Says There’s Growing Support for “Closing the Unfair State Sales-Tax Loophole That Picks Winners and Losers”
Posted on February 16, 2012
“This is a 20-year-old loophole that only the federal government can solve. Unless we act, states will continue to be deprived of their right to enforce their own tax laws, and businesses will not be allowed to compete on a level playing field.” – Lamar Alexander
WASHINGTON – In a speech today on the floor of the United States Senate (Video HERE), U.S. Senator Lamar Alexander (R-Tenn.) called on his colleagues to pass the Marketplace Fairness Act, a bill introduced with Senators Mike Enzi (R-Wy.) and Richard Durbin (D-Ill.), and “close a 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 some taxpayers at the expense of other taxpayers.”
Alexander said: “In Tennessee, where we don't have a state income tax, we want to avoid one. ‘State income tax’ are probably the three worst words in our vocabulary, and collecting tax on sales from everybody who owes it could not only reduce our sales tax but help us avoid a state income tax.
The full transcript of the speech follows:
“I would like to talk about marketplace fairness, which ought to be an all-American subject in the Senate. It has turned out to be one that attracts strong bipartisan support. In November, Senator Enzi of Wyoming, the Democratic whip, Senator Durbin, and I introduced, along with seven other Senators -- an equal number from both sides of the aisle -- what we call the Marketplace Fairness Act to close a 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 some taxpayers at the expense of other taxpayers.
“My colleagues and I keep talking about it because we strongly believe, as do many people across this country, that now is the time for Congress to act. Many Americans do not realize when they buy something online, which we increasingly do today, or order something through a catalog, which we have done for a long time, from a business outside of our own State that we still owe the State sales tax.
So what we are talking about does not even rise to the dignity of a loophole. What we are talking about is a law that says you owe the State sales tax even if you buy it online and even if you buy it from a catalog from out of State. The law already says, if you buy it you owe it.
“This is not a problem only for big retailers such as Amazon and Walmart. It is a problem that is killing small businesses in Tennessee and across our country.
Last month, Gov. Bill Haslam of Tennessee and I spoke with small business owners from Knoxville and Oak Ridge, Chattanooga, Johnson City, Nashville and Memphis about this problem. Every single one of those business owners shared personal stories about how this loophole has hurt their businesses.
“Basically, this is what they said happened. I remember the story of the Nashville Boot Company. I talked to the owner. The customer came into the store, tried on a boot, got advice from employees about the boot, and then went home to buy the product online in order to avoid paying the State sales tax, which the customer owes. The State law already says you owe the tax.
“The problem is, when you buy something at the Nashville Boot Company, or any other local store, the Nashville Boot Company collects the tax from you, adds it to your bill, and then sends the money to the State. That is how it has always worked. But if you buy the same boot or the same other item online or through a catalog, that business does not collect the State sales tax, even though you owe it. So the result is that similar businesses selling the same thing are being treated entirely different. That is not right, and it is not fair.
“Most Americans who have looked at the issue agree with that. So how did this happen? Well, in 1992, when most of us could not possibly have imagined how the Internet would have changed the way we shop for things, the Supreme Court said States could not require out-of-State catalogs or online sellers to do the same thing States require of stores up and down Main Street. What was the reason? It was too complicated for an online seller such as Amazon or a catalog seller to figure out what the sales tax would be in Tennessee, and then how much to add on Maryville, which is the town in which I live.
“Well, 20 years ago, I might have agreed with that. But today technology has made it easy for catalog sellers or online sellers to do the same thing Main Street sellers are required to do. Let me give an example.
This morning I wanted to know what the weather was in my hometown of Maryville, TN. So I opened my computer, went to Google, I typed in my ZIP Code, I typed in "weather." It told me the weather. The software now exists to provide to catalog sellers or online sellers the same sort of easy way to find out sales tax.
“If I were to buy a TV set online in Maryville, TN, I could just type in that city, the price, my name, and it would tell me the tax. I think it could even send the tax on to the State. In fact, it is about as easy -- with this software that under our law is going to have to be provided by the State to out of state retailers -- it is about as easy for them to find out what the tax is as it would be for the Nashville Boot Company when someone walks in and buys the boots in Nashville.
“Some people have asked why should Congress get involved because nothing is preventing States from going ahead and collecting those taxes. That is true. If I were to buy my boots online and not pay the sales tax, the Governor could come knocking on my door and add the sales tax onto the purchase price of the boots. But that is not going to happen in a practical world. I mean, the State cannot do that for millions of purchases that are made every year online; and no one wants the Governor and his agents knocking on their doors about that.
“So there is a simpler way to do it. Congress should make it easy for States to be able to do that because we should recognize the loophole is unfair, that it is anticompetitive, and it is distorting the marketplace. As a Republican Senator, I believe our party should oppose government policies that prefer some businesses over other businesses and some taxpayers over other taxpayers. I believe in States rights. Our bill gives States the right to make decisions for themselves. If Illinois or Tennessee or California wants to prefer some businesses over others, wants to prefer some taxpayers over others, they can do that. That is their State's right. But we ought to make it possible for them to make their own decision.
“A number of conservatives have been outspoken supporters for our legislation. At times, conservatives were reluctant to support it over the years, because it was complicated and because it "sounded like a" tax. Well, it is about a tax, but it is a tax that is already owed.
