FedTax Statement for the Record to the House of Representatives Committee on the Judiciary Hearing: Exploring Alternative Solutions on the Internet Sales Tax Issue

March 18, 2014

Download This Statement via FedTax Judiciary Committee Statement 031214

Introduction

Chairman Goodlatte, Ranking Member Conyers, and distinguished members of the Committee on the Judiciary, thank you for the opportunity to submit this Statement for the Record on this hearing, “Exploring Alternative Solutions on the Internet Sales Tax Issue.” Our company, FedTax, is the proud inventor and operator of TaxCloud, a free online sales tax compliance service now being used by approximately 5,000 online retailers of all sizes. TaxCloud is available at no cost to retailers because we are a Certified Service Provider (CSP) for the twenty-four Member States of the Streamlined Sales and Use Tax Agreement (SSUTA). Our company was founded in 2008 by technology executives with decades of experience building some of the most recognizable brands in e-commerce. At our previous companies we experienced firsthand how difficult sales tax compliance can be, and we made it our mission to make sales tax compliance easy for businesses and more efficient for state and local governments. As we have grown, our executive team has expanded to include payments industry executives as well as nationally recognized sales tax and public policy experts.

In his opening remarks, Chairman Goodlatte named several technology-related fears regarding the Marketplace Fairness Act that we are uniquely qualified to address: technical capabilities of the prescribed free software, integration costs related to the free software, concerns for the direct mail industry, and concerns related to additional audit exposure.

We agree that Chairman Goodlatte’s stated concerns are important, and we are convinced that they can (and should) be addressed.

Background

This testimony is not based upon hypothetical notions or unproven theories. Rather, it is informed by our direct experience as a SSUTA CSP since 2010.

A brief background: SSUTA’s goal is to minimize or eliminate the burdens of sales tax compliance for businesses. Since its inception in 1999, it has sought input from state and local governments as well as the business community through regularly scheduled public meetings.

During its first few years, SSUTA stakeholders publicly debated many different sales tax modernization and simplification schemes (a subset of which have been proposed before the committee today). Ultimately, they agreed on an approach that relied upon modern technologies to accommodate the many nuances and variations in sales tax law across state and local governments.

Over the next few years, the SSUTA states developed the Certified Service Provider program, including the policies, practices, and procedures to be employed by each of the participating states to test and verify that a CSP candidate’s software and/or service adhered not only to SSUTA’s rules (including sourcing, taxability, rounding rules, etc.) but also to each state’s statutes. Today, six companies (including ours) have achieved CSP designation. It should also be noted that achieving CSP designation is not a one-time event but an ongoing process; our systems are regularly tested, verified, and audited by the states to maintain our certified status.

During this time, SSUTA stakeholders also worked with the tax technology group TIGERS[1] to develop standard formats for states to provide open source sales tax rate and jurisdictional boundary data for use by the business community. The work with TIGERS also included the specification and adoption of a Simplified Electronic Return (SER), based upon the widely used e-file format.

The current SSUTA Member States represent more than half of the states with sales and use tax laws, including Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.

In these SSUTA states, each of the CSPs already manages all aspects of sales tax compliance for their respective retailers. These responsibilities include:

  1. Calculation of applicable sales tax rates (including state, county, city, and special jurisdictions)
  2. Application of any full or partial product-based exemptions
  3. Capturing any available use-based exemptions
  4. Detailed jurisdictional (and sub-jurisdictional) reporting of sales tax collections
  5. Automated, timely filing of sales tax returns
  6. Automated remittance of sales tax proceeds to applicable jurisdictions
  7. Primary response to any jurisdictional audit inquiries

Technical Capabilities

Some have suggested that systems capable of keeping track of the sales tax laws of over 9,600 jurisdictions simply do not exist, or that the technologies necessary to achieve compliance would be prohibitively costly for small businesses. TaxCloud’s direct work with taxpayers refutes these assertions. It doesn’t matter if there are 9,600 or 96,000 jurisdictions; modern e-commerce systems are adept at easily managing such diversity, as Joe Crosby noted in his testimony before the committee. Businesses do not need to spend enormous quantities of time or resources to achieve compliance.

