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Standing Alone or in a Lame-Duck Package, “Streamlined Sales Tax” Bill Won’t Fly with Taxpayers, Businesses
An Open Letter to Congress:
November 13, 2012
Dear Member of Congress:
On behalf of the 362,000-member National Taxpayers Union (NTU), I write to caution Congress against a year-end rush to enact legislation giving the federal government’s blessing for a state revenue-collection scheme known as the Streamlined Sales and Use Tax Agreement (SSUTA). Whether attached to a lame-duck package or considered alone, such a proposal (taking forms such as S. 1452/H/R. 2701, the Main Street Fairness Act, S. 1832, the Marketplace Fairness Act, or H.R. 3179, the Marketplace Equity Act) could inflict a great deal of harm upon taxpayers as well as small businesses at a time when uncertainty and complexity is already afflicting fiscal policy.
As we noted in comments submitted April 25 regarding the Senate Committee on Finance’s hearing on state reform, passage of any of these bills would result in a decidedly tilted playing field between “brick-and-mortar” retailers and online sellers – precisely the opposite of what supporters claim. Under SSUTA, traditional stores with physical outlets would not be forced to quiz their customers about place of residence and remit sales taxes to far-flung jurisdictions, but online and mail-order businesses would be saddled with such requirements. The tax compliance costs – especially to small sellers – would be considerable, and, as with income taxes, would not magically vanish with the existence of tracking software. Indeed, during an August 1 Senate hearing on S. 1832, an “e-tailer” who supported the bill unintentionally provided an illustration of this problem when it was revealed that his attempt to voluntarily comply with SSUTA resulted in charging the wrong sales tax rate to a consumer residing outside his home state.
Furthermore, whether by compelling states’ entry into the Streamlined Sales and Use Tax regime or by encouraging them to take similar steps voluntarily, this legislation would undermine one of the most dynamic aspects of the federal system: tax policy competition. Brick-and-mortar as well as online sellers must contend with tax and regulatory regimes that fall in various ways upon their modes of commerce. Both can face profit and property taxes that are often punitive, especially for sole proprietorships or “Mom and Pop” establishments. E-tailers, being heavily reliant on telecommunications and shipping infrastructure, bear a heavier tax load resulting from these necessary activities. Stores have greater sales tax collection and remittance obligations, but they have the business advantage of a physical location customers can visit. Both entities collect taxes on transactions where the buyer and seller are present in the same jurisdiction. We believe that tax competition can make the commercial environment more hospitable for all sorts of business structures.
Finally, the concept of substantial physical presence, or nexus, has long provided a safeguard against many kinds of overaggressive state and local tax collection tactics. Throwing away this established constitutional doctrine would have adverse consequences not only for sales tax collection standards, but for other types of taxes as well. Indeed, as NTU’s former Vice President of Government Affairs Andrew Moylan pointed out in remarks provided for the August 1 hearing, the language of S. 1832 “makes very clear the slippery slope to extinction” for the physical nexus standard, with a provision that (in our opinion, vainly) attempts to strip away physical presence rules only for sales taxes. Moylan aptly noted, “this is about as comforting to taxpayers as the claims from its inception that the income tax would apply single-digit rates to only the wealthiest of filers.”
Tempting though it may be to treat S. 1452/H.R. 2701, S. 1832, or H.R. 3179 as mere “to-dos” in the remaining days of this session, in reality these bills remain quite controversial and should not be packed into the current agenda. Instead, Members of Congress should take time this year and next to give thoughtful consideration toward reforms that:
1) Preserve tax competition among states;
2) Protect businesses from onerous compliance burdens;
3) Recognize the federal role in facilitating fair and equitable interstate commerce; and
4) Limit the intrusiveness of governments at all levels in everyday economic activities.
One idea worth exploring is origin-based sourcing, which would treat all transactions – including remote ones – the same, by subjecting them to just one point of taxation (the jurisdiction within which the business is sited). Clearly, any approach designed along these lines would need to include assurances that any revenues resulting from its implementation would be used for across-the-board reductions in tax rates. Furthermore, better-designed legislation such as the Business Activity Tax Simplification Act (H.R. 1439) and H. Res. 95/S. Res. 309 (supporting the preservation of Internet entrepreneurs and small businesses) offer equally appropriate, pro-taxpayer remedies for the policy questions facing Congress.
I invite you to examine the July 31 statement from NTU submitted to the Senate Committee on Commerce, Science, and Transportation for its hearing on “Marketplace Fairness.” Our remarks provide additional perspectives on the many concerns that continue to surround SSUTA. We hope you would agree that the principles of fiscal conservatism – as well as fiscal federalism – recommend against enacting the provisions of S. 1452/H.R. 2701, S. 1832, or H.R. 3179. Giving sanction to a predatory state tax collection regime is no substitute for the honest spending restraint and even-handed tax simplification that policymakers at all levels ought to be pursuing now more than ever.
Sincerely,Pete SeppExecutive Vice President