Speeches & Floor Statements
Posted on December 8, 2011
Madam President, we hear a lot about tax breaks and tax loopholes around the Senate. I wish to talk about a tax loophole, a big one, that is on its way out. It is a $23 billion tax loophole. It is not a loophole in the tax code of Washington, DC. It is a loophole in virtually every State in the country. It is a loophole that prefers some taxpayers over other taxpayers. It subsidizes some businesses over other businesses. Because of that loophole, it causes tax rates in States to be higher, and it causes States to have less money to fund the universities or the State parks or the schools or the other expenses that are legitimate in the operation of a State.
I say it is a tax loophole that is on its way out because after 10 years, Senator Enzi of Wyoming and Senator Durbin of Illinois have produced a piece of legislation that is rare in Washington, DC. It is only 10 pages long. It is very simple. It is a States rights piece of legislation that gives each State the right to decide for itself how to collect its State sales tax from everybody who owes it, whether that person buys a pair of cowboy boots in Nashville or whether that person buys a pair of cowboy boots online.
Senator Enzi and Senator Durbin introduced the Marketplace Fairness Act 4 weeks ago. It has five Republican sponsors and five Democratic sponsors. I am one of those sponsors. This is the bill that solves the problem of the online sales tax loophole, the one I described a little earlier. I mentioned cowboy boots. Let me describe what I am talking about in practical terms.
I called the owner of the Nashville Boot Company a couple weeks ago. His name is Frank Harwell. He sold boots online, and he sells them to people who walk into his store in west Nashville. When he started the company, almost all of his boots were sold online. Here is what he says is happening to him today: People come into the store in Nashville and they try on cowboy boots. They find a pair they like and then they go home and buy the cowboy boots online in order to save the State sales tax.
They owe the sales tax. Many people don't know they owe it. They owe the sales tax as much as if they had bought the boots at the cowboy boot store in Nashville. They don't pay it. Why is that? Under the State law, when Frank Harwell sells a pair of cowboy boots in his store in Nashville, he collects the sales tax and sends it to the State.
But under the law, the Supreme Court said 20 years ago, the State of Tennessee or the State of Missouri or the State of Washington could not require an out-of-State seller to collect the same sales tax. They had a reason for doing so, and it was a good reason. They said it was so complicated to do that it put a burden on interstate commerce. But at the same time, the Supreme Court invited the Congress to fix the problem. By fixing the problem, that means the Congress could act in order to create a fair way for States to require retailers that are out-of-State to collect the same sales tax retailers on Main Street collect.
Over that 20 years, the online sales tax loophole got to be a big loophole. It subsidizes some businesses at the expense of others and, as I said earlier, prefers some taxpayers at the expense of others.
Last week, the Hudson Institute, a generally conservative organization, released a new report that explains how the subsidizing of out-of-State sellers works and how the Federal Government -- those of us in Washington -- are keeping States from closing this loophole. Hudson concludes that this online sales tax loophole is distorting the marketplace, and I urge my colleagues to take a serious look at the Hudson Institute report.
Governors and legislators are up in arms because they are being deprived of the right to enforce their own sales tax law. This is a little different loophole -- actually, a little worse one. Usually, loopholes are written into the law. Those are the kind we are trying to change in our tax reform proposals in Washington. This is a tax that is already owed. This is a tax that is already owed that Governors and legislators want to collect. It is used to pay for the things States need to pay for or reduce a tax. In the State of Tennessee, which has a very high sales tax, if the State was allowed to collect sales tax from out-of-State retailers the same way it does from Main Street retailers, then we might postpone the day of a State income tax, which are probably three of the most hated words in the tax vocabulary in Tennessee.
I said, when Senator Enzi and Senator Durbin introduced their bill, that I believed they had solved the problem and that if I were an out-of-State retailer or an online retailer, I would begin to make plans to collect sales tax the same way Main Street collectors collect it today, and many have. For example, Amazon -- which had opposed for a long time this kind of legislation because, in their view, it was too complicated for them to figure out what the tax might be -- changed their mind, and said the Enzi-Durbin bill is a good bill and Amazon now supports it. That is not all. Mississippi Gov. Haley Barbour, a strong conservative Republican Governor and former chairman of the Republican Governors Association, wrote a letter on November 29 which I wish to quote:
In the early days of the Internet, the complexities of collecting State sales taxes across thousands of State and local sales tax jurisdictions were major obstacles. The technology simply didn't exist to expect startups to comply with the various tax compliance rules in every part of the country. But today, e-commerce has grown, and there is simply no longer a compelling reason for government to continue giving online retailers special treatment over small businesses who reside on the Main Streets across Mississippi and the country.
