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STREAMLINED SALES AND USE TAX AGREEMENT:

STATES’ EFFORTS TO FACILITATE SALES TAX

COLLECTION FROM REMOTE VENDORS

HEARING

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

OCTOBER 1, 2003

Serial No. 57

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://www.house.gov/judiciary 

(II)

COMMITTEE ON THE JUDICIARY 

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman 

HENRY J. HYDE, Illinois 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

SPENCER BACHUS, Alabama 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

MELISSA A. HART, Pennsylvania 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

JOHN R. CARTER, Texas 

TOM FEENEY, Florida 

MARSHA BLACKBURN, Tennessee 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California

PHILIP G. KIKO, Chief of Staff-General Counsel 

PERRY H. APELBAUM, Minority Chief Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

CHRIS CANNON, Utah Chairman

HOWARD COBLE, North Carolina 

JEFF FLAKE, Arizona 

JOHN R. CARTER, Texas 

MARSHA BLACKBURN, Tennessee 

STEVE CHABOT, Ohio 

TOM FEENEY, Florida 

MELVIN L. WATT, North Carolina 

JERROLD NADLER, New York 

TAMMY BALDWIN, Wisconsin 

WILLIAM D. DELAHUNT, Massachusetts 

ANTHONY D. WEINER, New York

RAYMOND V. SMIETANKA, Chief Counsel 

SUSAN A. JENSEN, Counsel 

DIANE K. TAYLOR, Counsel 

JAMES DALEY, Full Committee Counsel 

STEPHANIE MOORE, Minority Counsel 

(III)

C O N T E N T S 

OCTOBER 1, 2003

OPENING STATEMENT 

Page 

The Honorable Chris Cannon, a Representative in Congress From the State 

of Utah, and Chairman, Subcommittee on Commercial and Administrative 

Law ........................................................................................................................ 1

The Honorable Melvin L. Watt, a Representative in Congress From the State 

of North Carolina, and Ranking Member, Subcommittee on Commercial 

and Administrative Law ...................................................................................... 2

WITNESSES 

Honorable Bill Owens, Governor, State of Colorado 

Oral Testimony ..................................................................................................... 4

Prepared Statement ............................................................................................. 5

Ms. Maureen B. Riehl, Vice President, State and Government Relations Counsel, National Retail Federation 

Oral Testimony ..................................................................................................... 12

Prepared Statement ............................................................................................. 15

Mr. George S. Isaacson, Tax Counsel, Direct Marketing Association 

Oral Testimony ..................................................................................................... 17

Prepared Statement ............................................................................................. 19

Mr. Jack VanWoerkom, Executive Vice President and General Counsel, Staples, Incorporated, Framingham, MS 

Oral Testimony ..................................................................................................... 74

Prepared Statement ............................................................................................. 76

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the National Conference of State Legislatures .............. 93

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Additional Questions for All Panelists ................................................................... 107

Additional Questions Presented to the Honorable Bill Owens by the Honorable Chris Cannon ............................................................................................... 109

Responses to Additional Questions by the Honorable Bill Owens ...................... 111

Additional Questions Presented to Ms. Maureen Riehl by the Honorable Chris 

Cannon .................................................................................................................. 119

Responses to Additional Questions by Ms. Maureen Riehl .................................. 121

Additional Questions Presented to Mr. George Isaacson by the Honorable 

Chris Cannon ........................................................................................................ 128

Responses to Additional Questions by Mr. George Isaacson ................................ 130

Additional Questions Presented to Mr. Jack VanWoerkom by the Honorable 

Chris Cannon ........................................................................................................ 138

Responses to Additional Questions by Mr. Jack VanWoerkom ........................... 140

Prepared Statement of Grover Norquist, President of Americans for Tax Reform ....................................................................................................................... 145

Letter from and Prepared Statement of Michael J. Tavilla and Steve 

DelBianco, the NetChoice Coalition ................................................................... 149

Letter from Karin Brownlee, Kansas State Senator ............................................. 162

Page

IV

Letter from Kenneth Daniel, CEO, Midway Wholesale, and Chairman of 

the Kansas Leadership Council of NFIB ............................................................ 164

Letter from Michael Copeland, Mayor, Olathe, KS, with Enclosure ................... 166

Letter from Ken Hite, CEO, Christian Book & Gift Co. ...................................... 170

Letter from Stan Clark, Kansas State Senator ..................................................... 172

Letter from the Society of American Florists ........................................................ 175

Prepared Statement of the International Council of Shopping Centers ............. 177

Prepared Statement of the National Governors’ Association ............................... 179

Prepared Statement of Charles Collins, Director of Government Affairs, 

Velosant ................................................................................................................ 180

(1)

STREAMLINED SALES AND USE TAX AGREEMENT: STATES’ EFFORTS TO FACILITATE 

SALES TAX COLLECTION FROM REMOTE 

VENDORS 

WEDNESDAY, OCTOBER 1, 2003

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC.

The Subcommittee met, pursuant to notice, at 2:02 p.m., in Room 

2141, Rayburn House Office Building, Hon. Chris Cannon (Chair of 

the Subcommittee) presiding. 

Mr. CANNON. Good afternoon, ladies and gentlemen. This hearing 

of the Subcommittee on Commercial and Administrative Law will 

now come to order. 

We consider today the efforts made by the States to achieve a 

uniform sales and use tax regime. I am pleased to convene this 

hearing following the recent passage of the Internet Tax Nondiscrimination Act, H.R. 49. As you may know, H.R. 49 ensures the 

tax-free access to the Internet for all Americans, and I encourage 

my colleagues here and in the other body to move quickly to pass 

the companion bill prior to the expiration of the existing moratorium on November 1. That is just the other body, not our colleagues. We have done our work. 

The concepts we will discuss today have long been linked to the 

Internet access issue. During consideration of H.R. 49, I stated my 

intention to convene a separate hearing on this issue to afford it 

careful attention. This hearing is the result of my commitment, and 

I thank my colleagues with whom I have worked. I would also add 

that my Subcommittee may hold additional hearings on this subject in the future. 

The Streamlined Sales and Use Tax Agreement, or the SSTA, is 

the result of considerable effort by States and organizations. In November 2002, 31 States ratified the SSTA following substantial review and discussion by members of the project. Following ratification of the SSTA, member States began to adopt tax legislation in 

compliance with the terms of the agreement. 

The SSTA marks a significant departure from the sales and use 

tax system now in place in the United States. Under the Commerce 

Clause of the U.S. Constitution, Congress has sole authority to regulate commerce among the States. The Commerce Clause prevents 

2

the States from interfering with or unduly burdening interstate 

commerce through the use of its taxing authority. 

Particularly relevant to our discussion are two Supreme Court 

cases, National Bellas Hess v. Department of Revenue of Illinois, 

and Quill Corporation v. North Dakota. These rulings prohibit 

States from compelling a remote seller lacking a physical presence 

in the State to collect or remit taxes from sales made to citizens 

within that State’s boundaries. The Court added that it was up to 

Congress to determine whether, when, and to what extent States 

may burden interstate mail order concerns with a duty to collect 

use taxes. 

That set of buzzers was irrelevant. I think we are recessing 

across the street. 

Given these rulings, the SSTA remains voluntary. However, the 

project seeks Congressional approval of the agreement which would 

authorize the States to compel out-of-State merchants to collect 

sales and use taxes on all sales to customers in their respective 

States. I add that, while legislation has been introduced to authorize this agreement, that bill, while likely to be referred to this Subcommittee, is not before us today for consideration. Rather, what 

we first address are the concepts contained in the agreement before 

considering legislative action. 

In light of the duties bestowed upon Congress by the U.S. Constitution, we must consider this agreement carefully to ensure that 

its provisions would not unduly burden interstate commerce. We 

must not take our responsibility lightly. For these reasons, I look 

forward to the testimony of our highly informed panel, each of 

whom is an expert in this complex subject. Some, but not all, Members have followed the intricacies of this project closely and the details are extremely important here. I, therefore, encourage my colleagues to ask questions of the witnesses in order to inform the debate. 

I now yield to Mr. Watt, the Ranking Member of the Subcommittee, for an opening statement. 

Mr. WATT. Thank you, Mr. Chairman, and I thank the Chairman 

for convening the hearing. We have had hearings about this subject 

before, but all too often, they have been to vex about the problem 

that exists rather than to focus on a particular kind of solution to 

the problem. I think this is the first step in the process of focusing 

on efforts to address a problem that has been around for a long 

time, going back even before the Internet to catalog sales and other 

remote sales. 

State governments rely on the sales and use taxes for approximately 32 percent of their total tax revenue, and it is estimated 

that $55 billion of that tax revenue over the next 10 years could 

be adversely affected if we don’t solve this problem. That is a lot 

of money for the States. 

So a lot of people have been working on trying to find a solution 

that we could all buy into. I want to applaud the work of the Advisory Commission that has been meeting and applaud the work of 

my colleague, Mr. Delahunt, and others who have been working on 

this bill, H.R. 1552—no, that is not the right bill, H.R. 3184. H.R. 

1552 is the one we already passed. 

3

I am looking forward to the testimony of the witnesses. I think 

that there is a bipartisan interest in trying to reach a solution to 

this problem and I think there will be a great effort on all parts 

to continue to make this a bipartisan effort to find a solution rather 

than a partisan effort to keep a solution from being found, and that 

is what I have found is the time and circumstance in which Congress can typically do its best work. 

So, witnesses, you are laying the groundwork for that to happen 

with today’s hearing and I appreciate your being here. I appreciate 

the Chairman convening the hearing for that purpose. I yield back. 

Mr. CANNON. I thank the gentleman from North Carolina, the 

Ranking Member of the Committee. 

I also want to acknowledge the presence of Mr. Delahunt from 

Massachusetts and Mr. Coble from North Carolina. We may have 

with us a little later the gentleman from Alabama, Mr. Bachus. Although Mr. Bachus is not a Member of the Subcommittee, he is a 

Member of the full Judiciary Committee, and in accordance with 

Subcommittee practice, the chair will exercise its discretion in allowing Mr. Bachus to utilize any time for questioning which is 

yielded to him by a Member of the Subcommittee and we will welcome him if and when he arrives. 

Before I begin with witness introductions, the record of this hearing will remain open for five legislative days, until close of business 

on Tuesday, October 7. During that time, interested parties may 

submit statements for inclusion in the hearing record. 

Our first witness is the distinguished Governor of Colorado, Bill 

Owens. In keeping with the Ranking Member’s concern about bipartisanism, I would like to point out that I am deeply jealous of 

the Governor’s record in life. He was a page in this institution for 

Jim Wright in 1967 and is probably one of the few people on the 

face of the earth who can navigate this building, having learned it 

within a year or two after its construction. 

Governor Owens is Colorado’s 40th governor, and in 2002, he 

was reelected with the greatest majority in the State’s history. The 

Governor holds an impressive record on many issues, including tax 

relief for Colorado families, another factor of which I am jealous, 

I might say, since Utah has a much higher per family tax rate than 

Colorado does. Also, for improving the quality of education and 

transportation improvements. He pushed through the largest tax 

relief package in the history of Colorado, earning him accolades 

from the Wall Street Journal, the Economist magazine, and many 

other organizations. 

Under Governor Owens’ leadership, Colorado has fully funded 

public education 3 years in a row. He instituted sweeping school reforms in his State by creating an education accountability system, 

which has been praised as among the best in the nation. Keeping 

his commitment to transform Colorado’s transportation system, he 

adopted innovative policies to accelerate long-neglected mass transit policies. 

Prior to his current post, Governor Owens was known as one of 

Colorado’s most effective policy makers while serving in the State’s 

House and Senate and also as Colorado Treasurer. He holds a master’s degree in public administration from the Lyndon B. Johnson 

School of Public Affairs at the University of Texas. 

4

Governor, we recognize your work and attention to this issue and 

are honored to have you here today. We look forward to your valuable input. Why don’t we go ahead with your testimony and then 

we will introduce each witness as we get to them. Thank you, Governor. 

STATEMENT OF THE HONORABLE BILL OWENS,

GOVERNOR, STATE OF COLORADO 

Governor OWENS. It is an honor to be in the Rayburn Building, 

and as I was telling the chair, I first came here in 1967 when Jim 

Wright was chairman of Public Works and am honored to still call 

our former Speaker a close friend. 

Thank you for the opportunity to appear before you today on a 

critically important issue facing America’s economy, State governments, and American taxpayers. Today, leaders in government at 

the State and Federal level are truly facing a profound decision. 

Should we reject a Supreme Court decision that allows many online 

mail and telephone retail purchases to be exempt from sales tax? 

Should we enact a national sales tax regime that would impose 

taxes on those purchases? 

The proposed Simplified Sales Tax Act, SSTA, is far from the 

fine-tuning of America’s approach to retail taxation that its proponents would have us believe. Indeed, I believe that this plan 

would fundamentally alter the retail landscape in America and 

change the nature of digital commerce. I offer for the record a copy 

of a paper published by the Center for the New American Century, 

which I am the chair. The paper is titled, ‘‘Nine Problems With 

Taxing the Internet.’’ It was published earlier this year. 

[The prepared statement of the Honorable Bill Owens follows:]

5

PREPARED STATEMENT OF THE HONORABLE BILL OWENS


Owens1.eps
6


Owens2.eps
7


Owens3.eps
8


Owens4.eps
9


Owens5.eps
10


Owens6.eps
11

Governor OWENS. Rather than discuss those nine points, I will 

group them into three central questions that policy makers and, I 

believe, taxpayers should consider. First, is this a new tax? Second, 

will the expanded sales tax be fair to all retailers and all consumers? And third, what will be the economic effect of this new tax 

on the emerging digital economy? 

The answer to the first question is simple and straightforward. 

Is this a new tax? Absolutely. The backers of the Internet tax assert that it will bring perhaps $50 billion, perhaps as many as $400 

billion into government coffers in the next decade. That money 

comes from Americans who make online and other remote purchases, money that consumers otherwise wouldn’t pay to government. That is what much of the debate is about, is, in fact, increasing revenues for State and local governments across Colorado, or 

across the United States. 

When the government requires American consumers to pay more 

in sales tax, their sales tax has gone up. That is, I believe, the way 

that most consumers will view the added dollars on their purchase. 

Again, that is what most of the legitimate debate is about. State 

governments, by and large, feel that they are not getting this revenue and they want the revenue and they want to get increased 

revenue. 

If the advocates are correct and the Internet tax will generate 

billions of dollars in new revenue, I believe it would negate a substantial portion of the tax relief that this Congress and earlier Congresses have provided to the American people. 

The second question we must ask is whether this new tax regime 

is fair. Is it fair to States? Is it fair to consumers? Is it fair to retailers? One key contention of those on the other side of this issue 

is that it is free money for the States with no strings, no burdens, 

and no challenges. But it has been my experience that when something sounds too good to be true, sometimes it is. 

This proposal could wipe out existing State tax exemptions for 

certain goods or services, or caps that States have on the amount 

of sales tax paid on items. It could also override State decisions on 

the amount of reimbursement provided to retailers, thus costing retailers or States monies. 

I believe that this proposal is also an attack on federalism. It 

would cede significant portions of the oversight and implementation of a significant portion of State tax policy. It would cede this 

authority to a board of unelected, out-of-State members of the sales 

tax administrative bureaucracy. The governing board would be 

vested with legislative, administrative, and judicial powers. 

This plan also, I don’t believe, is fair to consumers. Sales taxes 

are, after all, the most regressive taxes. Expanding them will disproportionately affect the poor and middle-class consumers. It is 

not fair to consumers in rural areas, for whom the Internet is truly 

a portal to a wider selection of goods and services. It is not fair to 

disabled Americans who benefit from having Internet shopping just 

a mouse click away. 

Internet advocates have also ignored the threat to consumer privacy. Government auditors will surely want to ensure that the 

Internet tax dollars are being properly remitted. Such an audit 

would necessarily include an examination of what was purchased, 

12

exactly where that person lives, and how much was paid and how 

much tax was remitted. 

And then, finally, I think the tax is unfair to retailers, but not 

the way in which the tax supporters claim it is unfair. Indeed, it 

is the online retailer who is the loser under this proposal to tax the 

Internet. While a brick-and-mortar retailer must collect the tax at 

only one single rate, depending upon where that brick-and-mortar 

retailer is located, we would be requiring online retailers to, in fact, 

pay taxes to up to 45 States plus the District of Columbia and put 

together the administrative overhead to make sure that works. 

The final question we have to ask about the Internet tax centers 

on its economic effect. I really believe that attaching tax burdens 

to each online transaction will dampen enthusiasm for Internet 

usage. It will stifle technological innovation. And I believe at this 

point in time, with Internet sales making up less than 1 percent 

of total retail sales, that the last thing we want to do is to put burdens on this particular form of retail sales, because I think it will 

diminish this particular niche at exactly the time when we need to 

be encouraging it. 

For these reasons and many others, I hope that you will reject 

proposals to allow the States to tax the Internet, and again, Mr. 

Chairman and Members of the Committee, it is my honor to be 

here with you this afternoon. Thank you. 

Mr. CANNON. Thank you, Governor. We appreciate those comments and assure you that we will have questions when we get to 

that point. 

I should have pointed out that we have a set of lights on the 

table. At 4 minutes, a yellow light will go on. At 5 minutes, a red 

light will go on. We don’t expect you to quickly terminate your 

statement. This is not a debate where we cut things off. But recognize that and we have enough time to go over a bit. 

Mr. CANNON. Our next witness is Ms. Maureen Riehl, who is 

Vice President, State and Government Relations Counsel, for the 

National Retail Federation. The NRF is the world’s largest retail 

association, affiliated with all 50 State retail associations and over 

35 national retail trade associations in the United States. 

Ms. Riehl serves as the national spokesperson on State affairs for 

the retail industry. She is responsible for the development of the 

NRF’s national strategy and policy implementation for issues affecting retailers. 

Ms. Riehl is a hands-on expert on the Streamlined Sales Tax 

Agreement. She works directly with the implementing States and 

with its supporting organizations toward developing the streamlined system. 

A graduate of Michigan State University and Thomas Cooley 

Law School, Ms. Riehl is actively involved in many State policy 

groups. Ms. Riehl, your expertise with respect to this project will 

greatly inform the debate and we appreciate your testimony. 

STATEMENT OF MAUREEN B. RIEHL, VICE PRESIDENT, STATE 

AND GOVERNMENT RELATIONS COUNSEL, NATIONAL RETAIL FEDERATION 

Ms. RIEHL. Thank you, Chairman Cannon and Mr. Watt and 

Members of the Committee. I am very honored to be here today to 

13

speak on behalf of the National Retail Federation as well as other 

businesses that have helped in the development of the Streamlined 

Sales Tax Agreement. 

