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.
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.
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.
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!
Chairman Baucus: That’s good. Good for you guys.
Chairman Baucus: That’s how you get information out.
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.