Governor Barbour continues: The time to level the playing field is now, as there are no effective barriers to complying with state sales tax laws.
Here is what Governor Barbour is saying: Twenty years ago we didn't have the kind of software and information we do today. If I want to know what the weather is in Maryville, TN, where I live, I put in "weather" and my ZIP Code, 37886. Under this new bill and under the technology that exists today, States will be required to give out-of-State retailers or online retailers the software that will permit them to do the same thing. If I order a pair of cowboy boots, they can put in my name, the cost of the boots, and the ZIP Code, and the software will compute the tax and even find a way to send it on to the State. It will be just as easy, or maybe even easier, for the out-of-State retailers to collect the sales tax that is owed as it will be for a cowboy boots store selling it out of the front door in Nashville.
The National Governors Association sent a letter last week saying that the Enzi-Durbin bill represents a commonsense approach that will allow States to collect taxes they are owed, help businesses comply with different State tax laws, and provide fair competition between retailers that will benefit consumers.
Last week, the Judiciary Committee in the House of Representatives held an oversight hearing to discuss all three bills that have been introduced to address this issue and there was a lot of good discussion. I wish to share a few things that were said and I hope we can have a similar hearing in the Senate soon.
Mike Pence of Indiana, one of the leading conservatives in Congress and a fellow who knows a tax when he sees one, 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.
Congressman Pence also talked about something I want to make sure my colleagues understand. The Enzi-Durbin bill is not talking about taxing the Internet. It is not talking about creating a new tax. As far as the Internet access tax goes, the Senate debated that a few years ago. I was in the middle of that debate and I was in the middle of the solution that imposed a moratorium on the Internet access tax. That law is still there. We are not talking about an Internet access tax. Neither are we talking about a new tax. We are talking about the plain old State sales tax that already exists. It is very hard to imagine how anyone can say collecting a tax that is already owed is a new tax.
Governor Barbour and Congressman Pence are correct; 20 years ago the technology didn't exist. Today it does. About the only ones complaining are the taxpayers and businesses that enjoy being subsidized by other taxpayers and other businesses, and that, in our opinion, is not correct tax policy.
As Republicans, I believe our party should oppose government policies that prefer some taxpayers over others or some businesses over others. As Republicans, I believe we should support States rights, and our bill does that by giving the State the right to make the decision about how to collect its own taxes: Do you want to collect taxes from everybody who owes the tax, or do you not want to? Do you want to prefer some out-of-State businesses over in-State businesses, or do you not want to? Do you want to collect the tax, reduce tax rates, or spend the money on services? That is up to the States.
These sentiments are also shared by the late William F. Buckley and Al Cardenas, chairman of the American Conservative Union. Ten years ago William Buckley, who many people see as the father of the modern conservative movement, wrote in the National Review:
The mattress maker in Connecticut is willing to compete with the company in Massachusetts, but doesn't like it if out-of-State businesses are, in practical terms, subsidized; that's what the non-tax amounts to. Local concerns are complaining about traffic in mattresses and books and records and computer equipment which, ordered through the Internet come in, so to speak, duty free.
That is William F. Buckley.
Then Al Cardenas, the chairman of the American Conservative Union, a distinguished man from Florida, and the head of an outfit that is arguably as strong and influential as any conservative organization in Washington, said in his recent essay:
There is no more glaring example of misguided government power than when taxes or regulations affect two similar businesses completely differently.
As I have said many times before, I believe the Enzi-Durbin legislation solves the problem. I believe it is going to happen. I hope that out-of-State sellers and online sellers will move ahead to work with States to make voluntary agreements as, for example, Amazon has in Tennessee, and begin to allow States to enforce their tax policy properly.
Our bill is a remarkable feat in Washington, DC. I have mentioned it before and I wish to emphasize it again. It is only 10 pages long. It is only about allowing States to make a decision about whether they want to close a tax loophole. It is about stopping the subsidization of some taxpayers over others. It is about stopping the subsidization of some businesses over others. I am glad others are starting to share this view, and as more Senators learn about the Marketplace Fairness Act and look at the options it gives each State, I hope and I believe we will have more cosponsors.
Ten years ago the bills introduced weren't adequate to solve the problem. Fortunately, today, Senator Enzi and Senator Durbin have solved the problem. I agree, Democratic Senators agree, the chairman of the American Conservative Union agrees, a former chairman of the Republican Governors Association agrees, Congressman Mike Pence agrees: It is a matter of marketplace fairness.
I ask unanimous consent to have printed in the Record the letter to which I referred from Mississippi Governor Barbour, a letter from the National Governors Association, and the National Journal article published last week regarding the House Judiciary Committee hearing on this subject.