Integration Costs

Even with free software already available, opponents continue to complain that businesses will be burdened with the costs of integrating such software into their existing systems. This line of argument ignores the reality that all but the very largest retailers (and a few retailers who rely on legacy systems) rely upon pre-written software and/or online hosted platforms for e-commerce and order management. Retailers rely upon these systems to avoid the costs of developing, managing, and maintaining such systems on their own, costs that are magnified by the changing nature of e-commerce, which is constantly responding to evolving cyber-crime threats, payments and security industry best-practices, and, yes, even legislative requirements. When their retailer clients need to collect sales tax, platform vendors will provide ways for them to do so, embedded within the platforms that retailers already use.

E-commerce platform vendors are intensely competitive and focused; they take pride in not only complying with evolving requirements but often surpassing them, occasionally with stunning results. For example, much of the cloud computing infrastructure now transforming every corner of the technology sector can be traced to several of the largest e-commerce companies adapting to comply with the Sarbanes Oxley Act of 2002. There is no reason to believe these e-commerce platform vendors will not respond to action by Congress in an equally competitive manner to provide sales tax management services for their clients. In fact, this process is already underway—almost all of the most widely used e-commerce and order management platforms have already adopted and integrated with one or more CSPs.

Direct Mail Concerns

Some direct mail businesses are concerned that they could be required to include within their mail order catalogs a very long insert with every possible sales tax rate in the country. But mail order catalogs are designed to be mailed to their customers, so each customer’s mailing address can be harnessed to solve this problem. Just as the catalog vendor prints each customer’s address on each catalog, there is no reason they couldn’t print the effective sales tax rate for that specific address right on the mailing label!

Leveraging the address block for other customer-specific data is a technique routinely practiced in the direct mail industry today. Most mail order catalogs already print customer-specific Customer Reference or Quick Service Numbers (usually 5 to 9 characters), which the customer conveys to a sales agent when placing a phone order or enters on the website when placing an online order.

Furthermore, most catalog retailers encourage their customers to place their orders online or by phone; many don’t even offer paper ordering forms any longer. Of course, once a customer “channel shifts” from the printed catalog to an online storefront or telephone order, both of these ordering systems can rely upon free software and services provided by the states to determine the correct sales tax rates and even apply any available item-level exemptions.

If a catalog exemption is to be included, it should be carefully crafted so as not to favor catalog retailers over other remote retailers (or local retailers).

Audit Exposure

Another concern is related to the threat of remote state audits. Under the current CSP system, CSPs, not their retailers, are responsible for responding to audit inquiries. In most cases the CSP already has all of the information necessary to respond to such audit requests, without any effort by the retailer. As this committee considers alternatives to deal with audit concerns, one option is to rely upon the integrity of the states’ CSP certification process and shield any retailer relying upon the services of a CSP from remote state audits.

Important Concepts for Alternative Solutions

FedTax believes that the central tenet of any internet sales tax legislation must be a federal framework based upon the current sales tax structure. Anything else would cause an immense disruption to businesses across the nation.

Some witnesses have asserted that SSUTA’s simplifications are insufficient to remove perceived compliance burdens. We would note that the other solutions that were proposed, such as origin sourcing or an “IFTA-like” home-base proposal, create compliance burdens of their own—and if they choose these options, states would be jettisoning a fully developed, functioning system that has been eliminating compliance burdens for 15 years in favor of an untested, hypothetical system that might take years to create and that businesses and consumers have no experience using.

Disruption of existing business processes by changing to a new system will damage the economy and cause needless delays in solving this pressing problem.

