Speeches & Floor Statements

Floor Remarks of U.S. Senator Lamar Alexander (R-Tenn.) -- Closing Online Sales Tax Loophole

Posted on November 15, 2011

Mr. President, last week the Senator from Wyoming, Senator Enzi, and the Senator from Illinois, the Democratic whip, introduced a piece of legislation which is called the Marketplace Fairness Act.  In doing so, I think they solved a problem that has persisted in almost every State in the Union and that Congress has had a difficult time dealing with for the last 10 years.  The problem is what do we do about State sales taxes which everybody owes every time they make a purchase. 

If you buy a television set at the local appliance store in Tennessee you owe Tennessee sales tax.  If you buy it online you still owe the sales tax.  The difference has been that the local retailer is required to collect the sales tax, and does, and sends it to the State, but the online vendor, let's say Amazon, is not required to collect the sales tax and so it does not.

So, like most individuals -- I bought a television set from Amazon earlier this year.  At the end of the year I would need to file a form with our State government and say I bought it, acknowledge that they didn't collect the sales tax, tell the State I owe the sales tax on my purchase, and pay it.  The truth is most Americans do not do that.  That is a $23 billion a year tax avoidance, a great big tax loophole.

One may ask why has that loophole not been closed.  We hear a lot of talk about loopholes around here and we know States want to have dollars right now, either to lower taxes or pay for services, and most of us think we should not prefer one business over another business or one taxpayer over another taxpayer.  The problem is 20 years ago the technology did not exist to make it easy for an online or remote vendor to collect the sales tax in the same way the local shoestore or local vendor collects it, so the Supreme Court said it would be an undue burden on interstate commerce. 

Here is the loophole in practical terms.  I called the owner of the Nashville Boot Company last week after we introduced the bill, Frank Harwell.  At the beginning he sold cowboy boots online.  I think it is the Nashville Cowboy Boot company.  But he sold boots online, and he said he sold as much as $400,000 a year of cowboy boots online.  That was his major business.  When he began, he was about the only one doing that, and I assume if you wanted cowboy boots, Nashville sounded like a good place to buy them, so he was doing all right.  Now he said there are about 200 people selling boots online and so he does most of his boot selling out of his store.  He has a store in Belle Meade Plaza right next to where I take my granddaughter to breakfast on Saturday mornings.

This is what he says happens to him.  He says people come into the Nashville Cowboy Boot company store and they try on the cowboy boots and then they go home and buy them online because they don't have to pay the sales tax.  They owe the sales tax, but, as I said, the online sellers are not required to collect it and many taxpayers fail to pay it even though they owe it. 

Now we are not talking about Internet tax here.  The Senate had a great big debate on the Internet access tax a few years ago.  I was right in the middle of that.  By the time we got through with it, we had a compromise and we put a moratorium on new Internet access taxes.  So we are not talking about taxing the Internet or a new Internet tax.  We are talking about the plain old State sales tax that everybody -- except in five States, one of them being New Hampshire, which doesn't have a sales tax -- in 45 States owes. 

I have been very pleased with the reception I have heard to the bill introduced by Senator Enzi and Senator Durbin.  It has five Republican cosponsors.  I am one of them.  It has five  Democratic cosponsors.  We hope there will be more.  Many of the people who saw problems with earlier attempts to fix the bill believe this legislation solves the problem.  Some of the early bills were large.  This bill is 10 pages.  It is very simple.  If the problem was it was too complicated for remote sellers to collect the online tax, they fixed that.  They have said if Tennessee wants to require remote sellers like Amazon to do the same thing the local boot company does, it has to provide Amazon with software that will make it simple for Amazon to collect the tax. 

When I want to know the weather in my hometown outside of Maryville, TN, I simply put in weather and the ZIP Code 37886, and back comes the information.  That is all a remote vendor will have to do.  It will put in Lamar Alexander, cowboy boots, whatever they cost, the ZIP Code, and the computer software will figure out the state and local sales tax and report it to the vendor, and the vendor will send the money electronically to whatever State.  So the old problems don't exist.

I saw an article in the Wall Street Journal today which I thought was very well balanced.  It takes a whole page.  States require online retailers to collect sales tax.  Yes, it is fair.  No, it protects small firms.  I am not going to put this in the Record, but I do want to take issue with one argument among those who said:  No, it protects small firms.  Two arguments, really. 