Concisely, I will say that I have five points to bring to the attention of the Committee today: One, why retailers care; two, that the 

Streamlined Sales Tax Agreement in fact is a careful balance of 

both sovereignty and simplification; third, it provides certainty 

where retailers currently do not have certainty; fourth, it provides 

for equal collection responsibility for all sellers; and finally, to 

touch on an issue that it is time to legislate, not litigate. 

Why retailers care about Streamlined Sales Tax Agreement? 

First of all, contrary to the Governor, this is not a new tax. Use 

tax is a consumption tax that is owed by all purchasers made from 

an out-of-State sale. Retailers assume that sales taxes are here and 

they are going to remain intact in the States in which they currently exist, but that system needs modernizing. 

The Streamlined Sales Tax Agreement provides an opportunity 

for retailers to drastically reduce the cost of collection and it provides certainty for retailers where currently we do not have any. 

And finally, it is important to distinguish that the streamlined 

agreement and any future activity by Congress is distinctly separate from the Internet Tax Freedom Act or the moratorium. 

Second issue, this is a careful balance of both sovereignty and 

simplification. I will be the first to say, as a 4-year participant in 

the development of the agreement, that it is not perfect. Nonetheless, we have taken strides to take the input of business, to filter 

that through the political realities that exist in the 46 jurisdictions 

that have sales tax, and develop something that is both feasible but 

does strike a careful balance. 

The States still maintain their sovereign rights to decide three 

very important issues, what they tax, at what rate, and the legislatures will always have the ability to choose whether to be involved 

in this project or not involved with this project. 

SSTA is very pro-retail. Retailers will now have the benefit of 

common definitions, centralized administration of the sales tax, 

limits on audits, which are an enormous cost burden to retailers, 

and we can have simplicity down to one rate per zip code. 

Another issue, certainty. This is the biggest issue for retailers. 

Simplification in the retailers’ mind is defined as certainty. The 

States are going to be responsible for the development of a database that will actually identify for every retailer that is involved 

in the project a list of what items are taxable and at what rate. 

That is an enormous improvement over what we have now, which 

is basically a lot of guess work. 

A fourth issue, equal collection responsibility for sellers. This has 

long been the mantra of the National Retail Federation because it 

is our belief that as long as the sales and use tax are maintained 

as a source of revenue in the States, that the most appropriate way 

to collect that tax is at point of sale. Traditional sellers do that 

today. It is believed that with a simplified system, the burden will 

be removed for remote sellers to such an extent that it would be 

easy for them to do the collection, as well. Likewise, remote sellers 

under Congressional legislation that I will talk about in a moment 

14

will also be compensated for any burdens that they might still residually have as part of their collection responsibilities. 

The final message I want to bring to you all today and why it 

is appropriate that Congress is now hearing this is because it is 

critical that businesses have an opportunity to work to legislate 

rather than litigate. States are going to get the money from retailers one way or another. It is either going to be through cooperation, 

which I think is an example of the Streamlined Sales Tax Agreement. If not by cooperation, then it will happen by force. States 

now—Illinois’s Attorney General is a good example—are already 

bringing suit against upwards of 70 different remote sellers for 

questionable nexus to the State of Illinois. 

We believe that trend will continue unless there is some way in 

which businesses can get some certainty through a voluntary 

agreement with the States. The voluntary agreement is not the 

way to get all retailers to participate. Congress is the only body 

that can act to transition a voluntary agreement into a mandatory 

agreement. 

The timing is right. As I have indicated, States are poised to relitigate Quill. That does not provide businesses, however, with the 

protections that bills like H.R. 3184, introduced last week by Congressmen Istook and Delahunt—thank you very much—insofar 

that decisions by a court do not provide some key benefits to businesses, not just retail, but businesses. 

As we shift from the State focus in the development of the agreement to Congress, I would have you think of these few items. 

States have laid the groundwork for a fundamental workable system that will continue to achieve greater simplifications over time. 

Congress, however, is the only assurance that American business 

has that a mandatory collection system will be fair, equitable, remain simple, and provide benefits to business, and I will articulate 

them. 

Only Congress can provide the solution. Only Congress can provide for a small business exception of $5 million in gross remote 

annual sales. Only Congress will provide the right of appeal to Federal court for any taxpayer or business that is not dealt with fairly 

by the governing board. Only Congress will provide for vendor compensation for remote sellers that are currently not obligated to collect. Only Congress can provide a firewall, ensuring that there will 

not be the use of tax information for business activity taxes or 

other business taxes that are exposures for business. 

Congress can act this year and it is encouraged by the retail community that they do so. We believe that the States have done the 

hard work. We remain committed to this process and, indeed, will 

remain committed to working with Congress, as well, as this education process proceeds. 

Thank you very much for the opportunity to share some comments on behalf of the Retail Federation. 

Mr. CANNON. Thank you, Ms. Riehl. We appreciate those comments. 

[The prepared statement of Ms. Riehl follows:]

15

PREPARED STATEMENT OF MAUREEN B. RIEHL

Good afternoon Chairman Cannon, Ranking Member Watt and members of the 

Committee. My name is Maureen Riehl. I am the Vice President, State and Government Relations Counsel for the National Retail Federation (NRF), in Washington, 

D.C. I am here to comment on NRF’s support for the Streamlined Sales Tax Agreement and to urge action by Congress in 2003 to authorize the states to require sales 

tax collection by all sellers. 

The National Retail Federation is the world’s largest retail trade association with 

membership that comprises all retail formats and channels of distribution including 

department stores, specialty stores, discount stores, catalogue merchants, Internet 

vendors and independent stores. NRF members represent an industry that encompasses more than 1.4 million U.S. retail establishments, employs more than 20 million people—about 1 in 5 American workers—and registered 2002 sales of $3.6 trillion. NRF’s international members operate stores in more than 50 nations. In its 

role as the retail industry’s umbrella group, NRF also represents over 100 state, national and international retail trade associations. 

HISTORY: THE RETAIL PERSPECTIVE. 

According to the decisions in two relevant United States Supreme Court decisions, 

Bellas Hess and Quill, the court ruled that state and local sales tax systems were 

complicated and placed an undue burden on interstate commerce. Because of this 

burden, remote, out-of-state sellers have been excused from collection of sales or use 

tax on sales made to remote buyers except in instances where the seller has nexus 

with the state of the buyer. The advent of the Internet and growth of e-commerce 

retail sales established a situation where traditional ‘‘Main Street’’ sellers, with no 

e-commerce or remote sales activity, were both losing sales to competitors on the 

Internet, while also suffering a non-negotiable price disadvantage of an average of 

6% (the average state sales tax rate) for 

selling the same goods. Considering that most retailer profit margins are on the 

scale of 3–4%, a non-negotiable price disadvantage of 6% on top of the cost of the 

goods being sold is clearly a significant discrimination against main street sellers. 

‘‘Non-negotiable price’’ (i.e. the sales tax rate mandated for collection by retail on 

taxable items at storefront) is a relevant distinction, as the shipping, handling and 

related delivery costs to a remote seller with no nexus in a state are ALL negotiable 

fees for completing a transaction with a remote buyer. 

NRF agrees that main street sellers benefit from enhanced services from state 

and local government, and thus should be obligated to help support those services 

through the collection of sales tax. It is also true that services provided for by state 

and local government such as roads, fire and police are used every day by out-ofstate sellers to facilitate the delivery and in-route protection of merchandise to instate buyers. 

Sales tax is a consumption tax. Customers that live in a state with sales and use 

taxes are individually responsible for payment of that tax to their home state. Legally, the in-state merchant collects the sales tax for the customer; typically, the 

out-of-state merchant without nexus to the buyer’s state does not collect use tax for 

the customer. NRF believes that the appropriate place to collect a consumption 

tax—owed by customers—is at the point-of-sale. NRF’s interest is in ensuring that 

the cost of collection for retailers be eliminated altogether, or minimized, and that 

the obligation to collect must apply equitably across all channels of sale. Likewise, 

for remote sellers that currently have no legal obligation to collect tax for their remote buyers, the remote seller’s costs of collection should be paid for by the states. 

The Streamlined Sales Tax Agreement (SSTA) ratified by 31 states in November 

of 2002 was a culmination of over four years of intense review and negotiation 

among business groups—such as NRF and several of its members—state tax experts, and state and local elected officials focused on simplifying state sales and use 

tax laws. Each of the simplifications detailed in the 76-page SSTA benefit retailers 

in some fashion. In the 20 states that have adopted a majority of the SSTA since 

July 2003 and any other state that may later do so, in-state retailers and voluntary 

remote sellers will be able to avail themselves of a simpler, less costly system for 

sales tax collection beginning as soon as 2004. SSTA represents the necessary first 

step for equal collection responsibility for all sellers. 

VOLUNTARY V. MANDATORY SYSTEM. 

The SSTA is a voluntary agreement; voluntary to the states (a state must pass 

legislation or adopt rules to be in compliance with the SSTA), and voluntary to remote sellers without nexus in a state. The benefit to a remote seller that volunteers 

16

under the SSTA is that the incentives—both financial and the audit hold-harmless 

provisions—are attractive and significant for those remote sellers that may have either questionable nexus with a state(s), or in instances where the SSTA provisions 

compliment the remote seller’s business development plan. 

A voluntary system is a good start, but it does not take care of the problem of 

winners and losers in the retail world. The problem can only be fixed with a mandatory system, one that does not discriminate based on the way in which goods are 

bought or sold, and one that mandates collection by all sellers in states that are 

in compliance with the SSTA. In order for the voluntary SSTA to transition to a 

mandatory system in the near future, Congress must act. 

WHY DO RETAILERS CARE? ASSUMPTIONS AND REALITIES. 

NRF involvement in the development of SSTA was predicated on the following:

1) Sales tax is here to stay. Of the tax revenue sources used in states—property, income and/or sales—a consumption tax such as the sales tax has been 

found in numerous polls and public opinion surveys to be the least offensive 

to taxpayers, as taxpayers can ‘‘choose’’ to pay the tax based on how much 

they consume;

2) Pre-SSTA, state and local sales tax systems were complicated and costly for 

retailers to administer;

3) Pre-SSTA, retailers have no certainty. 7,600 different taxing jurisdictions 

have varying rates, varying definitions and varying rules, often forcing retailers to guess about taxability;

4) This is not a new tax, and it does not address access to the Internet. The 

Internet Tax Freedom Act of 2001 (ITFA) does not apply to sales tax collection responsibilities. ITFA does not address or fix the problem.

With over 30 major administrative and political changes, the SSTA provides a baseline framework for a simpler system of sales and use tax collection. SSTA is not perfect—but it is a vast improvement over the systems in place today. Work is ongoing 

in the area of more definitions, more simplifications, more CERTAINTY for retailers. Mechanisms exist within the SSTA for states to form a Governing Board to act 

as the primary decision-making body for future iterations of the SSTA that will ensure that simplification efforts will continue. 

BENEFITS OF SSTA TO RETAILERS. 

Of the numerous benefits to retail articulated in the SSTA, a few of the most notable are:

1) Centralized administration at the state level of all sales and use taxes;

2) Uniform exemption certificates with a shift in the burden to the state for authentication;

3) Limitations on audits and a hold-harmless provision for mistakes made by 

retailers using a state authorized system or software program;

4) Common definitions;

5) Limited rates.

SSTA establishes a road map for retailers to know what is taxable, and at what 

rate—thus providing retailers with certainty in administration, while preserving the 

sovereign rights of states on political issues of taxability 

THE ROLE OF CONGRESS. 

Last week, Congressmen Istook and Delahunt introduced HR 3184, the Simplified 

Sales and Use Tax Act of 2003 (SSUTA). Senators Enzi and Dorgan are soon expected to introduce companion legislation in the Senate. 

SSUTA encompasses the necessary action needed by Congress to transition the 

voluntary SSTA into a mandatory system for all retailers selling within their own 

state or selling into simplification states. SSUTA was developed by NRF and other 

business groups, in concert with state and local governments. SSUTA has the full 

endorsement of the NRF. 

Timing is critical. Action is needed by Congress THIS YEAR. Action by Congress 

in 2003 will both bless the SSTA as passed by 20 states thus far, as well as encourage the other sales tax states to adopt SSTA. 

17

SUMMATION. 

NRF supports the Streamlined Sales Tax Agreement. As retail assumes that the 

sales tax is both a significant, viable and the least offensive source of state and local 

government revenue, the rules for sales and use tax collectors should be the same. 

The most feasible collector of this consumption tax is the retailer, who with the help 

of modern technology, will now know with certainty what is taxed, and at what rate, 

regardless of which venue is used to complete the sale. Likewise, federal legislation, 

HR 3184, to transition the SSTA into a mandatory system is supported by NRF, 

and needed in order for retail to share equal collection responsibilities, and for retail 

venues to be subject to the same tax rules. 

Mr. Chairman, I appreciate the invitation to come and address you and the committee members on the merits the sales tax simplification effort overall, and to specifically endorse action by Congress to modernize state sales tax systems. 

Thank you for your kind attention.

Mr. CANNON. Let me acknowledge the presence of Mr. Carter 

from Texas. Thank you for being here, Judge. And also Mr. Bachus 

from Alabama. Mr. Bachus, I think that we have communicated on 

rules and so we will try and have enough time so that someone can 

yield time to you to ask questions, if you would like, when that 

time comes. 

Mr. BACHUS. I don’t actually anticipate any questions. 

Mr. CANNON. Okay, great. Thank you. 

Our next witness is George Isaacson, tax counsel to the Direct 

Marketing Association and senior partner of the law firm of Brann 

and Isaacson in Lewiston, Maine. Mr. Isaacson has served as tax 

counsel to the DMA for over 15 years. He has represented the association in the filing of amicus curiae briefs in State and Federal 

courts throughout the country, including the United States Supreme Court. Another expert on the SSTA, he has represented the 

DMA in negotiations with State governors on the streamlining effort. 

A frequent speaker on taxation of interstate transactions and 

taxation of electronic commerce, he is also outside counsel to L.L. 

Bean, Inc. Mr. Isaacson teaches constitutional law at Bowdoin College, where he earned his undergraduate degree. He received his 

law degree from the University of Pennsylvania. 

Mr. Isaacson, we look forward to your testimony and thank you 

for sharing your expertise with us today. 

STATEMENT OF GEORGE S. ISAACSON, TAX COUNSEL,

DIRECT MARKETING ASSOCIATION 

Mr. ISAACSON. Thank you, Mr. Chairman and Members of the 

Committee. I appreciate the opportunity to appear before you today 

and discuss the issues that are pending and that could conceivably 

change constitutional standards that have governed the scope of 

State taxing powers for more than 100 years. 

Governor Owens spoke eloquently to issues concerning consumer 

privacy, the effect that federally mandated tax collection of the 

Internet could have on matters of economic impact on the country, 

but what I would like to speak to more specifically are questions 

that relate to the actual features of the SSTA and the process that 

was associated with it. 

All the serious analysts and academics that have looked at the 

American sales and use tax system have stated that the core problem associated with any effort to expand the scope of State use tax 

jurisdiction is the fact that there exist thousands of tax jurisdicVerDate 0ct 09 2002 16:45 Dec 16, 2003 Jkt 089266 PO 00000 Frm 00021 Fmt 6633 Sfmt 6601 C:\WORK\COMM\100103\89635.000 HJUD1 PsN: 89635
18

tions in this country. There is State, county, municipal, sewer district, school district, library district, sports stadium district, all of 

which have the power to impose taxes, and the consensus of all 

those analysts has been that the only reasonable way to discuss an 

expansion of State tax authority would be by a reduction in the 

number of such tax jurisdictions and that would have to be the cornerstone of State tax reform. 

The problem with the SSTA is it involves no reduction in such 

number of jurisdictions. When the Supreme Court looked at this 

issue back in 1967 in the Bellas Hess case which you referred to, 

Chairman, there were over 3,000 tax jurisdictions. When the Supreme Court looked at the issue again in 1992 in the Quill case, 

there were over 6,000 such jurisdictions. And today, the number is 

approaching 8,000 jurisdictions. This problem worsens and the 

SSTA does not address it. 

Now, prior government and industry studies on the issue, including the National Tax Association Study, which involved both industry and government associations, including the National Conference of Mayors, the National Conference of State Legislatures, 

the National Governors Association, along with industry, as well as 

the Advisory Commission on Electronic Commerce, all agreed that 

the problem was the number of tax jurisdictions, and the majority 

report of the Advisory Commission and the report of the National 

Tax Association study all proposed that there should be only one 

tax rate per State if the tax authority of the States is going to be 

expanded across their existing State borders. 

The SSTP, when it considered this proposal, decided that it was 

simply too controversial and bypassed it and instead proposed that 

the silver bullet for dealing with the number of tax jurisdictions 

would be to come up with tax compliance software that would cut 

through the problem. And in that regard, the SSTP commissioned 

a pilot study in 2000, the intention of which was to develop prototype software and examine its applicability. This initial project involved only four States and only several retailers, and the report 

of the SSTP’s pilot project, which was issued in March of this last 

year, concluded that there is no existing software that can address 

the problem and that we are still a long ways from being able to 

achieve it. 

Now, the problem primarily concerns an issue of integration and 

compatibility, because you need to integrate the software systems 

of thousands of retailers, of 40 States, of dozens of service providers, and the SSTP study was incapable of achieving that result. 

So the States come before Congress today asking for a mandatory 

tax collection without having a road-tested, demonstratively proven 

system of compliance software to deal with these new and increasing burdens. The absence of compatibility software is a key shortfall in the SSTP project. It constitutes a promise which has not 

been met, a promise which was part of the system supposedly from 

its origin. 

Many of the provisions of the SSTA involve vague and speculative approaches to resolving problems of merchant collection of 

taxes. For example, the system contains no specifics regarding vendor compensation. Proponents of the Streamlined Sales Tax Agreement agreed to conduct a joint industry-government study of what 

19

the cost of collection would be, and that study was commissioned 

in 2001, but here we are 2 years later and we still do not have a 

report regarding what the actual costs of collection will be. It is 

simply premature to come before Congress and ask Congress to 

bless a system which has neither the compliance software nor accurate figures regarding what the cost of compliance would be. It is 

important to go back to the drawing boards to obtain that information. 