Compliance burdens can be eliminated by requiring states with collection authority to provide retailers with automated technology solutions (including software and/or services) that can manage compliance tasks for all states with collection authority, and that are verified and certified by each such state’s revenue agency to ensure compliance with that state’s sales and use tax laws. In addition:

  • Certified systems must be allowed to file sales tax returns and remit sales tax proceeds on behalf of remote retailers.
  • Certification is necessary for states to have the certainty necessary to grant comprehensive liability relief for remote retailers relying upon such systems.
  • States must be required to certify multiple providers to ensure an open and free market.
  • Providers of certified systems must be compensated by the certifying state to eliminate costs for remote retailers. Such compensation should be paid by the states from the remotely collected sales tax proceeds.
  • Retailers’ reimbursement for expenses related to integration and initial setup costs should be paid by the states from the remotely collected sales tax proceeds.
  • States must provide publicly available electronic (machine-readable) data sources for sales and use tax rates, jurisdictional boundaries, and taxability of goods and services. These data sources must be available for all businesses to rely upon, even those not using a certified system.
  • States must allow certified systems to automatically register businesses in their state.
  • States must support a central registration process to allow remote retailers to register easily and quickly in all states.
  • States must make a single statewide agency responsible for accepting sales tax returns and sales tax proceeds.
  • Recognizing the multichannel nature of modern retail, states must be able to accept multiple (nonduplicative) sales tax returns, possibly one per channel.
  • Destination sourcing must be required for interstate sales. Destination-based sourcing returns the tax collected to the customer’s tax jurisdiction.
  • There must be limitations on audits, such as restricting audits to sellers above a certain threshold, or a consolidated audit, or even exempting retailers that use a Certified Service Providers from audits.

The beauty of this proposal is that this system is in already in place today and it is working. The SSUTA system currently provides proven technology solutions for the thousands of retailers that are already collecting today. Some of the other ideas that have been proposed at the hearing have not been tested and are not currently in use. Forcing states and businesses across the country to adopt radically different systems will create disruption and unnecessary expense.

Why should Congress discard the Streamlined Sales Tax Governing Board, which has been perfected over several years, and replace it with a different structure? A simpler answer would be to give collection authority to all states that meet congressionally mandated minimum simplification requirements and require them to provide technology as listed above to reduce compliance burdens.

We know what works. It is not a single rate. It is not origin sourcing, or any of the other alternatives presented at the hearing. They will simply muddle tax reporting further. Inaction by Congress will encourage states to continue attempts to circumvent Quill and find solutions that may or may not benefit the retail community and may or may not further simplification and uniformity.

What won’t work:

  • Origin sourcing. This scheme shortchanges state and local governments by sending their consumers’ tax dollars to other states and countries. It also would turn jurisdictions with no sales tax into e-commerce havens.
  • Requiring reporting instead of remittance. This scheme is burdensome for businesses and would require entirely new systems at revenue departments to process and respond to such reports. This is a highly inefficient way to collect tax that is owed.
  • Reporting remote sales to a clearinghouse for distribution to states. This increases administrative expenses and replaces one bureaucracy with another—such as creating an IFTA for sales tax.
  • Granting states the power to exclude noncompliant retailers rather than having them collect sales tax. States have enough difficulty tracking down in-state sellers that do not collect sales tax; the process of identifying remote sellers that aren’t collecting and then engaging in a legal process to bar them from selling into the state, is unduly lengthy and litigious, not to mention very unfriendly to businesses.

Dramatically changing the way sales tax works is not a solution. It would be a disruption for both businesses and governments and carries unacceptable costs for both.

The issues cited as barriers for business to collecting—fear of audits by states where the retailer has no locations, exorbitant integration costs for “free” software, catalog sellers, and data privacy—are all easily resolved by legislation. For example, limitations on the frequency of audits and dollar thresholds can reduce audit burden or risk. Audits of remote sellers could be performed by the seller’s home state or by a multistate compact. Legislation should clarify that integration costs should be paid by the states.

Conclusion

The simplest, least expensive, and easiest solution is to require remote retailers to collect the sales tax at the destination and provide the technology to do so at no cost.

We urge the committee to draft a bill reflecting these core concepts and report it favorably to the House of Representatives for action in this session of Congress. Your action would reward the years of effort and cooperation between businesses and states to modernize and simplify sales tax collection and administration while eliminating tax compliance burdens.

Mr. Chairman, thank you for the opportunity to submit this Statement for the Record on this important issue.