“Here is what Al Cardenas, chairman of the American Conservative Union, says. He supports our legislation and says: ‘There is no more glaring example of misguided government power than when taxes or regulations affect two similar businesses completely differently.’
“Former Governor Haley Barbour also supports our bill. He said: ‘There is simply no longer a compelling reason for government to continue giving online retailers special treatment over small businesses.’ Governor Mitch Daniels of Indiana said a similar thing. Congressman Mike Pence of Indiana, a well-known conservative Congressman, said: ‘I don't think Congress should be in the business of picking winners and losers. Inaction by Congress today results in a system that does pick winners and losers.’
“At CPAC this past weekend, in a gathering of conservative activists, there was a panel of leaders and industry experts talking about this issue. The general agreement was that Congress should act to solve the problem. The solution, the panelists said, should be fair, something people can understand, and meet the needs of States, consumers, and retailers.
“I believe our legislation accomplishes all these goals. In the first place, it is a rarity in Federal legislation, because it is only 10 pages long. You can actually read it in a few minutes. It is fair because it gives States the right to decide for themselves how to enforce the States' own laws. It protects businesses and consumers by requiring States to adopt basic simplifications.
“It exempts small businesses that sell less than $500,000 in remote sales each year. That is very important. I used the example of the Nashville Boot Company. The owner sells online and he sells out the front door. He said never in his history has he sold more than $400,000 worth of revenue from his boot sales online. And when he began, he was at least one of the larger online boot sellers. So the $500,000 exemption for small businesses from this legislation should go a long way to meeting the concerns of those Senators on both sides who want to make sure we don't impose some sort of new rule on very small entrepreneurs.
“Another reason Congress should act now is that States and local governments will lose an estimated $23 billion in uncollected sales tax revenue in 2012 because of this loophole. Here is what former Governor Jeb Bush had to say about that:
‘It seems to me there has to be a way to tax sales done online in the same way that sales are taxed in brick and mortar establishments. My guess is that there would be hundreds of millions of dollars that then could be used to reduce taxes to fulfill campaign promises.’
“Uncollected sales taxes could be used to pay for things our States need to pay for now. They could be used to reduce college tuition. They could be used to pay outstanding teachers. But they could also be used to reduce the sales tax rate or to reduce some other tax, or to avoid a tax altogether.
“In Tennessee, where we don't have a State income tax, we want to avoid one. "State income tax" are probably the three worst words in our vocabulary, and collecting tax on sales from everybody who owes it could not only reduce our sales tax but help us avoid a State income tax.
“Governor Haslam of Tennessee, who strongly supports our legislation, says: ‘It's just too big of a piece of our economy now to treat it like we did 20 years ago.’ Governor Haslam is right. Online sales set new records last year. And while the growth of e-commerce is very good news for our economy, our local businesses are getting hurt because they are not competing on a level playing field. That is why our legislation has the support of the National Governors Association, the National Conference of State Legislatures, the Conference of Mayors, and the National Association of Counties, to name a few.
“About the only ones left who are complaining about our legislation are taxpayers and businesses who are being subsidized by other taxpayers and businesses because the playing field isn't level.
“Amazon, a huge online seller, strongly supports our legislation. Over the years, they have opposed legislation like this. Now they believe we have solved the problem. Why? Because they say our bill makes it easy for consumers and easy for retailers to comply with State sales tax laws, and it helps States without raising taxes or new Federal spending.
“Some people will tell you we are talking about taxing the Internet. That is not true. Our legislation doesn't create a new tax. It doesn't tax the Internet. The Senate debated Internet access taxes several years ago. I was in the middle of the debate. It led to a moratorium on Internet access taxes. That moratorium is still in effect today.
“We are talking about state taxes that are already owed, and the moratorium on an Internet access tax will stay in place and not be altered. It is very hard to see how anyone can say with a straight face that giving States the right to collect taxes that are already owed is a tax increase. I have spent a lot of time talking with my colleagues about making the Senate work more effectively. One way to do that is to make sure Senators have an opportunity to thoroughly consider important legislation.
On January 31, a few weeks ago, over 200 businesses and State and national trade associations sent a letter to the Senator from Montana, chairman of the Finance Committee, asking him to cosponsor our bill and to address the inequity this year. Senator Enzi and the bill's cosponsors have also urged the Senate Finance Committee to hold a hearing on our bill as soon as possible. The House Judiciary Committee has already held a hearing. Their hearing on November 30, gave House Members of both political parties the opportunity to learn more about the issue and express their support for it. I hope the Senate Finance Committee will seriously consider our request and soon find time so Senators can have the same opportunity that House Members have had.
“Ten years ago, the bills we considered to try to close this loophole simply weren't adequate to solve the problem. The legislation we introduced in November does solve the problem. It is simple, it is about States rights, it is about fairness, and it solves the problem. It doesn't cost the Federal Government a dime, it doesn't change Federal tax laws, and it doesn't require States to do anything. It simply gives States the right to decide for themselves how to enforce their own laws.
“This is a 20-year-old problem that only the Federal Government can solve. Unless we act, States will continue to be deprived of their right to enforce their own tax laws and businesses will not be allowed to compete on a level playing field.
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