Now, the comment has been made that there are 20 States that 

have already passed conforming legislation, but a very disturbing 

fact has been that the conformity legislation is itself non-conforming. Many of the States that have passed legislation have 

passed legislation addressing only parts of the SSTA, not its entirety. An example, Texas, for example, has decided not to enact 

the important sourcing provisions of the SSTA. The same thing is 

true of the State of Washington. None of the States that have 

passed so-called conformity legislation have enacted any provisions 

that deal with customer confidentiality or deal with vendor compliance, vendor compensation. Consequently, instead of having conformity legislation, what we have is a series of acts being passed 

by State legislatures that are partial and incomplete. 

Perhaps even more disturbing is the fact that a number of States 

are engaging in end-runs around the legislation. For example, what 

they are doing is changing the name of a tax from being a sales 

tax to being an excise tax or a special use tax, and thereby not having it be applicable. Or alternatively, what they are doing is having 

tax increases by passing new local use taxes or enacting taxes on 

shipping and handling charges where they didn’t previously exist. 

The fact of the matter is that we neither have an SSTA agreement which has addressed the important issues of tax complexity, 

nor do we have conforming legislation that matches even the weakened version of uniformity that the SST project has passed. What 

is important is to go back to the drawing board and do it right. 

This system is simply not ready for prime time. 

Mr. CANNON. Thank you, Mr. Isaacson. We appreciate your comments. 

[The prepared statement of Mr. Isaacson follows:]

PREPARED STATEMENT OF GEORGE S. ISAACSON

Mr. Chairman, Members of the Committee, on behalf of the Direct Marketing Association (‘‘DMA’’) and its membership, I want to thank you for the opportunity to 

testify on this important issue. The DMA is the largest trade association for businesses interested in direct marketing to consumers and businesses via catalogs and 

the Internet. Founded in 1917, it today has over 4,700 members companies in the 

United States and 53 foreign countries. 

I realize that many state tax officials hail the Streamlined Sales and Use Tax 

Agreement (‘‘SSTA’’) as an epochal event in sales and use tax reform. The reality, 

however, bears little similarity to the hyperbole. The truth is that the Streamlined 

Sales Tax Project (‘‘SSTP’’ or ‘‘Project’’) has woefully failed to fulfill its original goal 

of simplifying and harmonizing the existing morass of state and local sales and use 

tax laws. Indeed, the representatives of the states participating in the Project have, 

at every critical juncture, turned away from real and substantive tax reform in 

order to cling to the many diverse and unique features of their individual state tax 

systems. It is this disparity in state and local sales taxes that makes the existing 

tax regime so ill-suited to interstate commerce. The Streamlined Sales and Use Tax 

Agreement, in its current form, falls far short of its professed objective of simplifying state taxes and, to the contrary, in many respects worsens, and further complicates, the Acrazy quilt’’ of differing state and local sales and use tax laws. 

20

It is important to note that the original stated purpose of the SSTP was to establish a purely voluntary system of simplified sales and use tax collection by catalog 

companies and Internet merchants. It is, therefore, especially disturbing that despite the Project’s failure to meet its own goals, the proponents of the SSTP nonetheless now come to Congress seeking federal legislation that would eliminate longstanding constitutional protections for interstate commerce and convert the SSTA 

into a mandatory use tax collection system for out-of-state merchants. 

The jurisdiction-expanding legislation sought by state tax administrators would 

give states the unprecedented power to export their diverse tax systems beyond 

their own state borders, thereby imposing an extraordinary level of complexity on 

interstate marketers and consumers. The timing of this ill-conceived proposal could 

not be worse. New tax burdens on Internet retailers will suppress the growth of ecommerce when the dot-com economy is still struggling to rebound from its dramatic 

decline. Also, such legislation would give an advantage to foreign companies—especially electronic commerce vendors of digital products who are located far beyond 

state tax jurisdiction—at the expense of American businesses. The inevitable effect 

would be the loss of American jobs in the e-commerce sector and a drag on this 

country’s economic recovery. 

In addition to its adverse economic impact, the Agreement would implement a 

new government-sanctioned system in which massive amounts of information concerning the details of consumer transactions would be gathered, retained, and disseminated among not only government agencies but also to private companies that 

are designated as ‘‘services providers’’ under the SSTA. The Agreement contains no 

safeguards against disclosure or misuse of such confidential information. Congress 

should not approve a new tax system that would imperil the privacy of millions of 

American consumers. 

In short, the SSTA provides little simplification of the current tax system; it creates numerous new burdens on business and consumers; and it endangers the privacy of millions of Americans. Congress should reject this misguided call to abandon 

constitutional protections and expand state tax powers. Instead, Congress should 

encourage the states to return to the drawing board and address the critical areas 

of tax simplification and fairness to retailers and consumers that the Project chose 

to bypass in its effort to achieve consensus among the participating states. 

My testimony will highlight some of the most glaring shortcomings and striking 

adverse consequences of the Streamlined Sales and Use Tax Agreement, including:

• The failure to adopt the fundamental principle of ‘‘one rate per state’’ for all 

commerce, which would have eliminated the problem of merchant compliance 

with literally thousands of local tax jurisdictions;

• The failure to establish uniformity of definitions with respect to taxable and 

exempt products;

• The failure to reduce, in any meaningful way, the burdens of tax collection, 

reporting, remittance and audits for interstate marketers;

• The SSTP’s blind-faith in yet-to-be-developed tax compliance software as the 

‘‘silver bullet’’ that will solve the overwhelmingly complex tax compliance 

problems presented by the multi-state sales and use tax system described in 

the Agreement;

• The failure to consider the Agreement’s impact on consumers ordering products by mail and paying for their purchases by check;

• The failure to guarantee fundamental fairness with respect to vendor liability 

and vendor compensation;

• The failure to provide an effective and enforceable mechanism to assure continuing compliance with the Agreement by member states;

• The failure to provide oversight of the member states by an independent entity or tribunal;

• The failure to provide even basic privacy protections for the personal and financial information of millions of American consumers;

• Imposition of new taxes on consumers in connection with member states’

adoption of so-called SSTA conformity legislation; and

• Coupled with jurisdiction-expanding legislation, the imposition of enormous 

new burdens upon interstate and electronic commerce, at a time when the nation’s economy, and particularly the e-commerce industry, is struggling to 

make a recovery. 

21

I. STATE TAX ADMINISTRATORS ARE ASKING CONGRESS FOR AN UNPRECEDENTED

EXPANSION OF STATE TAXING AUTHORITY. 

The question of whether states should be permitted to impose their state and local 

tax requirements on businesses operating outside their borders goes to the heart of 

the founding principles of our Constitution. Such time-honored legal protections 

should not lightly be set aside. The Constitution’s Commerce Clause has consistently been interpreted as barring states from imposing tax obligations on companies 

and individuals located beyond a state’s borders and who have no physical presence 

in the taxing state. Indeed, the Constitutional Convention of 1787 was initially 

called to address the problem of individual state legislatures imposing taxes and duties on trade with other states, a practice which was pushing the young country into 

a depression. The Commerce Clause was intended by the Framers to prevent state 

and local tax laws from hindering and suppressing interstate commerce. It has 

worked remarkably well. More than 200 years before the establishment of the European Union, the Framers created a common market on this continent through the 

Commerce Clause, and it powered the greatest economic engine the world has ever 

known. 

There can be no question, as even the leaders of the SSTP have acknowledged, 

that the existing patchwork of different state and local sales and use tax laws creates an inordinate complexity that is excessively burdensome on interstate businesses. There are literally thousands of different sales and use tax jurisdictions in 

the United States. Of the 30,000 state and local jurisdictions with authority to impose sales and use taxes, more than 7,500 have adopted this kind of tax, and the 

number grows every year. These thousands of different jurisdictions generate an 

enormous variety of tax rates, taxable and exempt products, excluded transactions, 

filing requirements, audit arrangements and appeal procedures. Moreover, these 

rates and exemptions are frequently changed by the governing jurisdictions, so they 

are literally a moving target in terms of vendor compliance. Indeed, it was this dizzying complexity that prompted the Supreme Court, in its 1992 decision in Quill 

Corp. v. North Dakota, to reaffirm its long-standing position that the Commerce 

Clause bars states from imposing such taxation requirements on interstate commerce. Congress should exercise great caution before removing over 200 years of constitutional protection of America’s open market place. Such an encroachment of state tax 

sovereignty into the realm of interstate commerce is without precedent. Congress 

should be insistent on setting the bar of state tax reform very high before it endorses an expansion state tax jurisdiction. Certainly, the SSTA does not achieve 

such high-bar tax reform; to the contrary, the SSTP participants repeatedly chose 

to lower their standards and reject fundamental reforms. 

II. THE SSTP FAILED TO MEET ITS OWN STANDARDS FOR A STREAMLINED SALES

AND USE TAX SYSTEM. 

When it was organized in 2000, the Streamlined Sales Tax Project presented itself 

as a bold initiative by state legislators and tax administrators to simplify, harmonize and modernize state and local sales and use tax laws. The stated goal of 

the SSTP was to create a new ‘‘streamlined’’ sales and use tax system for the 21st 

Century, with substantial uniformity among state sales and use tax regimes. Historically, the sales tax has always had a decidedly local flavor, with varying rates 

and requirements among state and local tax jurisdictions. Unfortunately, when the 

Project representatives were confronted with the difficult task of surrendering the 

unique features of their state and local tax systems, they repeatedly retreated from 

original proposals for real tax reform and consistently rejected, or diluted, provisions 

that would have produced true uniformity among the states. 

At its outset, the SSTP program was intended to be a voluntary program from 

the perspective of both tax officials and those businesses subject to sales and use 

tax obligations. In theory, the participating states undertook the task of modernizing and harmonizing their tax systems as a matter of good public policy, not as 

a prelude to expanded tax jurisdiction. In this regard, the Project expressed its hope 

to achieve a degree of simplification and standardization that would encourage retailers with no legal obligation to collect sales and use tax outside of their home 

states to register nonetheless in all participating states. 

The shared understanding of all concerned, tax administrators and retailers alike, 

was that the existing system was one of daunting complexity, and that true simplification would require radical reform. In this regard, the SSTP organizers took 

note of the fact that their new initiative was preceded by two separate joint government/industry projects whose mandate was to examine the measures necessary to 

simplify the existing sales and use tax system and make it more accommodating to 

22

the needs of electronic commerce. They were: (1) the National Tax Association Communications and Electronic Commerce Tax Project (‘‘E-Commerce Tax Project’’), and 

(2) the Congressionally-established Advisory Commission on Electronic Commerce 

(‘‘Advisory Commission’’). Both groups were composed of representatives of state 

government and industry. Moreover, the need for major revisions to state sales and 

use tax codes was beyond dispute. For example, the Final Report of the Advisory 

Commission stated:

[C]learly the need for substantial simplification is necessary in this emerging 

digital economy. In the course of the Commission’s examination of the impact 

of e-commerce on sales and use tax collections, there was general agreement 

among the Commissioners that the current sales and use tax system is complex 

and burdensome. Most, if not all, of the Commissioners expressed the view that 

fundamental uniformity and simplification of the existing system are essential.

In order to remedy the complexities of the existing system, leaders of the SSTP 

committed themselves to creating a new, simplified and uniform sales and use tax 

system, and they accordingly adopted high standards from the outset. The SSTP 

committed itself to achieving:

• Greatly simplified tax rates and tax bases;

• Uniform and simplified definitions for taxable and exempt products;

• The incorporation of new technologies to automate the tax collection and reporting process;

• Simplified administration, including centralized registration, simplified returns remittances, and audit procedures;

• Fair treatment of all retailers, and a sharing of the burdens of tax compliance 

between states and retailers; and

• The highest degree of security and privacy for consumer transactions.

The SSTP undertook to pursue these goals ostensibly with industry input, although without industry participation in decision-making. The DMA contributed 

suggestions from the outset, setting forth in a letter to Project leaders in August 

2000 a comprehensive list of reform proposals. (A copy of the letter, dated August 

4, 2000, accompanies my written testimony.) The fate of the DMA’s proposals in the 

SSTP process is telling, both with respect to the weight industry positions actually 

carried with the Project leaders and the states’ failure in achieving their original 

goals. Of more than 30 specific reform proposals offered by the DMA, the Agreement 

approved by the states in November 2002 fully adopted only two (centralized registration and uniform bad debt provisions). 

During the course of drafting the Agreement and deliberating on its provisions, 

when the member state representatives had the opportunity to tackle the major 

problems of tax complexity (e.g., multiplicity of tax jurisdictions and rates), they 

elected instead to avoid controversy and yield to any member state that raised an 

objection to a reform proposal. The result is an Agreement that contains only minor, 

and in many instances cosmetic, tax reform measures. The Agreement leaves intact 

the myriad of peculiarities and prerogatives of individual state and local tax jurisdictions which characterizes the current system. In particular, the SSTP: (1) rejected real rate simplification by affirmatively maintaining all 7,500 local taxing jurisdictions; (2) failed to identify functional tax compliance software, because none 

exists; (3) abandoned its commitment to consumer privacy; (4) failed to reduce tax 

compliance and audit burdens on sellers by rejecting centralized administration; (5) 

failed to perform a promised cost-of-collection study to determined the costs to retailers of complying with the SSTA; and (6) so diluted the SSTA’s state law compliance standard that it destroyed any possibility of even modest uniformity among 

member states. As a result, rather than a uniform system, the SSTA perpetuates, 

and in many respects aggravates, a taxation system of tremendous complexity. 

A. The SSTP Rejected Real Rate Simplification By Summarily Dismissing The Principle of ‘‘One Rate Per State,’’ The Most Fundamental Reform Necessary For a 

Simplified Sales/Use Tax System. 

Rate simplification through the reduction in the number of taxing jurisdictions in 

the United States is at the core of required reforms. The Supreme Court in Quill

(and in prior decisions), as well as both joint government-industry groups that preceded the SSTP, recognized that the complexity of the existing system derives, in 

large measure, from the staggering number of local taxing jurisdictions. Indeed, the 

United States is the only economically developed country in the world with a system 

of sub-state transaction taxes. Without a substantial reduction in the number of tax 

jurisdictions, a catalog or Internet retailer subject to the SSTA would be required 

23

to stay abreast of, and collect and remit taxes for, not only its home state (and any 

other states where it has a physical presence), as current law requires, but every 

one of the more than 7,500 state and local taxing jurisdictions. 

Local sales taxes appear in the form of municipal taxes, county taxes, school district taxes, transportation district taxes, sanitation district taxes, sports arena district taxes, etc. These local taxes often are piled one atop another, resulting in a 

state tax and several local jurisdiction taxes applying to the sale of a single product. 

Elimination of multiple local tax rates could be achieved by permitting only one tax 

rate for all transactions in a state (the so-called ‘‘one rate per state’’ proposal). That 

rate would be a single, statewide combined rate covering the state tax and a uniform local tax rate (which could be divided among as many local government entities as the state chose). The fundamental necessity of ‘‘one rate per state’’ reform 

was recognized by both previous simplification projects. Participants from both industry and government groups, including representatives of the National Governors 

Association, the National Conference of State Legislatures, and the U.S. Conference 

of Mayors, unanimously agreed in the Final Report of the NTA’s E-Commerce 

Project that there should be only one rate per state for all commerce. A majority 

of the Advisory Commission also recommended that any simplification proposal 

limit sales and use tax rates to one per state. 

Leaders of the SSTP committed themselves at the outset to achieving substantial 

rate simplification. Given the recommendations of both the NTA E-Commerce 

Project and the Advisory Commission that one rate per state is an absolute requirement for any meaningful reform of state sales and use tax systems, the SSTP could 

reasonably have been expected to adopt this proposal, as well. Despite the recommendations of the two previous study groups, however, the SSTP deemed the 

proposal too politically unpalatable for state legislatures, and dismissed the ‘‘one 

rate’’ proposal after its first round of meetings. 

Further dilution of rate simplification efforts followed. Three days after the approval of the first draft of the SSTA in January 2001, the National Conference of 

State Legislatures (‘‘NCSL’’) approved a competing form of agreement, which omitted considerable portions of the SSTA and proposed alternatives to some provisions. 

In particular, the NCSL version allowed states to adopt a second state rate for some 

products. 

Under pressure from states with multiple state tax rates, some of whom warned 

SSTP leaders that failure to permit an additional state rate would prevent their 

continued participation in the Project, the SSTP buckled and conformed the Agreement to the NCSL’s version. The SSTA, as presented to Congress, permits a state 

to adopt a ‘‘single additional rate,’’ different from the standard tax rate, for ‘‘food 

and food ingredients’’ and ‘‘drugs.’’ Thus, not only has the Agreement failed to reduce the number of jurisdictions, it has also potentially doubled the number of different rates applicable to vendors of any product meeting the definitions of ‘‘food 

and food ingredients’’ and ‘‘drugs.’’

B. The SSTA Blindly Relies On Non-Existent Tax Compliance Software, But The 

SSTP’s Own Test Shows Such Software Cannot Be Developed. 

From early in the process, the SSTP envisioned the development of new tax compliance software that would allow multi-state marketers to automate tax collection 

and reporting requirements. This was described as a ‘‘vital element’’ of the new 

‘‘streamlined’’ system. Such fully-functional tax compliance software is the Project’s 

‘‘silver bullet’’ to slay the otherwise overwhelming complexities of differing state tax 

systems. To this date, however, no such system has been developed, nor is there any 

indication that such a system is even feasible. 

In the summer of 2000, the SSTP invited software providers to participate in a 

pilot program to develop tax compliance software which would perform the function 

of sales tax administration for a retailer required to collect and remit sales/use tax 

in four different states (‘‘Pilot Program’’). The Project awarded contracts to three 

vendors in September, 2000. The results of the Pilot Program raise serious doubts 

about the viability of developing tax compliance software under the SSTA. 

First, the Pilot Program did not test the multi-state system envisioned under the 

SSTA. The program was limited to testing compliance with the laws and reporting 

requirements of only four states (Kansas, Michigan, North Carolina, and Wisconsin), 

not all forty states, including thousands of local tax jurisdictions, now participating 

in the SSTP. At the time of the test, which was conducted primarily in 2001, the 

SSTA was not yet approved, and thus none of the state systems being tested had 

adopted laws purportedly conforming to the requirements of the SSTA. Indeed, each 

of the four states maintained a unique payment and returns processing system. 

Moreover, basic features of the SSTA, such as electronic filing, were not available 

24

to the pilot states. In sponsoring the Pilot Program, the SSTP simply did not perform a relevant test. 

The results of the Program, however, demonstrate that viable tax compliance software for a system such as the SSTA remains a figment of the SSTP’s imagination. 