R. David L. Campbell
Chief Executive Officer
The Federal Tax Authority, LLC


[1] The Tax Information Interchange Task Group of ANSI ASC X12 was formed in 1991, and initially worked with traditional EDI formats. The Task Group produced X12 standard Transaction Set 813, the generic EDI tax filing, which is still in use today in the Motor Fuel and Sales Tax areas. TIGERS began working with XML in December 2000, and issued its first production schema set in 2003.The task group became “TIGERS” in December 1994, with the realization that technical standards were not enough – states and their partners needed guidance and assistance in turning the standards into actively supported electronic commerce programs. The group broadened its scope to include peer reviews of state technical implementations and mappings, guidance in technical infrastructure for e-commerce, and model documentation for the business rules enforced by the state programs.

How sales tax management services handle audits

July 8, 2013

Congress is currently considering legislation to allow states to require online retailers to collect sales taxes. The bill that was passed by the Senate in May, the Marketplace Fairness Act, has raised concerns about how it could affect the way businesses are audited.

At TaxCloud, we handle not only sales tax calculation and collection but also filing and audits for many of our merchants. While we don’t know exactly what future legislation may say about audits, here’s what our experience dealing with audits has been like.

First, a little background: The 24 states that have designated us a Certified Service Provider (CSP) have agreed not to hold our merchants liable for any tax calculation errors, and in the event of an audit, these states deal first and primarily with us, not the business itself. So how does this work?

When one of our merchants is audited, the state begins by contacting us. We act as the intermediary between the state and the merchant. The state lets us know that it will be reviewing the merchant’s transactions and conducting an audit beginning on a particular date, and we in turn notify the seller.

The merchant doesn’t need to provide any additional information at this point, as long as we have complete transaction data. If there is transaction data that we don’t have, the merchant needs to supply it.

During the audit, the state sends any information or document requests directly to us. Occasionally we may need the seller’s help to respond. For instance, if an item was classified as tax-exempt but it’s not clear in the transaction records exactly what the item is, we’d ask the seller to provide a description of the item. The state contacts the merchant directly only if there is evidence of fraud.

If future legislation follows this pattern for audits, it’s good news for businesses: It means that states will go to sales tax management services for data that businesses have traditionally had to supply, so businesses won’t be faced with hosting an audit.


Update: States eager for online sales tax action

February 7, 2013

In early December, we posted about states taking action on online sales tax collection.

As we noted then, states can’t do much without federal legislation, and support is growing in Congress for a bill that would give states full authority to require online retailers to collect sales tax.

But in the meantime, more states have started looking at what they can do.

Hawaii, Florida, and Michigan are all considering bills that would require an out-of-state retailer to collect sales tax if the retailer has an affiliate in the state.

Hawaii is also looking at adopting the Streamlined Sales and Use Tax Agreement, a set of guidelines that make collecting sales tax easy for retailers.

And while Virginia isn’t considering state action, it is counting on congressional action. The state’s proposed plan for transportation funding assumes that Congress will pass online sales tax legislation, allowing Virginia to collect hundreds of millions of dollars in uncollected sales tax.

States have already said that online purchases are subject to sales tax—but most of that sales tax goes uncollected. What they need now is federal legislation, and with each state-level bill or resolution, they’re sending Congress the clear message that the time to act is now. Let’s hope Congress is listening.


Guest TaxGirl post: “Why I support the Marketplace Fairness Act”

August 27, 2012

Every August Forbes contributor Kelly Phillips Erb, who writes the TaxGirl blog, asks her readers to send in guest posts to be published while she’s on vacation.

This year she provided three topics for guest posts, including “Is it fair to require online retailers to collect and remit state sales tax?”

Sten R. Wilson has contributed a post on that topic titled “Why I support the Marketplace Fairness Act.” In it, Wilson, owner of a sheep farm in upstate New York, explains that for him, collecting sales tax has been made much easier by states’ simplification of sales tax laws (through the Streamlined Sales and Use Tax Agreement) and by automated sales tax management services.

He supports the Marketplace Fairness Act because it provides incentive for states to simplify their sales tax laws:

The combination of today’s freely available technology and states’ simplification efforts is a great benefit for small businesses like mine. It eliminates bureaucracy, promotes efficiency, and increases productivity and profitability. It makes dealing with sales tax much, much easier for small business owners.