One, the Enzi-Durbin legislation has a $500,000 exemption.  So my friend in Nashville, who was the only, and I guess for a while, leading seller of cowboy boots online never made more than $400,000 in revenues.  He said, I could tell that.  So if he doesn't have more than $400,000 or $500,000 in revenue, he is not even affected by this legislation that gives States the option to decide what to do. 

Second, this says the legislation would overturn the Supreme Court ruling of 20 years ago.  That is not accurate.  It does not overturn anything.  What the Supreme Court said 20 years ago was that with the state of technology that existed with so many different taxing jurisdictions, it was an undue burden on interstate commerce for States to require online sellers to collect the tax that was owed.  This is what the Court said: 

This aspect of our decision is made easier by the fact that the underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve.  No matter how we evaluate the burdens that use taxes impose on interstate commerce, Congress remains free to disagree with our conclusions. 

Then it said: 

Accordingly, Congress is now free to decide whether, when, and to what extent the States may burden interstate mail-order concerns with a duty to collect use taxes. 

This is not overturning anything.  It is simply responding to the invitation by the Supreme Court 20 years ago that said:  As we look at it, this is too big a burden.  That was back when there were thousands of taxing districts and no easy way to collect the money.  But it did say that Congress had the right to decide what represents a burden.  What this bill says is, there are two ways States may do this.  There is the Streamlined Sales and Use Tax Agreement where about half the States have joined together and said, we will create a single way to allow online vendors to operate, or the State of Kentucky may say, we don't like what they are doing, we will create our own way.  As long it is a simple way, a single return, a single audit, and the State provides the software then the State has that option. That is why Amazon decided last week that it supported the Enzi-Durbin bill.

On the Republican or conservative side, there have been a lot of people who said, wait, this is about taxes.  Well, it is about taxes, but it is about taxes in a way that conservatives like to talk about.  We like to say we don't like it when the government policy prefers some taxpayers over others, or some businesses over others.  We also, on this side of the aisle, believe in States rights, and this bill doesn't decide anything.  It simply empowers States to make their own decisions about taxes. 

In our State, for example, we have one of the lowest tax burdens, but we have the highest State sales tax.  If we are able to collect $300 million, $400 million, $500 million more in Tennessee from this tax that is now avoided because of the loophole, there could be proposals to reduce the sales tax rate or reduce some other tax.  Certainly the money will help to avoid the arrival of a State income tax, which is about the most hated word in our tax vocabulary in Tennessee.

I ask unanimous consent to have printed in the Record some of the responses that have come since last week.  The Memphis Commercial Appeal editorial which urged that Congress close this longstanding loophole in the current tax law.  "It's the right thing to do."

Greg Johnson, a conservative columnist in the Knoxville News Sentinel said:  "Online sales tax bill would level the playing field."  His article refers to the fact that 10 years ago William F. Buckley, Jr., whom he calls the father of modern conservatism, opined to the National Review about this problem and that it needed a result. 

The same sort of argument was made by Al Cardenas, head of the American Conservative Union, who wrote an article last week and said this needs to be fixed and supports a bill such as the one we introduced. 

There is also an editorial from the Seattle Times, an editorial from the Paris Post-Intelligencer, an editorial from the Denver Post, and one from Belleville in Illinois.

All of these make the same points. 

Mr. President, this is a States rights argument.  It is about allowing States to close a loophole -- a tax loophole.  It is about stopping the subsidization of some taxpayers over other taxpayers, stopping the subsidization of some businesses over others.  About the only ones left complaining are the taxpayers and businesses that enjoy being subsidized by other taxpayers and other businesses, and that, in our opinion, is not the correct tax policy. 

I am very pleased with the work of Senator Enzi and Senator Durbin.  I will conclude where I started.  I think they have solved the problem.  As more Senators look at the fairness of the Marketplace Fairness Act and look at the options it gives each State, I hope we will have more cosponsors.  If I were running an online retailer in this country, I would begin to make my plans to collect the sales taxes that are already owed and return them to the States because States will have the right under this legislation to do it.

I thank the President and I yield the floor.  I note the absence of a quorum.