The Pilot Program failed to develop software that could successfully administer the 

tax systems of only four of the states participating in the program. Of the three vendors initially awarded contracts, only two produced a system that performed wellenough on the limited number of transactions tested by the participating states to 

be provisionally certified by the states as approved service providers. Of these two 

vendors, one never used its system to perform actual transactions on behalf of a retailer and later that vendor withdrew from the project in October, 2002. The remaining vendor secured approval from four retailers to collect and remit tax using 

its system, but ultimately was able to perform such functions for only a single retailer. 

Even more telling than the failure of the vendors to develop successful software, 

however, are the inherent institutional and systemic obstacles the Program revealed 

to development of a tax compliance software solution for the problems of collecting 

and reporting tax in a multi-state environment. System compatibility and integration challenges present an enormous hurdle. The Program showed that states will 

have to adapt their processing systems to accommodate a CSP’s reporting and remittance processes. With 40 SSTP states potentially facing compatibility issues for 

every new Service Provider and for every retailer that develops its own software inhouse, this problem alone is likely to cripple the system. In addition, software vendors participating in the Program reported substantial difficulties in integrating the 

vendors’ software with the computer systems of potential retailers. Such problems 

were so substantial that some retailers backed-out of the Pilot Program because 

such issues could not be resolved. If vendor-retailer integration proved a significant 

problem for the handful of retailers that participated in the Pilot Program, imposing 

mandatory tax compliance upon the hundreds of thousands of retailers in the 

United States that would be subject to the SSTP would surely prove a nightmare. 

Even if pervasive system compatibility and integration issues did not threaten to 

cripple the SSTA system, the Pilot Program showed that the lack of adequate provisions for testing and certifying compliance software would doom it to catastrophic 

failure. The SSTA grants the Governing Board, composed of member state representatives, rather than an independent technology firm, the responsibility for certifying Service Providers and Automated Systems. There is no basis for believing 

that a Governing Board of state tax administrators has the expertise to assess such 

new technology. Indeed, the States participating in the Pilot Program reported that 

their representatives lacked the expertise necessary in software design and development to do any more than test whether the program accurately calculated tax on 

a limited number of sample transactions. (Even this extremely limited review revealed Service Provider errors.) 

Independent and verifiable testing and certification of CSPs and CASs should be 

required. Under the SSTA, the Governing Board will be called upon to certify systems it is not capable of evaluating, and then expect retailers to use those systems 

in the operation of their businesses. System failures and rampant errors are inevitable. The SSTP blithely ignores the massive business disruptions that are certain 

to occur. 

Not surprisingly, both retail and computer industry representatives have expressed serious doubt that development of a technological solution to the problem 

of multi-state sales and use tax collection is feasible. States have yet to prove 

through independent sources that a system can be developed that is ‘‘business 

friendly.’’ Nonetheless, Congress is now being asked hastily to bless the SSTA, and 

expand state tax jurisdiction, even though the keystone of the Project, i.e., fullyfunctioning compliance software, is still nowhere in sight. Having made technology 

the lynchpin of its program from the start, it is incredible that the SSTP would 

come to Congress without a fully-developed, fully-tested software solution. Certainly, 

such a compliance system should be ‘‘road tested’’ before the states ask Congress 

to impose mandatory tax collection duties on interstate merchants. 

C. The SSTP Abandoned Its Commitment to Protect Consumer Privacy. 

Privacy and the confidentiality of personal information are of fundamental, and 

increasing, concern to Americans. At the outset of the Project, protecting consumer 

privacy was one of the principal objectives of the SSTP. The Project leaders initially 

considered a set of privacy standards designed to protect consumers, which standards would apply to all participants in the system. The SSTP’s commitment to consumer privacy proved fleeting, however. The standards were soon dropped, and the 

final version of the Agreement includes only vague statements regarding privacy. 

25

In its current form, the SSTA represents an unprecedented threat to the private 

personal and financial data of millions of American consumers. 

To enable tax reporting and remittance, as well as the performance of audit functions, the SSTA system will collect massive amounts of information regarding consumer transactions. That information will be retained and made available not only 

to state tax auditors (who are authorized to share the information with their colleagues in other states) but also to the private companies that are designated to act 

as ‘‘Certified Service Providers.’’ Consequently, confidential on-line customer transaction information will be distributed widely both within various state government 

agencies and among private companies. 

The Agreement contains no substantive confidentiality standards or privacy protections, and it allows the Certified Service Providers to self-certify the adequacy of 

their privacy safeguards under this standardless structure. The Agreement contains 

no mechanism for monitoring treatment of confidential customer information, such 

as a compliance review by an independent auditing firm. The Agreement provides 

no enforcement provisions or consumer remedies for breaches in protecting confidential information. By itself, these inadequacies represent a shocking disregard for 

consumer privacy on the part of the SSTP member states; and in light of the proliferation of credit card fraud and identity theft crimes in recent years, the SSTA 

poses a new threat to millions of American consumers. 

The Agreement should include, at a minimum, (1) detailed provisions restricting 

access to consumer information and requiring that such information should be 

purged after tax payments have been properly credited, (2) supervision of every public agency and private entity that collects or has access to such information by an 

independent monitor, and (3) strict penalties—including criminal sanctions—for 

breach of privacy standards. Americans are entitled to know that their state governments are doing the utmost to protect their privacy in connection with information 

turned over to the government. Congress should refrain from endorsing the widespread dissemination of consumer transaction information in the absence of stringent privacy protections. 

D. The SSTA Fails To Reduce Administrative Burdens On Retailers. 

Genuine uniformity and simplification through a multi-state compact should include extensive centralization of administrative functions, including not only registration, but also tax reporting, remittance and audit procedures. Although originally committed to simplifying administration of sales and use taxes for sellers, the 

participating state representatives repeatedly abandoned reforms that would have 

made the system more uniform. For example, adoption of a uniform sales tax return 

was rejected because it would have required participating states with more complicated information-rich reporting requirements to simplify their sales and use tax 

returns. Early proposals for joint audits (i.e., audits conducted on behalf of more 

than one state) are not included in the Agreement. Even the vendor registration requirements are left open-ended. The Agreement purports to require a single registration procedure for all participating states, but then in a separate provision the 

SSTA provides that retailers may be required to provide additional information ‘‘[i]n 

member states where the seller has a requirement to register prior to registering 

under the Agreement.’’ This provision gives states a license to demand additional 

registration information from sellers. 

Rather than simplifying the administrative burdens faced by multi-state marketers, the SSTA would actually extend the burdens of use tax administration to a 

whole new class of merchants. A direct marketer doing business nationwide will 

need to file not one, or perhaps a few, returns each month, but instead will be required to file returns in every one of the 45 states, and the District of Columbia, 

that impose sales and use taxes. Worse still, the interstate merchant will be subject 

to audit at any given time by forty-six different revenue departments. For multistate retailers, the obligation to file literally dozens of sales tax returns each month, 

and then be subject to audit by every state, will be enormously burdensome and expensive. Indeed, many retailers will find themselves in a state of perpetual audit. 

How is this tax reform? A fair system would permit a single audit on behalf of all 

member states and local tax jurisdictions (e.g., by the revenue department of the 

state where the vendor is headquartered). The DMA proposed to the SSTP that the 

states appoint a vendor’s ‘‘home’’ state to conduct the audit function on behalf of all 

of the other member states. This request went unanswered. 

The problem is not limited to a business being subject to as many as 46 separate 

audits each year. Should a company disagree with the auditor’s conclusions, the retailer must pursue administrative appeals, and possibly litigation, in a distant 

forum. The costs of contesting tax assessments will be prohibitive. Businesses will 

be forced to decide at what threshold dollar amount a challenge to a distant state’s 

26

tax assessment even makes sense. For example, does a company headquartered in 

Florida challenge an assessment by the California Board of Equalization in the 

amount of $10,000? $20,000? $50,000? In many instances, it will simply make more 

sense for the retailer to swallow hard and pay the assessment, rather than hire 

legal counsel and spend the time and money to contest the issue in a hostile administrative forum far from its home state. 

E. The SSTP Failed To Conduct A Promised Cost Of Collection Study, Necessary To 

Evaluate The True Costs of The Expanded Tax Collection System It Seeks To Impose On Interstate Marketers. 

The SSTA would draft thousands of remote sellers into the role of tax collection 

agents for the participating states. Sellers incur substantial expense in collecting 

and remitting sales and use taxes to states. The variety and inconsistency of state 

tax systems makes compliance expensive for all multi-state retailers, but especially 

for low volume merchants. A study by a major accounting firm reported that for 

companies selling products nationally with collection responsibilities in all of the 45 

states that have sales and use taxes, the costs of compliance ranged from 14 percent 

of the sales taxes collected for large retailers, to 48 percent for medium-sized retailers, to 87 percent for small retailers. States and municipalities do not reimburse 

multi-state retailers for their real costs incurred in collecting use taxes. Indeed, in 

most states, reimbursement rates, in the form of vendor discounts, are either nonexistent or nominal. 

The SSTP published a proposal for a Public-Private Sector Study of Cost of Collecting State and Local Sales and Use Taxes in 2001. The project was put to bid 

in late 2001, and subsequently awarded to a major accounting firm. Although the 

proposal required the contractor to report to the SSTP within 180 days of the award 

of the contract, or by July 2002, no cost study has ever been performed. 

The SSTA ‘‘anticipates’’ that member states will provide a limited measure of 

compensation for remote sellers. The SSTP, however, still has no idea what compliance costs the new system will impose on remote sellers. These costs could conceivably outstrip the tax amounts collected by retailers. If compensation by the states 

is inadequate, those collection costs will be passed on by retailers to their customers 

in the form of increased prices. The SSTP is asking Congress to approve a system 

whose true costs to retailers, and, by extension, to consumers, it simply does not 

know. 

F. The SSTA Fails To Ensure Compliance With The Terms Of The Agreement By 

Member States. 

Even with the watered-down standards of the SSTA in its current form, i.e., ‘‘low 

bar’’ tax reform, the Agreement does not require strict compliance with those standards by participating states. The first draft of the Agreement provided that a member state’s laws ‘‘must comply’’ with the requirements of the Agreement. The National Conference of State Legislatures, however, took exception with the strong 

compliance language in the SSTP version. Rather than requiring strict compliance, 

the NCSL proposed that states need only ‘‘substantially comply’’ with the Agreement to become and remain a member. 

Not to be outdone, the SSTP adopted an even weaker and more ambiguous compliance standard for member states. Now a member state is in compliance with the 

Agreement if ‘‘the effect of its laws, rules, regulations and policies is substantially 

compliant with each of the requirements of the Agreement.’’ This vague compliance 

standard does nothing to guarantee that a state has simplified its laws even to the 

limited extent contemplated under the Agreement. Moreover, since only the overall 

‘‘effect’’ of a state’s tax policies is required to ‘‘substantially’’ comply with the Agreement, state regimes may vary from the specific terms of the Agreement in countless 

ways. The SSTA assures no uniformity at all even for its modest standardization 

provisions. 

III. THE DILUTED AGREEMENT ADOPTED BY THE SSTP IS NOT MEANINGFUL

SIMPLIFICATION AND IS FUNDAMENTALLY UNFAIR TO RETAILERS. 

The SSTP’s total retreat from its own standards for a truly simplified system is 

reason enough for Congress to ask the states to return to the drawing board. A comprehensive review of the SSTA, however, reveals not only a failure to achieve the 

Project’s original objectives, but, in addition, the inclusion of many other features 

that would deny fundamental fairness to interstate marketers. 

27

A. The Agreement Means Enormous New Obligations Compared To The Present System, So It Is Not Simplification At All. 

Although the proponents of the SSTP tout the Agreement as tax simplification, 

if the Agreement is coupled with a legislative repeal of Quill, it is just the opposite. 

Under the current constitutional standards embodied in Quill, retailers without a 

physical presence in a state have no sales/use tax collection responsibilities to that 

state. Under the Agreement, however, retailers will be confronted with an entirely 

new obligation to collect tax for over 7,500 jurisdictions. The Agreement thus creates 

an enormous increase in the complexity of doing business for interstate marketers, 

certainly not a move towards simplification. 

B. There Is No Reduction In The Number Of Tax Jurisdictions, And The Number 

Of Tax Rates Could Go Even Higher. 

As I explained in Section II.A of my testimony, the Agreement does not reduce 

the number of tax jurisdictions, the fundamental cause of complexity in the current 

system. In addition, because the Agreement allows each state to adopt a second rate 

at the state level, when coupled with the existing variations in local rates, the current number of different tax rates could increase, not decrease, under the Agreement. 

Other provisions of the SSTA allow a state to craft even more non-standard rates. 

The Agreement allows states to continue the popular practice of sales tax ‘‘holidays,’’

creating temporary additional ‘‘zero rates’’ for designated items. To make matters 

worse, the Agreement allows the states to establish ‘‘thresholds’’ during state tax 

holidays, so some of the additional zero rates will only apply above a threshold item 

price or purchase amount. The Agreement also contains no restrictions on the duration of tax holidays, so a state may manipulate the system to create additional exemptions, or to impose permanent thresholds, in violation of other provisions of the 

Agreement. The number of rates and their possible variations is unlimited. 

C. The Agreement Does Not Require Uniform Definitions For Taxable Products. 

Under the SSTA, states would to continue to determine which products are taxable and which are exempt from tax. The states’ ‘‘Asolution’’ to the vast differences 

among the states with respect to what products are taxable and what products are 

exempt is to establish ‘‘uniform’’ definitions which create a ‘‘menu’’ from which 

states can pick and choose what to tax and what to exempt. (Localities can continue 

to define and set their own tax base of taxable and exempt goods, separate from 

that of the state in which they are located, until 2005.) 

SSTA proponents proudly claim that the ‘‘uniformity’’ of definitions results in substantial tax simplification, but the wiggle-room for states is considerable. The Agreement only requires that the state adopt definitions which are ‘‘in substantially the 

same language’’ and are ‘‘not contrary to the meaning of’’ the definitions contained 

in the Agreement. Every state is thus allowed to have its own ‘‘grey area’’ with respect to every term defined in the Agreement. This is hardly uniformity. How is a 

retailer to interpret the nuanced differences in definitions among the states? 

Many of the so-called ‘‘uniform’’ definitions crafted by the SSTP allow participating states to carve-out a variety of sub-categories of products, creating endless 

possible variations from state to state. Furthermore, the Agreement permits a state 

to enact exemptions without restriction if the Agreement ‘‘does not have a definition 

for the product or for a term that includes the product.’’ This provision is an open 

invitation to states to impose their own interpretations of whether the Agreement 

‘‘has a definition’’ for particular products, and it will inevitably lead to widely varying exemptions from state to state. 

Put simply, even on as basic a simplification measure as uniform definitions, the 

Agreement comes up short. It does not provide a comprehensive listing of goods subject to, or excluded form, taxation by participating states. Examples of products for 

which the Agreement has no definition include such common items as farm/garden 

equipment and products. Under the SSTA, states will remain free to adopt disparate 

exemptions with respect to any ‘‘undefined’’ product, creating uncertainties and confusion for remote sellers and their customers. Furthermore, the Agreement is unclear as to whether whole defined categories of goods or services must be exempted 

during sales tax holidays, or whether individual items within a definition can be selectively exempted. The end result is that in the area of uniform definitions, supposedly the jewel in the crown of the SSTP process, the terrain remains rough and 

muddy for remote sellers. 

28

D. The Agreement’s ‘‘Uniform’’ Definition Of ‘‘Sales Price’’ Permits Every Member 

State To Use A Different Measure, So That The Taxable Amount Of A Sale 

Transaction Will Differ From State to State. 

Another fundamental complexity of the current system is that sellers must not 

only track the myriad of taxes and exemptions from state to state in order to determine whether their products are taxable in each state, but they must also determine 

the amount of each transaction that is subject to tax. This is especially problematic 

for remote sellers, who often add shipping and handling charges to the product’s sale price. Under the current system, states treat such charges in a variety of ways, 

making calculation of the tax due in each state difficult for both the merchant and 

its customer. Uniformity among states with respect to the measure of sales and use 

tax is an important requirement of simplification. 

The SSTA’s so-called ‘‘uniform’’ definition of the term ‘‘sales price,’’ however, does 

not require member states to adopt a uniform measure of tax. The Agreement provides that ‘‘sales price’’ means the ‘‘total amount of consideration . . . for which personal property or services are sold,’’ including not only the product price, but also 

(1) any charges necessary to complete the sale, (2) delivery charges, (3) installation 

charges, (4) the value of any exempt property that may have been ‘‘bundled’’ with 

the taxable product as part of a single sale, and (5) the value of any property given 

by the purchaser as a ‘‘trade-in.’’ The SSTA, however, allows each state to exclude 

from the measure of ‘‘sales price’’ the amount received for any, or all, of these five 

items, if they are ‘‘separately stated’’ on the invoice to the customer, creating dozens 

of possible permutations of ‘‘sales price.’’ Rather than a ‘‘uniform’’ definition of the 

taxable measure of sale from state to state, sellers must track different definitions 

of sales price in every state. 

Delivery charges are by far the most common surcharge receiving disparate state 

tax treatment. Taxation of delivery charges varies from state to state depending 

upon the nature of the charge (e.g., does it cover only transportation charges, or 

other related costs, as well), its description (i.e., a ‘‘shipping & handling’’ charge may 

be taxed differently than a ‘‘shipping’’ charge), whether it is ‘‘separately stated’’ on the invoice, and other factors. In order to simplify the difficulties of administering 

different rules on the taxation of delivery charges, the DMA proposed to the SSTP 

that all delivery charges be made exempt under the SSTA. Again, the SSTP rejected 

simplification in favor of permitting each state to cling to its existing rule, even 

adopting a definition of ‘‘sales price’’ that accommodates every state’s particular way 

of defining the measure of tax. 

E. The Agreement Ignores Its Impact On Consumers Who Order By Mail And Pay 

For Their Purchases By Check. 

The Agreement ignores its impact on consumers (especially the elderly and persons with low incomes who cannot obtain credit cards) who, either by choice or necessity, order by mail and pay by check or money-order. The system envisioned by 

the SSTA is unworkable where payment is made by check, and this problem is significant. According to the Federal Reserve, as of 2000, checks still accounted for 

nearly 60 percent of all non-cash payments. 

A simple example demonstrates the ‘‘real world’’ shortcomings of the SSTA. Let’s 

assume a generous grandmother at Christmas decides to send several of her grandchildren located in different states the same flannel shirt (in different sizes), plus 

a gift basket of chocolates, chosen from a mail order catalog. When she fills out the 

catalog order form and attempts to pay by check, she will be required to self-compute the applicable tax. In order to accommodate her, a catalog will need to contain 

a tax table covering every state and local tax jurisdiction to determine the appropriate rate for her purchase. The catalog will also need to inform her which products 

are taxable and which are exempt in each state. (Clothing is excluded from sales 

tax in some states; food and/or candy is also exempt in some states.) The SSTA’s 

‘‘sourcing’’ rules provide that the tax rate for the jurisdiction where the recipient is 

located, not where the donor is located, applies, so she must calculate the correct 

tax, even on identical items, at four different tax rates. If her grandchildren happen 

to live in localities that impose one or more local sales taxes, she must be able to 

identify and apply up to four additional local tax rates, as well. 