Passage of S.1832 the Marketplace Fairness Act will prompt all states to simplify their sales tax laws. Therefore, I support the Marketplace Fairness Act.

We sincerely agree! Wilson’s perspective as a small business owner is an important one in the online sales tax collection debate, and one that we haven’t seen enough in the media. The post is definitely worth a look.


What wasn’t said at yesterday’s Senate hearing, but should have been: Free!

August 2, 2012

At yesterday’s Senate Commerce Committee hearing, numerous senators voiced their support for the Marketplace Fairness Act, which would close a loophole that allows online retailers to avoid collecting sales tax.

Several senators, among them Senator Lamar Alexander (R-TN), said that they were particularly concerned about states’ rights. Under the current system, states cannot enforce their own sales tax laws; the bill would allow states to decide if they want to require online retailers to collect sales tax from state residents. Others cited concerns about simple fairness: Local small businesses—particularly those that sell high-end goods such as cameras, jewelry, and electronics—often serve as showrooms for customers who then buy online to avoid paying sales tax. The inequity is hurting local small businesses across the country.

Opponents of the bill were primarily concerned with the costs and complexity of collection, saying that it would be too difficult and expensive for small online retailers. Several supporters responded that if the bill is passed, more sales tax management services will be created and the market will act to bring down costs.

Scott Peterson, Executive Director of the Streamlined Sales Tax Governing Board, testifies before the Senate Commerce Committee, and even shows off to the members of the committee how easy and accessible sales tax has become – that you can even do it on a common device, like this iPad (and yes, that’s TaxCloud).

Which brings us to what wasn’t said: The market has already acted. A completely free sales tax management service is available right now. TaxCloud calculates the sales tax due for any region of the county, collects and remits sales tax, files sales tax returns, creates detailed records of sales tax transactions for shop owners, and even provides indemnification and audit relief—in short, it resolves every concern raised by Senator Kelly Ayotte (R-NH). It does all this at absolutely no cost to the business.

It’s too bad that this wasn’t mentioned by any of the bill’s supporters, because it directly counters opponents’ primary objection to the bill. We don’t have to wait for the market to act to bring down the costs of collecting sales tax. That cost can range from zero to as much as a business wants to pay, depending on the service a business chooses—there are multiple options already on the market today, including Accurate Tax, ADP TaxWare, Avalara, CCH SpeedTax, Exactor, and TaxCloud. Importantly, a no-cost option is already available.

Overall, the hearing showed a great display of support from many senators—and, we were pleased to note, except for only a few instances (which we will resist detailing here), an atmosphere of professionalism, courtesy, and collegiality reigned, even among those who disagreed on the issues.

You can view a video of the hearing on the Senate Commerce Committee website.


Our hearts are racing (for internet sales tax collection)!

July 26, 2012

As most of our readers are no doubt aware, changes have been happening fast for online sales tax collection. Here are the basics you need to know:

  • A few days ago, the House Judiciary Committee held a hearing on the Marketplace Equity Act (H.R. 3179). Several members of Congress, both Democrat and Republican, testified at the hearing in support of the bill, and an article in the Wall Street Journal proclaimed that “the hearing revealed that a large number of lawmakers had moved beyond the question of the legitimacy of collecting online sales taxes and were focused on how to avoid making the process overly burdensome.” (We have the answer, of course: services such as TaxCloud, which take the cost and complexity out of collecting sales tax online.)
  • Meanwhile, the Senate bill on the same issue, the Marketplace Fairness Act (S.1832), will be the subject of a hearing before the Senate Committee on Commerce, Science, and Transportation next week on August 1.
  • Also, New Jersey Governor Chris Christie has joined the list of Republican lawmakers who support federal online sales tax legislation. He also made a deal with Amazon for the company to begin collecting sales tax on purchases made by New Jersey residents in July 2013, in exchange for which the company will build two new distribution centers in the state. Since Christie is one of the leaders of the Republican party—he is frequently mentioned as a potential vice-presidential candidate—we hope this will put an end to the divisive rhetoric that only Democrats support online sales tax collection.
  • Another sign of the momentum that federal legislation is gathering, news articles on online sales tax collection are proliferating everywhere. A few we recommend:

Retailers, lawmakers revive call for Internet sales tax, MSNBC/CNBC, July 26

Online sales tax effort gains traction at US House hearing, Wall Street Journal, July 24

Proposed online sales tax gaining momentum and foes, FOXBusiness, July 24

Supporters of online sales tax say it’s good for consumers, PC World, July 24

Online sales tax is coming!Wall Street Journal, July 21

Pass the online sales tax! The Washington Post Editorial Board, July 16

Tax break nears end for online shoppersWall Street Journal, July 16 NOTE: FRONT PAGE

States, Congress rallying for an e-sales taxWashington Post, July 8 NOTE: FRONT PAGE

Our opinion: If the bipartisan momentum and support for online sales tax collection continues at the current pace, this issue could provoke a seemingly extraordinary achievement: that Congress can get something done, even in an election year!

This legislation is good for consumers, state and local governments, and businesses. Opponents (primarily eBay) claim the legislation will hurt businesses, but their argument ignores the actual substance of the proposed legislation. The Marketplace Fairness Act S.1832 (and the Marketplace Equity Act H.R.3179) require that states simplify and standardize their sales tax systems and they must provide the software (or services) for retailers to easily comply. We strongly support action by Congress on this issue.


We ♥ Senator Cardin – The most entertaining 108 seconds in online sales tax collection history

April 26, 2012

Yesterday we were in Washington DC to attend the Senate Finance Committee hearing we mentioned a few days ago. We would encourage everyone to watch the video of entire hearing, particularly Professor Walter Hellerstein’s outstanding testimony (time-code 47:50 to 52:47). But we are posting today to tell you about the very exciting portion of the hearing when Senator Cardin (D-MD) asked questions of the witnesses (time-code 84:41 to 91:32). Our regular readers will truly appreciate the last 108 seconds.

We have prepared this unofficial transcript of Senator Cardin’s questions from the video of the hearing.

Senator Cardin: Thank you Mr. Chairman, and let me thank the panelists. I want to talk about one of the major sources of revenues for our state, and that’s the sales and use tax.

Dr. Rubin, I want to focus on the fact of how much of those revenues are not being collected today. It’s been estimated as a result of out-of-state shipments, principally through the internet, that there’s eleven billion dollars ($11,000,000,000) a year not being collected. Now, I’ve got the Maryland number, and the Maryland number is thee hundred million ($300,000,000). Which is an interesting number because the governor is talking today about bringing the legislature back to a special session in May because of a three-hundred-million-dollar gap and is looking at increasing a lot of taxes in our state because we need three hundred million dollars to balance our budget. If we had this sales and use tax, we would have a balanced budget, and there would be no need to bring the legislature back into session.

Which brings me to the Marketplace Fairness Act – trying to establish a level playing field. You can go to a retail store in Maryland. Use your phone to take a photograph of the identification [of a product], then go on the internet and get that product shipped into Maryland and avoid the sales tax. Price might be identical, but you’re avoiding the sales tax. To me this is a matter of tax integrity.

The person who does that is supposed to pay a use tax and I have heard that retailers or internet sellers feel that it is such a burden to have to collect a sales tax. It is a huge burden to ask Marylanders to pay a use tax. So, aren’t we picking winners and losers if [we] don’t take some action to provide for a level playing field?

Dr. Rubin: I am a big fan of there being some action to help coordinate these issues. I think that as more sales get done on the internet or electronically or through catalogs, state and local governments are going to be at a disadvantage. So, congressional action to coordinate this seems like a no-brainer, from my perspective.

Senator Cardin: Mr. Zinman, I see that you’re anxious to respond, I’m going to give you a chance.

Mr. Zinman: I’m just agreeing.

Senator Cardin: Ok, well, good. Let me just pose the question. There’s two issues that are usually raised by those who have asked for delay of federal action.

One is that it’s a little complicated, because of all the different sales and use taxes. I point out that there’s free software available that would assist in the collection of this.

