The Marketplace Fairness Act of 2013
Statement of U.S. Senator Michael B. Enzi
May 6, 2013
Mr. President, I rise today to urge my colleagues to vote for the Marketplace Fairness Act just over an hour or so from now. I have said this many times over the past few weeks – in fact, I’ve been saying it for the past 12 years as I’ve worked on this issue – but it’s worth repeating again - this bill is about fairness, it is about leveling the playing field between brick-and-mortar and online companies, and it is about collecting tax that is already due. It is NOT about raising taxes, taxing the Internet, or taxing Internet access.
This issue, in general, and this bill, in particular, has grabbed the attention of the members of the Senate and their constituents back home. Unfortunately, the misinformation that is being disseminated by many has added confusion and anxiety about what the bill does and does not do. For example, the Americans for Tax Reform sent me a detailed letter last week asking many questions. It appears that the letter was not meant to find resolution or a path forward with this issue, but ultimately to confuse my colleagues prior to tonight’s vote. Senator Alexander and I responded to the 16 questions in order to provide clarity for the organization and its members. Mr. President, I would like to ask your consent to insert both letters into the Congressional Record.
I would encourage everyone to read the bill – it’s short – about 11 pages or so. And it’s a bill you can read from beginning to end and understand what it does which is very unusual for Washington. It’s not like a lot of bills that simply make changes to other bills and requires that you get ahold of those other bills and read them to figure out what is going on. This bill is straightforward. If a state meets the simplification requirements outlined in the bill, it may choose to require collection of sales taxes that are already due. Congress is not forcing states to do anything. And if states do act, they are collecting taxes that are already due by consumers – folks like you and me.
One of the issues that has received much attention as we we’ve been debating this bill the past few weeks is the issue of audits. There is concern that small businesses will be subject to onerous and time-consuming audits by state and local governments if those governments start requiring that they collect sales tax on their remote sales.
It is critical to keep in mind that sellers that have under $1 million in remote sales in a year are not required to collect and would not be subject to audit from out-of-state governments.
In order to obtain authority to require remote sellers to collect, and therefore even have the potential of being audited by remote governments, states either must join the Streamlined Sales Tax and Use Agreement, I will refer to as streamlined states, or they must simply their tax structure by:
- Creating a single entity within the State responsible for all State and local sales and use tax administration and audits;
- Establishing a single audit statewide;
- Limiting collection to a uniform state and local tax base;
- Allowing a single sales and use tax return; and,
- Providing the program to figure the tax with no liability to the retailer and therefore no need for an audit.
For states that join the Streamlined Sales Tax and Use Agreement, a remote business would only be subject to a single audit for participating streamlined states, eliminating the possibility of audits by local governments and the probability of an audit.
?For states that do not join the streamlined states but choose to participate in the alternative simplification system outlined in the bill, a business would also be limited to a single audit, per state, per year.
Practically speaking, there is no possibility that streamlined states or non-streamlined states would ever be able to perform significant audits of remote sellers.
Today, the states audit less than 1 percent of retailers inside their borders. Auditing remote sellers would require additional resources and travel and is simply not a realistic possibility.For audits that are performed under the new system, the Marketplace Fairness Act demands that states adopt uniform audit procedures which would simplify and reduce business administrative expenses.
Sellers who use the certified sales tax administration software would either not be audited or would have limited scope audits to determine that the software was properly installed.
In addition to the audit protection the Marketplace Fairness Act provides, participating states are required to establish and maintain an accessible database of geographically based tax rates and tax base information to make it easier for remote sellers to collect taxes. These states are also required to hold those sellers harmless for errors in the database.
Compared to today’s sales tax administration, where sellers are expected to research and comply with tax rate and tax base information and to understand jurisdictional boundaries without help from the state and local governments, the Marketplace Fairness Act dramatically reduces administrative burden and audit risk.
Some opposed to this bill go so far as to say that this potential overreach of state and local governments will lead to taxation without representation. The Marketplace Fairness Act includes significant benefits for remote sellers, including limits on audits, liability protections, and tax and administrative simplification. The tax is imposed on the consumer by the state where they reside pursuant to tax rates and a tax base established by the state and local governments. This serves as the ultimate check on excessive taxation. Because this tax is imposed on the consumer, there is no danger of taxation without representation.
Another concern raised by a few of my colleagues is that businesses will leave the United States, set up shop outside our borders, and sell into the United States, presumably only because of a sales tax collection requirement. It’s important to note that states currently enforce collection of state taxes against foreign businesses with no physical presence in the United States, and have a number of methods to compel collection by foreign sellers, including liens, levies, and seizure of assets. The Marketplace Fairness Act treats foreign corporations the same as it does domestic corporations. All online retailers that make over $1 million in remote sales, regardless of where the retailer is located, must collect and remit sales tax to states that require it.
Finally, let me emphasize a few points that have generated a lot of spirited debate among my colleagues, the business community, and our constituents. The bill does NOT alter so-called nexus standards, as interpreted by the Supreme Court. The bill does NOT dictate to the states how they structure their state tax systems. The bill does NOT affect the taxability of goods or services, digital or otherwise. The bill DOES give states the right to decide to collect – or not to collect – taxes that are already owed.
In conclusion, I want to thank everyone associated with this bill for their hard work and efforts in getting us to this point. Thank you to Senators Alexander, Durbin, and Heitkamp for their unwavering support of this bill and moving it forward in the Senate.
Thank you to all of the cosponsors of the bill – I very much appreciate your support. Thank you to all of the businesses, trade groups, and constituents who have provided constructive feedback as we’ve attempted to address as best we can all of the concerns that have been raised. Thank you to all of the Senate staff who have worked on this issue:
My staff – my Legislative Director Randi Reid and my Tax Counsel Eric Oman;
Corey Tellez, Beth Cook, Dena Morris, Reema Dodin, MJ Kenny, and Ben Garmisa on Senator Durbin’s staff;
Allison Martin, Michael Merrell, and David Cleary on Senator Alexander’s staff;
Jillian Fitzpatrick on Senator Heitkamp’s staff;
and all of the staffers of the bill’s cosponsors.
I know you have put in an immeasurable number of hours on this issue, and I thank you for your hard work.
I look forward to continuing to work with my House colleagues – Congressman Womack, Congresswoman Speier, Congressman Conyers and Congressman Welch – as they push forward to House passage of the Marketplace Fairness Act.
Mr. President, I yield the floor.