The Agreement permits every state to have a second, additional tax rate for food 

items. Now this buyer must determine not only whether the basket of chocolates 

is taxable, but whether it is taxable at a different rate than the shirt she is purchasing. (A single basket of chocolates may be subject to two different rates, one for 

the food/candy and another for the decorative container.) The SSTA allows states 

to exclude ‘‘candy’’ from the definition of ‘‘food.’’ Now she must determine if ‘‘candy’’

is treated differently than ‘‘food’’ and, if so, whether it is exempt from tax or whether it is taxable at the standard state tax rate. 

29

Now imagine that the state has adopted a sales tax holiday for one or more of 

the items she is ordering. (Many states, for example, have sales tax holidays that 

exempt clothing for short periods of time, usually from four to seven days.) This 

shopper must be made aware of the relevant sales tax holidays in the states where 

her grandchildren live in order to properly calculate her tax. Furthermore, if the 

sales tax holiday includes a tax threshold, she must also know the level of the 

threshold, and apply tax if the amount of her purchase exceeds the threshold. If, 

because she misunderstands or is unaware of the sales tax holiday, she over-calculates tax and overpays the retailer, the retailer now has the additional burden 

of deciding how to handle the overpayment. Should it be remitted to the state or 

returned to the customer? 

The likelihood for consumer frustration and error are obvious, but the SSTA totally ignores the burdens it will impose on consumers. Moreover, the Agreement 

leaves retailers liable for the tax even if the consumer errs in calculating it. This 

is not tax simplification. 

F. The Agreement’s Provisions Concerning Taxation of Digital Products Are Unworkable And Unfairly Expose Retailers to Liability. 

Increasingly, electronic commerce involves the sale of digital products that can be 

ordered and delivered over the Internet. The SSTA, however, fails to provide a 

workable system for taxing digital products that will be used in multiple jurisdictions. The Agreement requires purchasers of digital goods and services to allocate 

the use of such digital products across multiple jurisdictions and to provide the retailer a new document called a Multiple Points of Use Form. Such allocations will 

not only be extremely complicated for consumers, but, in addition, there is no reason 

why a purchaser will feel obligated to complete such a form. The retailer, however, 

will only be relieved of liability for the tax if it is successful in obtaining the completed Multiple Points of Use Form from the purchaser. Retailers of digital products 

will inevitably be assessed for uncollected use taxes in multiple jurisdictions because 

their customers fail to provide the proper form. Under the SSTA, a single sale of 

digital product could subject an Internet marketer to sales tax liability in multiple 

states. 

G. The Provisions For Compensating Retailers And Certified Service Providers Are 

Woefully Inadequate. 

Clearly, the SSTA, if approved by Congress as the basis for expanded state tax 

jurisdiction, will force retailers throughout the country to bear considerable additional expense to collect use taxes on behalf of states and localities. It is only fair 

that they should receive appropriate compensation, and protection from liability, for 

these new responsibilities. The SSTA, however, contains no guarantees of fair compensation for these additional duties. 

The Agreement vaguely provides that states ‘‘anticipate’’ establishing compensation measures for businesses, either Certified Service Providers, retailers, or both, 

that incur compliance costs in connection with collecting and remitting use tax to 

the participating states. The Agreement, however, contain no guarantees of compensation to either retailers or CSPs. Even the ‘‘anticipated’’ compensation does not 

extend beyond the first twenty-four months of a retailer’s collection of tax under the 

Agreement, even though the retailer will incur ongoing compliance costs. After the 

first two years, retailers are left to the whims of the individual member states, few 

of which currently provide a meaningful amount of vendor compensation, if they 

offer it at all. It is telling that no state that has passed legislation to conform its 

tax code to the SSTA’s requirements has yet enacted new provisions for adequate 

vendor compensation. 

Moreover, once states have obtained congressional authority to impose use tax collection obligations on remote sellers, state legislatures will have every incentive to 

decrease, or eliminate altogether, the compensation they provide, in order to maximize state revenues. Indeed, one member state with a pre-existing vendor compensation provision (Kentucky) recently slashed vendor compensation for fiscal year 

2004. At the same time, CSPs can be expected to charge higher and higher administrative fees to retailers as the state reimbursement to the CSPs diminishes. A system that fails to provide guaranteed compensation for the new and ongoing costs 

of tax compliance is simply unfair. 

As if failing to provide a guaranty of adequate compensation were not enough, the 

Agreement also provides that states may refuse compensation to a retailer that already had ‘‘a requirement to register to collect the tax.’’ What does this mean? 

States will undoubtedly claim that marketers were required to collect the tax anyway, and thus are not entitled to collection cost compensation. Is the Quill nexus 

standard to be litigated over this continuing qualification controversy? 

30

H. Retailers Bear All The Burdens Of Compliance, But Receive No Protection From 

Liability For Tax Collection Errors. 

SSTA protection of vendors from liability for tax collection errors is strikingly narrow. Vendors are relieved of liability only if a tax collection error results from erroneous information supplied by the state. Vendors are not relieved of liability if a 

state fails to give, or the vendor fails to receive, adequate notice of a change in the 

tax rate or jurisdictional boundary. The Agreement also contains no provision relieving sellers of liability for errors due to certified software errors or system failures 

by CAS’s or CSP’s. Given the total lack of adequate tax compliance software, this 

omission by the SSTP is astounding. 

Although imposing massive new burdens on retailers to collect use taxes in over 

7,500 jurisdictions, the Agreement includes no protection for retailers from consumer lawsuits for collection errors committed in good faith by the retailer or by 

Certified Service Providers or as a result of software errors and malfunctions. A fair 

system would include protection from consumer lawsuits for a retailer collecting tax 

in good faith on behalf of thousands of jurisdictions. Indeed, class actions against 

direct marketers alleging over-collection of use tax are not uncommon. Instead of 

protection from suits, the Agreement contains only a cryptic provision which requires consumers to demand a refund from the retailer and give the retailer sixty 

(60) days to respond before bringing suit. Rather than protecting sellers, this provision arguably creates a new cause of action for consumers and exposes retailers to 

lawsuits in jurisdictions where consumers’ only previous remedy was a refund claim 

against the state. 

I. The Agreement’s Governance Provisions Allow The States To Police Themselves. 

Enforcement of member state compliance with the requirements of the SSTA, 

under the Agreement’s weak ‘‘substantially compliant’’ standard, is left to a self-regulating Governing Board. The contemplated SSTA Governing Board will be composed primarily of state tax administrators, who obviously have no incentive to declare a fellow member state out of compliance with the Agreement. Moreover, by the 

terms of the Agreement, the Governing Board is given sole and final authority to 

interpret the Agreement. There is no role for judicial review of decisions of the Governing Board, either as to issues of member state compliance or interpretation of 

supposedly uniform standards. 

In the unlikely event that the Governing Board finds a member state to be out 

of compliance, it is not required to deny that state continued participation in the 

SSTA or even to sanction the state in any way. Moreover, a vote to sanction a state 

requires a three-fourths majority of the Board. Needless to say, with so few enforcement mechanisms, and so little incentive for a state to remain in compliance, it is 

unlikely that states will adhere strictly to the terms of the Agreement. 

J. The Agreement Has No Mechanism To Guarantee Consistency and Uniformity 

Over Time. 

The SSTA is not self-executing. Individual states must pass legislation to bring 

their tax codes into conformity with the requirements of the Agreement. Even assuming that the initial legislation in each state brings the state into compliance 

with the Agreement (and that’s a big assumption, even under the Agreement’s soft 

‘‘substantially compliant’’ standard), there will never be more ‘‘uniformity’’ among 

the states than on the first day the Agreement goes into effect. After that date, uniformity starts to fray. State revenue departments, as well as administrative tribunals and courts in each member state, will independently interpret and apply each 

state’s purported conforming legislation. With numerous, independent decision-makers rendering their own interpretations of SSTA conforming legislation, divergent 

interpretations are inevitable. Thus, the ‘‘substantial uniformity’’ the Agreement 

purports to establish on day one will progressively deteriorate over time. The 

‘‘streamlined’’ system envisioned under the SSTA will gradually fall apart. 

K. The Agreement Allows No Judicial Review of Board Decisions. 

The Agreement’s purported ‘‘solution’’ to the problem of inconsistent interpretation is to empower the Governing Board to issue interpretations of the Agreement 

and of its definitions, in response to a petition from a member state or any other 

person. The Governing Board, however, is not required to act on any petition. Moreover, because all actions by the Governing Board (including any failure to act) are 

final and not subject to further review, a retailer or taxpayer has no recourse from 

an adverse decision of the Governing Board. Even if a retailer or taxpayer obtains 

a favorable ruling from the Governing Board, the Agreement makes clear that no 

person, other than a member state, is entitled to benefit from the Agreement, and 

that neither the provisions of the Agreement, nor the actions of the Governing 

31

Board, afford any person affirmative rights under state law. The states have made 

themselves, through the Governing Board, the sole and final arbiters of all matters 

under the Agreement, and they have insulated themselves from taxpayers’ protests 

of assessments based on the argument that the state has failed to abide by the 

terms of the SSTA. The states are asking Congress to bless a system for which the 

states have provided no safeguards or oversight. 

L. The System Envisioned By The SSTA Is Far From Operational and Certainly Not 

Ready To Form The Basis For Expanded State Tax Jurisdiction. 

The list of tasks not yet completed by the SSTP, which are necessary to implement even the limited and inadequate reform measures contemplated by the Agreement, is lengthy. Most glaringly, as I have pointed out, there is no software in place 

for retailers to calculate tax properly under this new system, nor are there any Certified Service Providers to perform a retailer’s multi-state tax collection obligations. 

The states have also not completed their cost of collection study. Few, if any, states 

have established required databases of tax rates and jurisdictions. There is no basic 

registration form and not yet any system for centralized registration. 

Although it is stating the obvious, it bears mention that since the Agreement is 

not yet in effect, there is no Governing Board. This is not a trivial matter. Rather 

than tackling a myriad of administrative issues in the Agreement itself, the states 

have glibly left these matters to be addressed by a still unconstituted Governing 

Board. As a result, there is no uniform model tax return, no model remittance form, 

no direct pay permit guidelines and forms, no taxability matrices, no procedures for 

the Governing Board itself, no rules regarding disputed issue resolution, and no advisory councils. 

Consideration by Congress is simply premature. Not only are numerous elements 

of the SSTA still undeveloped, but many other factors are not slated to go into effect 

for years. For example, the provisions for limiting the number of state rates to one 

rate plus one additional rate, harmonizing state and local tax bases, eliminating 

caps and thresholds (outside of the tax holiday context, where they will continue to 

be permitted), and adopting a uniform rounding rule, are not required to go into 

effect until December 31, 2005. 

In short, the list of open items is long. Congress should not endorse a tax system 

that is far from operational, especially when the endorsement carries with it an historically unprecedented expansion of state tax power. 

IV. THE STATES HAVE FAILED TO CONFORM THEIR LAWS TO THE AGREEMENT. 

While the inherent problems with the Agreement that I have described demonstrate that the SSTA, on its face, fails to achieve meaningful reform, the long descent away from true uniformity and simplification does not end there. Although 

some twenty states have passed purported conformity legislation, no state has, in 

fact, yet enacted legislation sufficient to bring its laws into conformity with the 

Agreement’s requirements. As state after state misses the mark, the goal of uniformity grows ever more distant. 

A. State Legislatures Consistently Omit Key Provisions of The Agreement. 

The apparent shortcomings in state conformity legislation run the gamut. Often 

it is what a state has left undone, rather than what it has enacted, that causes the 

state to fall short. The most common omissions are both telling, and troubling. Numerous states have failed to enact provisions guaranteeing vendor compensation (including Arkansas, Iowa, Kansas, North Carolina, North Dakota, South Dakota, and 

West Virginia) and many have not adopted the (albeit weak) consumer privacy requirements imposed on states under the Agreement (including Indiana, Nevada, 

Tennessee, Utah and Washington). Other omissions include failure to adopt amnesty provisions for companies registering under the Agreement (North Carolina, 

Washington) and the establishment of required databases and matrices (Indiana). 

Texas and Washington, both states with local taxing jurisdictions, have failed to 

adopt the Agreement’s destination-based sourcing rules. Wyoming has adopted legislation that essentially contains none of the Agreement’s requirements, but instead 

directs its tax administrator to adopt as-yet unfinished regulations to meet each of 

the requirements. West Virginia has adopted the Agreement verbatim, but has retained conflicting definitions from its existing statutes, providing only that the new 

definition shall control in the even of a conflict. The list goes on. 

B. States Have Renamed Taxes And Crafted Other Creative Legislation To Circumvent The Agreement’s Requirements. 

In a development that may bode even greater ill for the goal of simplification, 

some states have already demonstrated their willingness to circumvent the requireVerDate 0ct 09 2002 16:45 Dec 16, 2003 Jkt 089266 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 C:\WORK\COMM\100103\89635.000 HJUD1 PsN: 89635
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ments of the Agreement through legislative gamesmanship. Under prior law, Minnesota had an exemption for most clothing, but imposed sales/use tax on fur coats. 

The SSTA, however, requires that a state exemption must apply to an entire defined 

category of goods, in this case clothing. Because furs are deemed ‘‘clothing’’ under 

the Agreement, Minnesota would be required to include fur coats in its sales tax 

exemption for clothing. Rather than conform its laws, however, Minnesota enacted 

a separate ‘‘special fur clothing tax,’’ outside of its sales and use tax statutes. 

Tennessee has engaged in similar legislative slight-of-hand. Rather than conform 

to the requirements of a single state rate (for all items other than food, food ingredients or drugs), Tennessee adopted certain ‘‘special user privilege taxes’’ which impose disparate tax rates on select products and services. Here again, the state simply renamed an existing provision to avoid application of the Agreement, rather 

than accepting the modest measure of simplification required under the SSTA. 

The danger that states will resort to imposing individual ‘‘excise’’ and other ‘‘special’’ taxes on various items that would not be subject to sales tax under the Agreement’s terms is very real, as demonstrated by these examples of early circumvention 

tactics. The Agreement, by its terms, applies to sales and use taxes, but it nowhere 

defines either form of tax, leaving states free to game the system, and introduce still 

more complexity. Once Congress grants the states expanded tax jurisdiction, the incentive for state legislatures to yield to local pressures and evade uniformity strictures will only increase. 

C. Conformity Legislation Is A Vehicle For State Tax Increases. 

Purported state conformity legislation is being used by some states to impose tax 

increases on their residents. In fact, several provisions of the SSTA will allow, or 

even require, states to increase their sales and use taxes when conforming their 

laws to the Agreement. For example, at least four participating states (Illinois, 

Iowa, Kansas, Vermont) have a local sales tax (or the equivalent) but have no local 

use tax. Although the SSTA would permit this discrepancy to continue, at least one 

state, Kansas, has used its conformity legislation to impose a new local use tax on 

consumers. Other provisions of the SSTA will also result in tax increases as states conform 

their laws to the Agreement. The SSTA limits states to one state tax rate, plus one 

additional rate for food and food ingredients and drugs. States that tax other products at a rate lower than the standard state rate will be required to either exempt 

such products altogether, which is not likely, or increase the tax rate on those products. For example, agricultural equipment has been taxed at a lower rate by many 

of the states participating in the SSTP (e.g., Florida, Mississippi, Nevada, North 

Carolina, North Dakota, South Dakota, Wyoming). Unless those states adopt new 

exemptions and remove those items altogether from the tax base, farmers in those 

states can expect to pay higher sales and use taxes on purchases of agricultural requirement. 

The elimination of caps and thresholds, a necessary step for simplification, will 

also result in tax increases. Numerous states participating in the SSTP have either 

caps or thresholds, or both, which must be eliminated from state law in order to 

conform to the SSTA. Some tax increases have already been enacted as a result. 

Arkansas’s conforming legislation eliminated its ‘‘single item’’ cap of $2,500 (i.e., no 

tax on the value of a single item over $2,500) on most items, thereby raising taxes 

enormously on many ‘‘big ticket’’ purchases. Tennessee had several thresholds for 

selected goods and services (from caskets to cable television) which exempt such 

items from tax on amounts below a specified threshold. Tennessee’s conformity legislation provides for the repeal of at least some of these thresholds (e.g., the $500 

threshold for caskets will be eliminated), subjecting its residents to new taxes. 

There will be many more examples of new taxes, or increased tax rates, resulting 

from adoption of the SSTA. 

V. THE AGREEMENT WILL HAVE HARMFUL, POTENTIALLY DISASTROUS, EFFECTS ON

THE ECONOMY AND AMERICAN JOBS. 

Small and medium-sized businesses will suffer most from the new burdens imposed by the SSTA. Start-up companies and existing store-front businesses that 

might otherwise seek to establish new markets for their products by selling over the 

Internet will be deterred from entering e-commerce because of the specter of nationwide tax collection responsibilities. In its current open-market form, the Internet is 

a spur to economic growth. It enables small businesses and niche retailers to compete with big box mall merchants and sell their goods worldwide. Imposing new tax 

collection obligations on e-commerce will stifle the growth of the Internet and slow 

down this country’s economic recovery which is dependent on a rebound of the information technology sector. 

33

A. The SSTA Will Not ‘‘Level the Playing Field’’ Between In-State and Out-of-State 

Merchants. 

Somewhat cynically, proponents of the SSTA claim to champion local ‘‘Main 

Street’’ merchants that must collect sales tax on their over-the-counter sales. These 

cries for a ‘‘level playing field’’ for in-state and out-of-state merchants are both misleading and short-sighted for the following reasons. 

First, the cost of use tax collection and remittance is much greater for remote sellers, who must compute, collect and remit tax for thousands of jurisdictions, as compared to an in-state retailer who collects at just one tax rate. Second, direct marketers must ‘‘eat’’ the applicable tax if their customers fail to calculate the tax correctly—a problem storefront retailers do not confront. Third, in-state retailers benefit from a wide variety of state and local government services and programs (including tax incentives) that are not available to out-of-state merchants. Fourth, 

there are inherent differences in the cost of doing business for in-state and out-ofstate merchants that have more of an impact on their relative competitiveness than 

does collection of sales tax—most obviously, an out-of-state vendor imposes delivery 

charges (usually in an amount considerably greater than the use tax) to get its product to the customer, while a vendor selling over-the-counter does not add a delivery 

surcharge to the price of its goods. 