The other is for a small business exception – which is included, by the way, in the Marketplace Fairness Act. I’m not aware of any small business exceptions on the brick and mortar requirements to collect sales tax if you have a facility located in our state. Is there any administrative reason why we shouldn’t be moving forward on this, that cannot be solved?

Mr. Zinman: Absolutely not. If you look at what’s happing with BestBuy – that is even though they’re multi-state, they’re brick and mortar – they’re hurting a lot because of the internet sales because . . . I’ll give you a perfect example. An individual can go to New York and buy a set of golf clubs . . . and he has a place in Florida. He buys an expensive set of golf clubs, and he says ship it to Florida, no sales tax. It’ll cost him $30 dollars to ship those golf clubs down to Florida . . .

Mr. Henchman: Florida has a very high sales tax.

Mr. Zinman: . . .but he’s not paying . . . he’s supposed to pay. I’m not saying what he’s supposed to do. I’m saying what actually happens. What actually happens is, he is not reporting that sales tax in Florida.

Senator Cardin: I haven’t check with Florida’s use taxes, but my guess is there’s not many being filed by individual consumers.

Mr. Zinman: In New York, we have a line on our New York State – and many states have a line on their tax return – asking the taxpayer to voluntarily compute and give back the sales tax they should’ve paid, in the form of a use tax. But you now take a state like Florida, that doesn’t even have a state income tax form to report this – they have use tax forms, they are there, they’re available. But many people who have multi-state residences – I’m just using New York and Florida as an example because that’s a corridor that a lot of people travel. A lot of individuals are ignoring the taxes they have to pay.

Senator Cardin: It’s my understanding that we have a form in our state where you can include the use tax, we have that in Maryland. The three-hundred-million-dollar number I gave you is a net number. I don’t know the exact amount of use taxes that we collect from individual consumers, but it’s minuscule.

Mr. Zinman: I’m sure its minuscule.

(time-code 89:44)

Mr. Henchman: Senator, very briefly . . . I just want to be sure the goal of simplification is not minimized here. Because while that retailer has to collect, and doesn’t get a de minimus threshold, they are only collecting one sales tax. Internet retailers would have to track and collect 9,600 across the country. And yes there is software on the rates, but that software doesn’t help you to distinguish between all the sales tax holidays, and all the different rates on different products.

Senator Cardin: Are you telling me that computers cannot figure this out?

Mr. Henchman: It’s not computers, it’s tracking the states laws . . .

Senator Cardin: I have my iPad. And I’m amazed at what I can put into my iPad and get an answer immediately. Are you trying to tell me we don’t have a computer program that can figure out this issue?

Mr. Henchman: It’s not a question of computer programming, but a question of tracking changes in legislative laws. There’s a lot of . . .

Senator Cardin: And my iPad gets me the up-to-date information on traffic instantaneously. You’re trying to tell me we don’t have that technology available today?

Mr. Henchman: I work at the Tax Foundation. We do our best to keep track of all state and local laws and changes, and it’s difficult for us, and we’re not running a business.

Senator Cardin: Well, I think you better get a better program.

Gallery: [laughter]

Senator Cardin: I find this hard to understand that when you’ve got governmental actions, which are very public actions . . . every time taxes are changed . . . that that can’t be done? I’m not minimizing the issues of simplicity.

Mr. Henchman: The laws . . .

Senator Cardin: And we’ve been talking about this ever since I’ve been in Congress, which is twenty-some years. This is being used as an excuse for inaction! It’s not a problem that can’t be overcome.

Mr. Henchman: To me it’s not an excuse for inaction, it’s an excuse for the right kind of action. Some of the bills you’ve mentioned have very different . . .

Senator Cardin: Well, after twenty-some years, don’t you think it’s time for some action?

Mr. Henchman: I agree, but . . .

Senator Cardin: Thank you. I appreciate your opinion. Thank you, Mr. Chairman.

Chairman Baucus: I like it!

Gallery: [laughter]

Chairman Baucus: That’s good. Good for you guys.

Gallery: [laughter]

Chairman Baucus: That’s how you get information out.

Gallery: [laughter]

Based upon the testimony and statements provided to the committee, we hope Chairman Baucus and the rest of the committee will act quickly to advance the Marketplace Fairness Act.


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