9,000 diverse sales tax jurisdictions and provide two options by which states could begin collecting sales taxes from online and catalog purchases.
• The bill gives states two voluntary options that would allow them to collect the state sales taxes that are already owed if they choose.
• The bill also carves out small businesses so that they are not adversely affected by the new law by exempting businesses with less than $500,000 in online or out-of-state sales from collection requirements. This small business exemption will protect small merchants and give new businesses time to get started.
Do not let the critics get away with saying this kind of simplification cannot be done. In the early 1990s when the Quill decision was handed down, the Internet was still in diapers and cell phones came with bags and looked like bricks. Now the Internet permeates just about every part of our lives and it is time to stop treating businesses that rely on it almost exclusively like a novelty. Cell phones now have internet capability, software, computers, technology have all advanced at an exponential pace. The different rates and various jurisdictions are no problem for today’s software programs.
I want to publicly commend and thank Senators Durbin and Alexander in taking a leadership role in working on this important policy issue.
The Marketplace Fairness Act is simple, it is about States’ rights, and it is about fairness. At a time when State budgets are under increasing pressure, Congress should give State and local governments the ability to enforce their own laws. This will give states less of an excuse to come knocking on the federal door for handouts and will reduce the problem of federally attached strings. It will give states a choice to reduce property taxes or other taxes.
I strongly encourage my colleagues to support S. 1832, The Marketplace Fairness Act, and get it enacted into public law this year.