The real competition for ‘‘Main Street’’ shopkeepers comes, not from out-of-state 

sellers, but from retail behemoths in the form of big-box chain stores. Those are the 

companies that have devastated America’s downtowns. Indeed, the advent of the 

Internet has allowed traditional ‘‘Main Street’’ merchants to develop new markets 

for their goods across the country. It is not surprising that the retail giants, which 

seek a virtual oligopoly over consumer sales, are the main advocates for increased 

tax obligations on e-commerce transactions. Indeed, the Walmarts, Targets, etc. will 

be the real beneficiaries of a tax system that requires their Internet competitors to 

collect tax on every sale, regardless of location. America’s economy, and its small 

and medium-sized Internet businesses, will be the losers. 

B. The SSTA Will Hurt the Competitiveness of American Companies and Favor Foreign Firms, Hampering Economic Recovery and Causing the Loss of American 

Jobs. 

Not only is the ‘‘level playing field’’ argument not valid as between in-state and 

out-of-state merchants, but, more significantly, the SSTA would slant competition 

in an entirely different direction, much to the detriment of American companies and 

to the benefit of their foreign competitors. 

Obviously, the SSTA does not, and cannot, extend the jurisdictional reach of state 

and local taxes to foreign companies. Although, in the past, foreign retailers may 

have been at a competitive disadvantage in marketing products directly to American 

consumers, the delivery delays of prior years and the previous expense of overseas 

transportation no longer impedes international (cross-border) sales. Digital products 

and services can be delivered electronically to American consumers from anywhere 

in the world. Even tangible personal property can now be delivered via common carrier from such overseas locations as China and Ireland in times, and in many cases 

at rates, that are no different than for domestic deliveries. And since a foreign vendor is not required under the SSTA to charge sales tax or recoup from customers 

the cost of collecting it, the impact of the SSTA will be to drive Internet purchasers 

to foreign vendors for both digital products and hard goods. (Many consumer electronic products are manufactured in the Far East, and those goods could be delivered directly to American consumers from Asian warehouse/fulfillment centers without going through the additional distribution level of an American distributor. In 

fact, goods can be delivered from Asia to American households using the same common carriers, such as FedEx and UPS, as are used by U.S.-based retailers. The 

process would appear seamless to American consumers, with no loss of convenience 

to them.) 

The long-term economic impact of the SSTA should not be underestimated. American retailers will lose market share to foreign competitors that already enjoy substantial advantages in labor costs. E-merchants and catalog companies will locate 

themselves where the costs of doing business and the tax environment are most attractive. Large sectors of the direct marketing industry are already under considerable pressure to move overseas. For example, many computer programming and 

data entry functions have been relocated to India. English-speaking call centers 

have also been set up in India to handle real-time orders from American consumers. 

Digital products can be sold and delivered to American consumers as easily from 

Bombay as from Silicon Valley. 

Large fulfillment centers for delivering goods to American consumers are already 

up-and-running in foreign countries from Mexico to China. Whether the product is 

34

apparel or computers, consumer goods can be manufactured and delivered from integrated manufacturing/warehouse facilities in Tijuana or Taipei as easily as, and less 

expensively than, a facility in Tennessee. The loss of American jobs to foreign countries has reached near crisis proportions, and it denominates the ‘‘jobless recovery.’’ It would be ironic for this Congress, which is attempting to reinvigorate the U.S. 

economy, to instead accelerate the flow of jobs overseas by imposing new burdens 

on the very economic sector in which the United States has been the unchallenged 

world leader, i.e., electronic commerce. 

Parochial state and local tax systems should not be permitted to hinder America’s economic recovery and its continued leadership in the field of information technology. Any attempt to saddle electronic commerce with new state sales and use tax 

burdens would prevent electronic commerce from achieving its full potential. Sacrificing American Internet dominance at the alter of state taxes is simply bad public 

policy. 

VI. DIRE PREDICTIONS OF STATE REVENUE ‘‘LOSS’’ FROM E-COMMERCE

ARE GROSSLY OVERSTATED. 

The current budgetary problems confronting many states have created an impetus 

for states prematurely to press Congress for legislation overriding Quill and authorizing an expansion of state tax jurisdiction. The dire predictions of revenue losses 

resulting from allegedly untaxed e-commerce purchases, however, are based on unsubstantiated and grossly overestimated projections, which are refuted by recent 

data concerning e-commerce transactions released by the Department of Commerce. 

The bleak revenue picture painted by SSTA proponents was based on a much publicized study prepared by the University of Tennessee’s Center for Business and Research conducted in 2000 and updated in 2001 (‘‘Tennessee study’’). The Tennessee 

study relied on proprietary projections from a private consulting group, Forrester 

Research, which both misunderstood the nature of business-to-business electronic 

commerce, and grossly overstated the future growth of e-commerce. First, the Tennessee study included in its measure of electronic commerce all business-to-business 

transactions conducted via electronic data interface (‘‘EDI’’), a system that has been 

in use for years. States already receive most of the tax revenue relating to EDI 

transactions, because these are all business-to-business transactions, and use tax is 

regularly self-reported on most B-to-B transactions. Consequently, the Tennessee 

study’s estimate of revenue loss from consumer Internet transactions is greatly inflated. 

Next, the Tennessee study assumed an annual growth rate for e-commerce of 38 

percent. This staggering growth rate may have looked rational during the dot-com 

boom, but subsequent experience has brought growth projections for the Internet 

back to earth. Indeed, data subsequently published by the Department of Commerce 

debunks the assumption of phenomenal growth rates for e-commerce over the coming decade, deflating substantially the likely impact of e-commerce on state sales 

tax revenue. Projections from this year’s Census Bureau data show that Internet 

commerce is growing at a much more modest 12.5 percent compound annual growth 

rate. 

Dr. Peter A. Johnson, a Senior Economist with the DMA, conducted an analysis 

in late 2002 and early 2003, based on the new Commerce Department data (‘‘Johnson Study’’). The Johnson Study projects revenue losses for the states some 80 percent to 90 percent lower than those projected by the Tennessee study. For example, 

for 2001, based on Commerce Department data, the uncollected use tax from Internet sales amounted to approximately $1.9 billion for all states, rather than $13 billion, as projected by the Tennessee study. The Johnson Study further projects that 

uncollected sales tax in 2011 will not likely exceed $4.5 billion, or less than 10 percent of the $55 billion projected by the Tennessee study. (A copy of the Johnson 

Study is submitted with my testimony and is available at www.thedma.org/taxation/CurrentCalculationofUncollectedSalesTax.pdf.) In short, the states’ claims of 

lost revenue from e-commerce sales are based on inaccurate transaction data and 

are grossly inflated. Congress should not rush to approve a new system of taxation 

whose adverse impact on the U. S. economy is likely to be far greater than any increases in state tax revenues. 

VII. IF CONGRESS EXPANDS STATE TAX JURISDICTION OVER INTERSTATE COMMERCE, THE

TAX INJUNCTION ACT SHOULD BE REPEALED AND FEDERAL COURTS SHOULD HAVE JURISDICTION OVER TAX DISPUTES ALLEGING VIOLATIONS OF FEDERAL LAW. 

When, and if, the states present Congress with a truly streamlined sales and use 

tax system, Congress should include in any authorizing legislation federal court jurisdiction over tax disputes involving questions of federal law. If states, through fedVerDate 0ct 09 2002 16:45 Dec 16, 2003 Jkt 089266 PO 00000 Frm 00038 Fmt 6633 Sfmt 6621 C:\WORK\COMM\100103\89635.000 HJUD1 PsN: 89635
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eral legislation, seek to remove existing constitutional limitations on the scope of 

their taxing jurisdiction and to impose collection obligations on companies located 

in other states, then such companies should have access to federal court both to 

challenge decisions of the Governing Board and to contest tax assessments that violate the provisions of the new federal legislation or, for that matter, any remaining 

constitutional protections such companies may have. 

Accordingly, legislation that would override the constitutional restrictions on state 

taxing authority reaffirmed in Quill should be accompanied by a repeal of the Federal Tax Injunction Act, 28 U.S.C. § 1341, as it applies to sales and use taxes administered under the Agreement. The Tax Injunction Act was enacted to permit states 

to administer their tax systems within their own borders without interference by 

federal courts. This rationale no longer applies in the situation where states are enforcing their tax systems on sellers outside of their borders and pursuant to authority granted by federal legislation. Moreover, only federal courts can assure consistent interpretation and application of the Agreement among all the states. 

If the SSTP member states are sincere in their expressed desire for greater interstate uniformity, federal court jurisdiction would ensure both continuing state compliance and the ongoing consistency of interpretation necessary to achieve sustainable simplification of state sales and use tax systems. Moreover, judicial review of 

actions of the Governing Board, including its decisions to take no action when presented with a petition, is a fundamental safeguard to avoid creating a runaway tax 

bureaucracy designed by, enforced by, and adjudicated by state tax administrators. 

Access to federal court is a procedural bare minimum that Congress should require 

as a quid pro quo for expanded state tax jurisdiction. 

CONCLUSION

In conclusion, I want to thank again the members of the Committee for the opportunity to offer this critique of the Streamlined Sales and Use Tax Agreement. I urge 

Congress to move cautiously in this area, as the consequences of removing constitutional protections for interstate commerce are dramatic and may cause permanent 

economic harm. Once approved, such an expanded state tax system would be difficult to repeal, even if it fails to provide meaningful simplification and harms 

America’s national interests in other ways. Congress may have only one chance to 

‘‘get this issue right.’’ Until the states can demonstrate to Congress’ complete satisfaction that they have developed a fair and fully functioning system that achieves 

more than superficial simplification, and that contains safeguards for marketers and 

consumers, Congress should decline to alter constitutional standards that have 

served this country well since its founding.

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Mr. CANNON. Our final witness is Jack VanWoerkom, Executive 

Vice President and General Counsel of Staples, Inc. Headquartered 

in Framingham, Massachusetts, Staples is a nationally-known retailer with more than 1,100 stores in 45 States and Washington, 

D.C., and that is in my hometown and district, as well, and we 

really enjoy Staples marketing and pricing, I might just point out. 

[Laughter.] 

As well as having catalog, Internet, and contract sales operations. Prior to joining Staples in 1999, Mr. VanWoerkom served 

as General Counsel to Teradyne, Inc., a manufacturer of semiconductor test equipment. He was also a partner with the Boston law 

firm of Hale and Dorr from 1978 to 1985. 

Mr. VanWoerkom earned his undergraduate degree from the 

Massachusetts Institute of Technology and a law degree—you are 

going to have to explain that one. I thought most of us lawyers 

were just dumb guys and we appreciate your technical insights 

here. [Laughter.] 

I shouldn’t say that of my fellow lawyers on this Committee. 

And he earned his law degree from Boston University School of 

Law. 

Mr. VanWoerkom, thank you for offering your valuable insight 

today and we look forward to your testimony. 

STATEMENT OF JACK VANWOERKOM, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL, STAPLES, INCORPORATED, 

FRAMINGHAM, MASSACHUSETTS 

Mr. VANWOERKOM. Thank you, Chairman Cannon, Ranking 

Member Watt, and Members of the Subcommittee, and a special 

thank you to Mr. Delahunt, our home State Congressman. It is an 

honor for me to be here today to testify on behalf of Staples and 

our e-commerce business, Staples.com. 

We have been working extensively on this issue for many years. 

Our founder and Executive Chairman, Tom Stemberg, has been 

personally active, meeting with Members of Congress and State officials, testifying in other Congressional hearings, addressing the 

National Conference of State Legislatures, and reaching out to 

other businesses. 

I am pleased to be here today to say that we support the Streamlined Sales and Use Tax Agreement and the legislation that was 

recently proposed by Congressman Istook and Congressman 

Delahunt. We support it because it levels the playing field among 

all retailers by requiring remote retailers to collect and remit State 

sales taxes in the same manner as brick-and-mortar retailers, and 

in the same manner as Staples does, because we are both. We are 

both an online retailer and a brick-and-mortar retailer. We also 

support it because it simplifies the enormous task of complying 

with State sales tax, and it is enormous. 

But let me start by putting to rest three common misconceptions, 

and I will be brief about these because I think they have already 

been touched upon. 

Number one, this is not a new tax. This is the collection of an 

existing tax. 

Number two, this is totally voluntary on the part of the States. 

No State has to participate in this. It is up to the State and its 

75

elected officials to decide whether or not to do it, and it is also up 

to the State to decide what to tax and how much to tax. 

And third, collecting sales tax on remote Internet retailers will 

not harm Internet commerce and will not retard the growth of ecommerce. Solid businesses will be successful. Poor ones will fail. 

This is not going to be the thing that makes the difference. 

Now, to go back to the level playing field, I would like to give 

you an example from our business as to what I mean by leveling 

the playing field. We have over 100 stores in New York and we got 

a call from one of our GMs, a general manager, in a store in Manhattan and he told us the following story. He had a customer come 

in who was trying to—he is a small business—he was trying to upgrade his computer system. He had three or four computers on a 

network. He came in. He spent several hours in the store. Our general manager worked with him several hours over several days. It 

wasn’t a question of whether he was going to buy the system but 

making sure he got the right one. 

So he worked with him closely and they got right to the end and 

they had a technical question. So the customer went back to his office and he called the manufacturer just to get the technical answer 

to make sure the system was going to work the way he wanted it 

to. He talked to the manufacturer, explained to him what he was 

doing, got his answer. The manufacturer then said, and oh, by the 

way, do you know that we have an online website where you can 

buy this product that you are looking for and you don’t have to pay 

sales taxes? 

Now, this is a $10,000 system. In New York, the sales tax on $10,000 is $900. That is a big deal to a small business. So he 

bought it from the online retailer, not from us. That is not a level 

playing field. 

We have stores in 45 States and we have made investments in 

the stores. We provide jobs. Every store provides between 30 and 

50 jobs around the area of that store. We pay property taxes. We 

pay income taxes. We make a significant investment in every one 

of these States. As a result of that, we bear the burden of collecting 

and remitting sales taxes and the burden of complying with the 

sales tax system. 

Our competitors who are purely online retailers don’t. They don’t 

collect and remit the sales tax and they don’t have the burden of 

complying with that system. Compliance, just filing our returns, 

making sure we get the right amount and remit the right amount 

to the right jurisdiction, costs us $4 million a year, just filing of 

forms. Our competitors don’t have that expense. We consider that 

to be not a level playing field and all we are asking for is the same 

rules as everyone else plays by. 

Now, the other reason that we support this is simplification. As 

was said here earlier, there are now close to 8,000 different taxing 

jurisdictions when it comes to sales tax. That means 8,000 returns, 

8,000 different systems to understand and comply with. As I said, 

that costs us $4 million a year. 

What this legislation will permit and what it will do is very simple. Through consistent definitions and categories of products, I can 

essentially have a matrix where on one side I have products, product numbers. The other side, I have zip codes. And all I have got 

76

to do is look in there and say, it is this product in that zip code. 

There is the rate. That is what I charge. That is what I have to 

remit to the State. What could be simpler? There is software that 

can do that. It is very straightforward. 

If even half of the States adopt this system, it is a great benefit 

to us. If half the States adopt it, I go from 7,500 jurisdictions that 

I have to comply with to less than 4,000. That is half the job. To 

us, that is a great benefit and we think it is a benefit to the States, 

too, as they will have the opportunity for more revenue. 

So the States who have joined the agreement, and it is 40 out 

of 45 States that have done this, have done a great job of putting 

together legislation that will work. It will simplify and it will level 

the playing field. 

In the Quill case that was referred to earlier, the Court left it 

up to Congress to decide whether, when, and to what extent States 

may require out-of-State retailers to collect sales tax on remote 

purchases. Staples believes that Congress should decide that the 

answers to those questions are yes, now, and the Simplified Sales 

and Use Tax. Thank you. 

Mr. CANNON. Thank you, Mr. VanWoerkom. I do appreciate your 

participation. 

[The prepared statement of Mr. VanWoerkom follows:]

PREPARED STATEMENT OF JACK VANWOERKOM

Mr. Chairman and Members of the Subcommittee, my name is Jack VanWoerkom. 

I am the Executive Vice President and General Counsel of Staples, Inc., and I am 

honored to be here today to testify on behalf of Staples, Inc., the office supplies 

superstore, and our e-commerce business Staples.com, on the important issue of 

internet sales tax collection. 

Staples has been working extensively on this issue for numerous years. Our 

founder and Executive Chairman, Tom Stemberg, has been personally active, meeting with Members of Congress and state officials, testifying in previous Congressional hearings, addressing the National Conference of State Legislatures, and 

reaching out to other businesses. 

We are pleased to be here today in support of The Streamlined Sales and Use Tax 

Agreement, which provides a uniform, simplified method of imposing and collecting 

sales tax on remote purchases and creates a level playing field among all retailers. 

We also strongly support H.R. 3184, The Simplified Sales and Use Tax Act, introduced last week by Congressmen Ernest Istook and William Delahunt. We understand Senators Michael Enzi and Byron Dorgan will shortly introduce companion 

legislation in the Senate. This legislation is critical to end the current inequity 

whereby Staples.com is required to collect and remit sales taxes because Staples has 

made a commitment to be present in local communities. Pure internet retailers do 

not bear the same burden of collecting and remitting sales taxes. 

Although now an established part of the American landscape, Staples was founded surprisingly recently—in 1986. Staples now operates stores in 45 states. With the 

opening of each new superstore, Staples makes a commitment and an investment 

in the local community. We create jobs for local residents. We support the community through charitable and civic involvement, working extensively on education 

through the Staples Foundation for Learning program and youth charities through 

our partnerships with the Boys & Girls Clubs of America. Staples also contributes 

to the community by paying state and local taxes, including property and corporate 

income taxes, which in turn fund valuable services throughout the community. 

By contrast, pure internet retailers do not invest in local communities. Further, 

pure internet retailers are afforded the benefits of local community services, such 

as roads, police and fire protections, and contract and other legal protections. Yet 

they do not undertake the responsibility of collecting taxes owed and required for 

these critical state and local services that allow their products to flow efficiently in 

interstate commerce. 

And yet, we are all in the same business—selling products to the American consumer. A sale is a sale no matter how it is made: in store, online, by phone or by 

77

mail. If a retailer is required to collect tax on one sale, it is only fair that all retailers are required to collect tax on all sales. 

This is the central aspect of this legislation—leveling the playing field among all 

retailers. 

Some basic background will be helpful to better understand our position. 

When an American makes a purchase over the internet or through a catalog, she 

generally owes state and local tax on the purchase. If the internet or catalog retailer 

has a presence in the customer’s state (such as a store or a distribution center), the 

retailer is required to collect and remit the sales tax. However, retailers without a 

physical presence in the state are not required to collect the tax. The consumer still 

owes the state use tax on the purchase. However, this consumer obligation is widely 

misunderstood and compliance is very low. Therefore, the tax owed to the state 

often goes uncollected. 

This confusing dichotomy in tax collection responsibility is due to a series of Supreme Court rulings, the most recent of which is the Supreme Court case of Quill 

v. North Dakota. A decade ago in Quill, the Supreme Court determined that states 

cannot compel remote sellers to collect sales taxes unless the seller has a ‘‘substantial nexus’’ in the state. The court reasoned that state sales tax laws differed so dramatically that such a requirement would be an undue burden on interstate commerce. At the time, the Supreme Court decision was understandable. The myriad 

of differing product definitions, overlapping taxing jurisdictions and other requirements made compliance for out-of-state retailers (and even in-state retailers) enormously complicated. 

Under the current system, there are multiple levels of complexity in tax rates, 

product definitions, and compliance burdens. 

For example, of those states that impose a sales tax, Colorado has the lowest rate 

in the nation—2.9 percent. But, in addition to the base rate, in seven counties, there 

is an extra 0.6 percent use tax for the mass transit system, 0.1 percent to support 

science and cultural centers, and 0.1 percent for the new Broncos football stadium. 

Those three taxes apply in all of Denver County for instance, but only in part of 

Broomfield County. There are four other similar taxes that apply to all or part of 

certain areas in Colorado. Then there are the more than 200 cities, towns and counties that tack on their own sales and use taxes. Finally, the state updates the complete list of all taxes twice a year . . . And that’s just one state. 

The greatest complexity often exists in the states’ differing characteristics of the 

exact same product, which can result in confusion to consumers and retailers alike. 

For example, a baseball cap might be considered clothing in one state, but sports 

accessories or equipment in another state. Or a particular candy bar might be considered food in one state and candy in another. 

It is also extremely costly to deal with the differing state tax rates and product definitions. Overall, Staples spends $4 million annually on sales tax collection and 

compliance. This includes employing over 30 full-time associates to collect and remit 

sales and use taxes, comply with state tax audits, and handle sales tax exemptions, 

and software to process the sales tax exemptions. This does not even include the 

significant expense of hiring outside legal and tax counsel when a complex issue 

arises. 

In an effort to reduce this enormous complexity and level the playing field among 

retailers, Staples joined many in the business community in urging the states to develop a simplified, uniform method of imposing and collecting sales taxes. We, like 

many, were skeptical as to whether it could be accomplished; but the states have 

done an extraordinary job in creating an historic agreement. 

In November 2002, 34 states and the District of Columbia approved the Streamlined Sales and Use Tax Agreement; 40 states are now signatories. 

Businesses and states have worked together to make compliance relatively simple 

and reduce the cost and burden of collecting sales taxes.

• Uniform Definitions: By providing for uniform product definitions, the Agreement eliminates the current confusion for consumers and retailers resulting 

from the exact same product being characterized differently by different 

states. In the baseball cap example above, the Agreement provides for uniform treatment as clothing in all states.

• State Decision to Tax or Exempt: States will continue to determine which 

items are taxable and which are tax exempt. For example, some states, like 

Utah, tax food, whereas other states, like Massachusetts, do not. The Agreement would not affect this differing treatment.

• Tax Rates: States and localities will continue to determine their individual 

tax rates. The Agreement provides for one general tax rate per state (and a 

second rate on food and drugs), and a single local rate per jurisdiction—reVerDate 0ct 09 2002 16:45 Dec 16, 2003 Jkt 089266 PO 00000 Frm 00081 Fmt 6633 Sfmt 6621 C:\WORK\COMM\100103\89635.000 HJUD1 PsN: 89635
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sulting in one rate per zip code. (The locality must still use the same tax base 

as the state, e.g., if a state decides to exempt clothing, a local jurisdiction may 

not decide to tax clothing.) By providing for a single tax rate per zip code, 

a retailer can easily calculate the sales tax rate, needing only to properly code 

the item and identify the zip code of the purchaser.

• Additional Simplification Features: The Agreement also includes uniform 

audit procedures and a centralized state administration of local sales and use 

taxes to reduce (to one) the number of business sales tax filings in any state. 

Further, retailers will not be held liable if state-provided information, such 

as rates, boundaries, or zip codes, is incorrect.

• Affordable Software: Simplification software has been developed that will be 

available to retailers and will make compliance affordable and easy.

• Small Business Exemptions: Important for small business, the proposed legislation to implement the Agreement exempts businesses with less than $5 million in remote sales from collection responsibilities.

States are now working to conform their state tax laws to the Agreement. For the 

Agreement to become binding on participating states, at least 10 states representing 

20 percent of the population must enact legislation substantially complying with the 

provisions of the Agreement. As of today, 20 states representing more than 30 percent of the population have enacted the Agreement into their state laws. Numerous 

other states are working on legislation. 

In response to the Supreme Court and Congressional encouragement, the states 

have done the difficult work of reforming and simplifying their sales tax laws. The 

Supreme Court in Quill all but begged Congress to get involved, when it noted, 

‘‘Congress is now free to decide whether, when, and to what extent’’ states may require out-of-state retailers to collect sales taxes on remote purchases. The Supreme 

Court envisioned a time when its decision should no longer apply and placed the 

issue squarely in the purview of Congress. That time has come. Congress should 

now enact the Simplified Sales and Use Tax Act. 

Only by enacting the Simplified Sales and Use Tax Act can Congress give full effect to the reforms, allow the states to implement the simplified system, and collect 

the taxes the states are already owed. 

Before concluding, I would like to put to rest two common misconceptions. First, 

collecting the sales tax already owed on remote purchases is not a new tax. If the 

remote retailer does not collect the tax, the consumer still owes the state use tax 

on the purchase. 

Second, collecting sales tax on remote purchases is not a tax on the internet, nor 

will it harm the growth of the internet or the e-commerce marketplace. Solid internet businesses will continue to prosper. Staples.com, our internet business, like 

many, has thrived in recent years as more consumers use the internet as a convenient method to shop. Ultimately, a good internet business model well-executed will 

thrive—a poorly conceived and executed model will not succeed simply due to a reduced tax collection responsibility. 

In an ironic twist, Staples now owns the Quill Corporation. We bought it six years 

after its victory in the Supreme Court. But now that we own it, we wish we could 

simply ask the Supreme Court to reverse the decision. Even though current law 

benefits Quill, Staples believes all retailers, including Quill, should be on the same 

level playing field. 

Staples urges Congress to enact the Simplified Sales and Use Tax Act. It will result in the simplification of state sales and use tax systems and provide a level playing field for all retailers. 

Thank you for the opportunity to testify today.

Mr. CANNON. I am going to shift a little bit and ask questions 

first. I normally wait until the end to ask questions, but I would 

like to ask several quick questions, if we could do it quickly. This 

is really just informational from my point of view. 

My understanding, Mr. VanWoerkom, is that in the case of Staples, you guys basically have a nexus with every sales tax State in 

the country and so your website—you already charge tax on your 

website, sales tax on your website. 

Mr. VANWOERKOM. We charge tax on our website, that is right. 

Mr. CANNON. That has got to be a difficulty for you, because——

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Mr. VANWOERKOM. As I said, it is a great difficulty. It costs $4 

million a year and takes about 30 individuals to do it. 

Mr. CANNON. Just two other things. In the first case, in the case 

of your person who bought the $10,000 system in New York, 

doesn’t New York have a use tax or some kind of business inventory tax that they work aggressively to execute on? 

Mr. VANWOERKOM. They do have a use tax. I think aggressive 

is probably too strong a word in terms of how hard they try to collect it. 

Mr. CANNON. We have probably a different view of this. I am offended by the aggressiveness of the State tax commissioners everywhere in America, and I suspect that your former customer, your 

would-be customer, might have that same problem at some point 

in time. 

But one other question. How are you going to deal with the fact 

that each of your stores is going to be selling to people and delivering products to various zip codes plus four around the area? Do 

you see that as a hurdle for you to implement, as opposed to one 

flat tax for the jurisdiction where the store exists today? 

Mr. VANWOERKOM. You know, just like every other online retailer, we do business based on zip codes. If you have ever bought 

anything over the Internet, you will see that they always ask for 

your zip code——

Mr. CANNON. Right. 

Mr. VANWOERKOM.—and that dictates how we can deliver, how 

quickly we can deliver. If you——

Mr. CANNON. But would it be simpler for you to translate that 

into a tax dollar amount on each item, because you are already 

using zip codes. 

Mr. VANWOERKOM. Yes. It is very easy because that is already 

sort of a fundamental of how we do our business. 

Mr. CANNON. Thank you, Mr. VanWoerkom. 

Governor Owens, you mentioned that you view this as an attack 

on federalism, but what you would have here is actually an interstate compact. It would have legislative, judicial, executive functions, but it would not be the Federal Government that performs 

those functions. Is there not some health in having a—I mean, in 

other words, is that really a problem with this particular tax? 

Governor OWENS. Mr. Chairman, a very good question. My concern about if Congress authorizes States to join together to collect 

sales taxes on each other, I think instead of having a wide diversity 

of taxes within our 50 States, instead of having the tax competition 

that we have today, where low-tax States frequently benefit from 

higher employment and a stronger business climate than high-tax 

States, I think what you would be seeing is a move to essentially 

a unitary system of taxation. 

I understand that States have the option of going into the compact. I also understand to some extent States have the ability to 

define what they want to tax. I also, though, understand that in 

the reality, that once you have joined the compact, you, in fact, 

have given up a significant amount of your sovereignty in terms of 

wanting to change the rules of your State tax system. 

Mr. CANNON. Could a State not withdraw from the compact? 

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Governor OWENS. It could, but in our real world, once you had 

gone into this compact and once you had started to have increased 

revenues—— Mr. CANNON. You would essentially have to forego those revenues. 

Governor OWENS. You would actually have to forgo—— Mr. CANNON. Because you would have no context for—— Governor OWENS. So I think in the real world, it would be very 

difficult to pull out of this compact once you have, in fact, chosen 

to join it. 

Mr. CANNON. So the only correcting force on this compact is not 

the States, although together they could have a process, but it 

would be an external Congressional oversight. 

Governor OWENS. That is correct. 

Mr. CANNON. Which this Committee would probably have. 

Governor OWENS. Well, it is more power. [Laughter.] 

Thank you. Ms. Riehl, I understand your concern with certainty, 

but I have had this discussion with several of your members. The 

economy is growing, and as the economy grows, your people sell 

more and they make more money, assuming they can raise prices 

or reduce costs, which is becoming increasingly difficult. But at 

least the growing economy is, generally speaking, good for your industry. It seems to me that historically, and I believe in the future, 

the Internet is going to be a driving force in growing the economy. 

So I wonder why your group is so clear in its opposition. I understand the certainty piece, but——

Ms. RIEHL. Actually, Mr. Chairman, we believe that a healthy retailer, both today and in the future, is going to be multi-channel. 

The certainty that we are speaking to really has to do with what 

it requires of us in order to comply with the law as a collector. We 

are talking about being a collector. 

Mr. CANNON. I understand that certainty piece, but what I don’t 

understand is given the growth—I mean, Staples has made a clear 

determination to be both online and have a retail channel, and 

your members can do the same kind of thing. But I am wondering 

if you are not killing the goose in the process that lays the golden 

egg by hurting the Internet, if you think that this would hurt the 

Internet, which I do. 

Ms. RIEHL. Actually, I think that for a remote seller, there are 

already in the voluntary agreement wonderful benefits for a voluntary participant. Under a mandatory system, remote sellers 

would have all of their costs of collection covered, even above and 

beyond what any traditional seller gets in the 17 States that give 

compensation, for a period of 4 years. That basically means that 

there is no burden. If cost is the determinant of burden and if costs 

are paid for, there is no burden. 

Mr. CANNON. But the burden I am wondering about is the burden on the growth of the economy, which is not the same as the 

burden on each of your individual members in a particular circumstance. I just hope that your organizational—think about this, 

because I believe that your group has already disproportionately 

benefitted from the growth in the economy. 

But I will stop moralizing and turn the time over to the Ranking 

Member, Mr. Watt. 

81

Mr. WATT. Thank you, Mr. Chairman. 

In my opening statement, I intentionally did not position myself 

in this debate and I think I need to do that for my own benefit and 

for everybody’s benefit. 

We have been working on this issue for a long time, and I believe 

there is a serious problem which needs to be addressed. But when 

the bill was dropped and my staff approached me about whether 

I would be a cosponsor, I intentionally said I don’t want to cosponsor this particular bill because I think my role in this process is 

to get to whatever the best legislation we can get to to solve the 

problem. 

What I don’t think I can accept, Governor Owens, though, is your 

notion that there is no problem, or that this is somehow a new tax, 

or the fear of what might happen in the future should be something that we should be overly consumed with. I mean, States 

make decisions about how they are going to act just like everybody 

else does. 

I think we have got a problem and we have got to try to address 

it. Whether this bill is the perfect vehicle for addressing it is an 

entirely different issue. Let me try to focus on the bill itself and 

the solution itself. 

I think it might have been Mr. Isaacson who expressed concern, 

or maybe Governor Owens, about privacy issues. How are the privacy issues here any different than any other privacy issues that 

we have to address in our dealings with the Internet, in even the 

collection of information that brick-and-mortar retailers have to collect when they do a point-of-sale collection of taxes? Do you see 

that there is somehow a different privacy issue that is at play here 

than there is generally, and if so, if I could just get your quick responses to that, and if it is going to be long and protracted, maybe 

I want to get a written response to it, because I want to get to a 

couple of other questions that I want to ask you. 

Governor or Mr. Isaacson, whichever one. 

Mr. ISAACSON. I think there is a difference, Mr. Watt, and I will 

try to explain it very briefly. First, what you are doing is collecting 

information that is going to be shared among 40 different State 

revenue departments, and then in addition to that, being provided 

to private companies who are the so-called private service providers, and these private service providers, who are the ones who 

are going to be running the system for the States and for the retailers, also have subcontractors who are going to have access to that 

information. 

There is nothing in the SSTA that monitors who has that information. There is nothing in the SSTA that calls for an independent 

monitor or auditor of that——

Mr. WATT. So is the response to that not to do it or to put something in the bill that does that? I mean, we write privacy provisions 

in. We delegate them to the FTC sometimes, I mean, to write regulations. Is the answer not to do this just because you have got some 

privacy concerns? 

Mr. ISAACSON. If we are going to look at that discrete issue, separate from the other issues, then the answer is that we need to go 

back and what we need to do is have very clear privacy standards. 

82

We need to have independent auditing of those standards. We need 

to have penalties for breaches of those standards. 

Mr. WATT. Okay, that is fine. 

Mr. ISAACSON. All of those are missing. 

Mr. WATT. I am with you on that. I am not arguing with you on 

that. I mean, I think what you have identified is a limitation here 

that needs to be addressed, possibly in this bill. We need to address 

privacy issues. 

Ms. Riehl, you said that, or you acknowledged at the very outset 

of your testimony that there were remaining imperfections. I would 

be very interested in knowing what you think the additional imperfections are so that we can, again, try to address those imperfections. That is what this whole process is all about. I want to ask 

another question, but if you can do that quickly. I may also want 

a written response from you about what you think those imperfections are. 

Ms. RIEHL. They are very few, Mr. Watt. In fact, the IstookDelahunt legislation addresses some of the remaining issues that 

need to be incorporated into the streamlined agreement before a 

mandatory system could take effect, and that includes some sort of 

specifications on compensation. 

I think it has been long held by traditional sellers that we also 

would like to be compensated. We believe that that is another issue 

for another day that we will deal with directly with the States on. 

That is one issue. 

I will say another issue that retail is committed to working with 

the States on is how do you deal with catalog sales that are paid 

for by a check. That is an issue that is residual. It is unresolved 

at this point. JCPenney and Sears, two of NRF’s biggest members, 

still have a large, very vibrant catalog business. It is in our best 

interest to make sure that those kinds of issues are addressed. 

Those are two examples. 

Mr. WATT. Thank you, Mr. Chairman. I yield back. 

Mr. CANNON. Thank you, Mr. Watt. 

I would like to recognize Mr. Feeney from Florida as being here 

with us, but I believe the time would go to Mr. Coble, if you are 

interested in questioning. You are recognized for 5 minutes. 

Mr. COBLE. I thank you, Mr. Chairman. Thank you all for being 

here, folks. I am going to try to beat that red light, so if you all 

could give me brief, terse answers, I would appreciate it. 

Governor, I represent the furniture capital of the world, High 

Point, North Carolina, as does Mr. Watt, and High Point is the 

home to many furniture companies that sell in States and internationally. Some of these companies have been forced to defend 

lawsuits when they are brought by States that want them to collect 

out-of-State taxes. Defending these lawsuits, as you can well imagine, is a costly operation in an already struggling furniture domestic market. 

If the States’ SSTA agreement is not approved by the Congress 

and a simplified standard for collecting sales taxes out of State is 

not adopted, would you have any suggestions that would at least 

assuage the difficulty that our furniture companies are experiencing? 

83

Governor OWENS. Mr. Chairman, yes, sir, I would, Mr. Coble. I 

would suggest that under Bellas Hess and Quill, obviously, there 

is the question of nexus, and that is probably what your furniture 

sellers are running into in terms of—— Mr. COBLE. That is precisely what they are running into. 

Governor OWENS. And so it is certainly within the jurisdiction of 

this Committee under those two Supreme Court cases to, in fact, 

do a better job of defining nexus. 

There are some issues regarding those Supreme Court cases 

where, in fact, the private sector is being drawn into unnecessary 

lawsuits where States feel there is a nexus and the furniture 

maker feels there isn’t, and then you have to go to court to prove 

it. It would be a great opportunity for this Committee to clear that 

area of confusion up. 

Mr. COBLE. Thank you, Governor. 

Ms. Riehl, opponents of the Streamlined Sales Tax and Use 

Agreement have raised concerns that the implementation would tilt 

the pendulum in favor of the brick-and-mortar retailers and unfairly penalize the Internet sales. Is it your understanding that the 

SSTA sales made over the Internet and sales made at the physical 

store would be taxed identically or differently? 

Ms. RIEHL. It would be the same. 

Mr. COBLE. Have you heard the opponents’ concerns about that? 

Ms. RIEHL. We have, and really, it has had to go, Mr. Coble, 

more to the cost of collection, which we have addressed in the 

Istook-Delahunt legislation. 

Mr. COBLE. Okay. Mr. Isaacson and Mr. VanWoerkom—and by 

the way, thank you all. You are helping me beat that red light. 

Mr. Isaacson and Mr. VanWoerkom, let us assume that we approve this agreement and, in turn, authorize States to require outof-State merchants to collect sales tax on all sales. Is the implementation there to make it go? Are we ready to respond to this? 

Mr. ISAACSON. Mr. Coble, I think that is the precise problem that 

we have. The SSTP doesn’t know what the cost of collection is. The 

SSTP’s own pilot project regarding computer software says we don’t 

have it yet. It is not ready to go. The conformity legislation that 

the States have been considering is not being adopted in conforming fashion, but instead, they are gaming the system. There 

are these end-runs being made around the legislation by renaming 

taxes by adding new taxes as part of the conformity process. 

Mr. COBLE. All right, let me hear——

Mr. ISAACSON. We are not ready for that. 

Mr. COBLE. Thank you, sir. Mr. VanWoerkom? 

Mr. VANWOERKOM. You know, I think, with all due respect, I 

think what Mr. Isaacson is talking about here is at the margins. 

I think the system can go. It will work and it will be ready. 

Mr. COBLE. Mr. Isaacson, revisiting Ms. Riehl’s response to my 

question, do you think the taxes would be identical? 

Mr. ISAACSON. Well, the costs of collection are much greater for 

an out-of-State retailer. If you look at the furniture manufacturer 

that you were talking about who is already on the margin, can he 

afford the $4 million of compliance costs that Mr. VanWoerkom is 

indicating his company is incurring, or the 30 additional employees 

that are going to be required in order to collect tax for over 7,000 

84

different tax jurisdictions? Those burdens are enormous and the 

terms of the SSTA do not say that retailers will be provided for all 

of the costs of collection. 

Mr. COBLE. Thank you, folks, and you all have deprived me of 

the wrath of the Chairman because I beat the red light. [Laughter.] 

Mr. CANNON. Very little penalty, by the way. 

Mr. WATT. Could I get the gentleman just to yield before he 

yields back his time, just to clear up one question from Mr. 

Isaacson. 

You testified and said again in response to Mr. Coble’s question 

that local jurisdictions and States are changing the name of taxes. 

I can’t figure out why there would be any incentive to do that. If 

they can’t collect the tax now and we put in place a regime that 

allows them to collect it, what interest would they have in renaming the tax so that they couldn’t collect it again? I don’t understand 

that. 

Mr. ISAACSON. I think I can explain it. In order to participate in 

the SSTA, the uniformity provisions apply not only to taxation imposed on out-of-State retailers, but it applies to the application of 

your system within the State, as well. So let me use perhaps a humorous example, in reality that has occurred. 

Minnesota, in passing conformity legislation, was confronted with 

the problem that they had a tax on fur that they wanted to maintain even though fur fits into the definition of clothing in Minnesota, which it is my understanding is not taxable in Minnesota. 

So it would have resulted in fur being removed from the uniform 

tax base. It is quite simple. What they did was simply to no longer 

call it a use tax but call it a special fur tax, and no longer do you 

have uniformity. 

In Tennessee, they have a single item tax and what they have 

done is they have changed the name of that tax, as well, in order 

to avoid the application of the SSTA to that form of taxation. 

So what you have States doing is keeping the disparities that 

exist in their system, but doing it through this, what I have referred to as gaming the system, by doing end-runs around the uniformity provisions in the SSTA. 

Mr. CANNON. The gentleman yields back. 

Mr. Delahunt, are you interested in asking questions? 

The gentleman is recognized for 5 minutes. 

Mr. DELAHUNT. I thank the Chairman. I also thank him for calling this hearing. I am sure it is the beginning of a process. I think 

a lot of the questions that have been posed, I think the answers 

have been very informative. 

And I have to agree with Mr. VanWoerkom in terms of the complaints that have been articulated, Mr. Isaacson, by yourself. They 

really are on the margin. You know, fur in Michigan, whether you 

call it fur or you call it something else, I mean, I think the issues 

or the problems that Quill has presented far exceed the complaints 

that you registered, and I say that with all due respect. I know 

where you are coming from and I understand that you have a certain perspective, one that has to be respected and part of the discourse. 

Governor, you are a member of the National Association of Governors? 

85

Governor OWENS. Yes, sir. I am a member of the NGA, National 

Governors Association. 

Mr. DELAHUNT. How many governors support the concept and 

how many governors are opposed? 

Governor OWENS. By far, the greatest majority support increasing tax revenues through collecting this tax. 

Mr. DELAHUNT. That is Republican and Democratic? 

Governor OWENS. Absolutely. 

Mr. DELAHUNT. I am glad to hear that that be the case. It is bipartisan in nature. [Laughter.] 

Again, I think we would have a disagreement as to whether this 

is a new tax or whether it is simply an issue of collecting a tax that 

is due and owing, but because of the Supreme Court decision, is no 

longer there. 

You say the vast majority. Do you have a number out of the 50? 

Governor OWENS. Mr. Chairman and Congressman, sometimes it 

varies. It depends on how specific we get to the issue. But again, 

the vast majority of governors support the new revenue. What I 

would suggest, with all due respect, is whether or not it is a new 

tax, and I understand the two legitimate issues as to whether it is 

or isn’t, without a doubt, it is billions of dollars of new revenue that 

governors would like to spend and that legislatures would like to 

spend. So we can almost agree to disagree on whether it is a new 

tax, but nobody disagrees that there is billions of dollars that are 

presently in private pockets that will go into governments’ pockets 

if, in fact, Congress acts on this issue. 

Mr. DELAHUNT. I dare say that some of your colleagues would 

prefer to use the term ‘‘lost revenue’’ as opposed to new revenue. 

Governor OWENS. Yes, I am sure they would. 

Mr. DELAHUNT. But having said that, in your conversation with 

your colleagues, they are faced with a certain dilemma. Obviously, 

the economy is hurting and we know that somewhere in the neighborhood of $100 billion in the aggregate represent the collective 

deficit of the States, and it does come down to a question of cutting 

or taxing as opposed to lost revenue, at least in my lexicon. 

To supplant that lost revenue, aren’t States faced with a major 

dilemma? I mean, are we going to shift the burden to local communities? Are we going to, for example, rather than provide State aid 

to education, increase the property tax revenue? 

Governor OWENS. Congressman, very good question, and I guess 

I never thought I would be actually uttering these words, but I only 

wish that the States since 1995 had been as fiscally responsible as 

Congress, because it is a fact between 1995 and 2001, State spending increased——

Mr. DELAHUNT. You would even have some disagreement over 

here on this panel. [Laughter.] 

Governor OWENS. Yes, but it is a fact that between 1995 and 

2001, State spending increased at twice the rate of Federal spending. And so while I understand that the States aren’t receiving all 

the revenue that all the States would like, I would also suggest 

that State spending has been increasing as a percentage of GNP 

faster than Federal spending——

Mr. DELAHUNT. But this——

86

Governor OWENS.—and some of our challenge is of our own making. 

Mr. DELAHUNT. Right. But what I am suggesting is some of 

that—I presume that some of that increased State spending has 

been an increased allocation for a variety of different reasons, 

whether it be a more equitable education formula, the money that 

goes back to the localities. And if that money is not going back, 

then those localities are going to be forced to lay off fire fighters. 

They are going to be forced to lay off police officers, emergency responders. Somebody has got to pay. There is no such thing as a 

free lunch. 

What I see is that by eliminating the option that this particular 

legislation, or the issues that we are talking about, reduce the 

number of options available to a State realistically in terms of how 

they secure their revenue. And the legislation that I filed with my 

colleague from Arkansas, or Alabama, rather, and Mr. Istook, I 

think recognizes that, and it was endorsed, by the way, by the National Mayors. I mean, they see that problem. 

Here we are, Governor, we are talking about homeland security 

and we are laying off fire fighters and we are laying off emergency 

responders. We are laying off police. That is, I would suggest, is a 

national security issue. 

The example that Mr. VanWoerkom gives in terms of——

Mr. CANNON. Does the gentleman have a question? The time has 

run——

Mr. DELAHUNT. I am warming up. I am warming up. [Laughter.] 

No, I don’t have a question, but I respect the opinion, and if we 

have a second round of questions, maybe I will have another question. 

Mr. CANNON. The gentleman yields back. 

The gentleman from Texas, Mr. Carter. Oh, the gentleman from 

Florida, Mr. Feeney. Would you like to ask questions? 

Mr. FEENEY. Yes. 

Mr. CANNON. The gentleman is recognized for 5 minutes. 

Mr. FEENEY. Thank you, members of the panel, and Mr. Chairman, for having this discussion. 

Mr. VanWoerkom, very quickly if you could for me, just two practical concerns I have is that you mentioned in your testimony that 

each locality and State would continue to keep its own tax rates. 

That could be upwards of 7,750 different tax rates if we included 

every municipality and locality within the United States. And in 

addition to the definitional problem, in the number of items that 

are included in the State tax code that may or may not be subject 

to the tax, it seems to me an incredible complexity to comply with. 

And secondly, I have the following hypothetical for you, and I do 

have a question for my friend, Governor Owens, so I hope that you 

will get to it pretty quick. 

Supposing that I live in the Orlando, Florida, area. I have my 

laptop as I travel to New York. I order an item from an online 

warehouse, say, in Minnesota. They ship from a factory in Arizona 

to my mother, who lives in Pennsylvania. How do we guarantee of 

these national sales tax or these State agreed-upon taxes in that 

instance? How do you actually guarantee that you are going to 

87

treat different taxpayers equally in terms of guaranteeing a 100 

percent collection rate? 

Mr. VANWOERKOM. Okay. The answer to your first question is 

that under the new system, the taxes would be organized for purposes of collection by zip code, which, as I said earlier, that is the 

way we do our business. We deliver by zip code. We organize by 

zip code. And it would be much simpler than what we have today, 

which is done by county or by State, and sometimes it is half a 

county or a quarter of a county and they have different rates. If 

we can do it by zip code, it is simple. It is just software. It is very 

easy to do. 

In terms of your hypothetical, the way the system would be organized and the way we do it today is it is based on where we deliver. 

So if you order and have it delivered to your home, that would be 

the tax rate that we would use. 

Mr. FEENEY. Well, and respectfully, you are with a tremendous 

American corporation. I am a huge supporter of Staples. You obviously have huge incentives for a whole variety of reasons to comply 

with the tax code. Not everybody that wants to put his or her 

wares on the Internet is going to have the same integrity that Staples does and not everybody is going to have the same incentives 

to comply. So I still have huge concerns. 

Remember, we are not only talking about tax rates, but we are 

talking about as many as 50 different definitions of what is taxable, and you compound that with the myriad of zip codes in a 

country and you don’t have quite infinite possibilities about what 

is taxable at what rate in the country, but you have an awful lot 

of complex work and it is going to take a pretty significant computer to comply with, one that probably Staples and other major 

manufacturers could afford, but I am not sure that everybody 

could. 

But I do want to turn to Governor Owens. I last visited you when 

I went out to Colorado Springs to see the Space Command and it 

was a beautiful evening and you were very humble when you 

talked about the problem that States have had in response to Mr. 

Delahunt, who, I think, ably pointed out that there is a fiscal crisis 

in many of our States. But what you didn’t point out is that States 

like Colorado and Florida, that have exercised some significant 

spending restraint, led the nation in job growth. While the national 

recession has affected Colorado and Florida, we are in a lot better 

shape than folks in a lot of States. You probably cringe when you 

hear the word, but I notice in some States where they have had 

spending restraint problems, they even have recalls for governor. 

That may be an ugly word for governors, I don’t know. 

But I would like you to address the incentive question. There are 

two sets of incentives that I worry about here. Number one, if I am 

a State, I am going to start exempting everything under the sun 

in my sales tax code. I am going to want to move toward an income 

tax code, which already, by the way, is treated unfairly because you 

get to deduct it from your Federal taxes. So I am going to tax income where I can collect it and I am going to exempt everybody in 

my State from sales tax, if I can. 

And secondly, the incentive to drive Internet companies offshore 

because of the fact that they will not have the same incentives and 

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the same integrity as Mr. VanWoerkom’s company. What do you 

think about that possibility? 

Governor OWENS. Congressman, I think you have raised two very 

good points and I would agree with both of your concerns. I think 

the offshore issue is a very, very important issue. I think that 

while we have some great companies like Staples that have chosen 

to do business in 45 States and thus have 45 places of business, 

I mean, you have other companies like Walter Drake in Colorado 

Springs which has one place of business and it is Colorado, and if 

we were able to pass this compact and then have Colorado join it, 

all of a sudden, Walter Drake would be collecting sales taxes for 

purchasers in 45 or 50 States. There is some significant new cost 

to be imposed if we, in fact, pass and allow the compact at the Federal level and allow States to join it. 

I think the question of overseas movement of Internet sales is a 

very significant threat. You could go to Mexico very easily. You 

could go around the world. And certainly then you could try to tie 

that into compacts, but it gets harder and harder to get to that tax 

dollar the more we try to tax it. 

Mr. CANNON. The gentleman’s time has expired. I thank the gentleman. Those were very interesting questions. 

We have been joined by the gentleman from Ohio, Mr. Chabot. 

Did you have anything? The gentleman is recognized for 5 minutes. 

Before the gentleman starts, may I just ask—let me poll the 

Members of Congress. How many would like to have a second 

round? [Show of hands.] 

I thought that Mr. Carter would do that, but I will certainly 

make some time available for Mr. Bachus if he would like some 

time. 

Mr. Chabot, would you like an additional round? 

Mr. CHABOT. I don’t need it, but it is up to you, Mr. Chairman. 

Mr. CANNON. And Mr. Bachus, would you like to have someone 

yield to you? Would you like to ask some questions? And Mr. 

Feeney, would you like a second round? 

Mr. FEENEY. I won’t be able to make it back. I have got a meeting in the Capitol. 

Mr. CANNON. We actually have until 3:30 before we have a vote, 

and given the interest, I am inclined to just have some time yielded 

to Mr. Bachus and end the hearing, and then if you have additional 

questions, we can do those. I have some that I will do in writing 

and we will go to that point. 

Mr. Chabot, did you want to inquire? 

Mr. CHABOT. Yes, Mr. Chairman. Thank you. 

Mr. CANNON. The gentleman is recognized for 5 minutes. 

Mr. CHABOT. Thank you, Mr. Chairman. I want to first apologize 

to the panel for not being here personally during the course of your 

testimony. I assure you that I will read, review each of the testimonies that you have submitted in writing to us. I am used to having about two or three meetings at the same time around this 

place, but during this time, I literally had five meetings that I was 

bouncing around, and most of them were pretty important, too, so 

I want to apologize for that. 

Let me just ask Mr. Isaacson, if I could, a question here. In your 

written testimony, you suggest that if Congress decides to create 

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a national system of State taxes by expanding State tax jurisdiction, it should be accompanied by a repeal of the Federal Tax Injunction Act. This would provide taxpayers with access to Federal 

courts if the State revenue departments violate taxpayers’ rights 

under the Federal law and the Federal Constitution. 

Could you please kind of expound upon the reasons for your recommendation in this area, because I think it is pretty significant. 

Mr. ISAACSON. I would certainly be glad to, Mr. Chabot. 

Mr. CHABOT. Thank you. 

Mr. ISAACSON. The Tax Injunction Act was enacted by Congress 

in recognition of the fact that States should be permitted to administer their tax systems within their own State borders with their 

own State courts. The proposal that is before you today is to federalize State tax systems and to allow State and local tax obligations to be exported across State boundaries. So you are now going 

to have companies located in Maine that are going to have tax obligations in California, for example. 

As a practitioner in this field, I know the disadvantages that outof-State companies are in when they have to contend with the administrative proceedings of State revenue departments and then 

deal with State court proceedings in front of judges who are frequently elected in those States, and you have no political reputation in the State and you are far from the forum. 

If the States are asking Congress for Federal legislation, then 

the Tax Injunction Act should not be a bar to taxpayers being able 

to go into Federal court to enforce their rights under those Federal 

laws, as well as to enforce their Federal constitutional rights, 

which will continue to exist under the Commerce Clause. So the 

quid pro quo for any expansion of State tax authority should be access to Federal court by taxpayers who are located outside of the 

taxing State. 

Mr. CHABOT. Let me just follow up with one thing. I know this 

was addressed somewhat, I have been told, prior to my getting 

here, but let me ask it again if I could of Governor Owens and Mr. 

Isaacson, about the expansion of State taxing powers and the effect 

that that might have on competitiveness of U.S.-based e-commerce 

companies and also the increasing problem that that would have 

on American jobs and the current competition that we are engaged 

in around the world. 

So if you could both touch—I know you already have to some degree touched on that, but if you could do that for my benefit, I 

would appreciate it. 

Governor OWENS. Congressman, I would be glad to. I am convinced, and I know this is an underlying issue on this issue, that 

the Internet has led to significant new revenues for virtually all 

levels of government, that the efficiency and the way that it has 

increased productivity means that all of us, State, Federal, and 

local, have, in fact, received new revenues, significant new revenues because of the Internet. I understand that there are some uncollected revenues depending upon how we define it, but I think 

that the sum of what has happened has benefitted all governments, 

even within this existing system which doesn’t allow us to capture 

all of the possible revenue. 

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Having said that, I believe that we need to encourage progress 

and the usage of the Internet, because from a productivity standpoint and from a personal choice standpoint, it has given us unparalleled benefits as consumers and really as citizens. And so if you 

start to tax it, I think you are going to get less of it. So that is one 

of the reasons why I am opposed to either the new tax or the new 

collection of revenues from the Internet. 

Mr. CHABOT. Okay, thank you. And briefly, Mr. Isaacson, anything you would like to add to that? 

Mr. ISAACSON. Digital products can be delivered from Krakow, 

Poland, as easily as they can from New York City to American consumers, and integrated manufacturing, assembly, warehouse facilities in Taiwan can use UPS and FedEx and DHL and deliver products within the same time frame that they can from Memphis, Tennessee. 

Congress may be able to legislate and require American companies to collect tax, but they are not going to be able to require foreign companies to do so. So the effect of imposing new tax obligations on interstate commerce in this country will be to favor foreign 

competitors of American direct marketers to the disadvantage of 

America’s economy and American jobs. 

Mr. CHABOT. My time has expired. Thank you very much. 

Mr. CANNON. The gentleman yields back. 

Mr. Delahunt, did you—— Mr. DELAHUNT. Yes, I move to strike the last word, and I intend 

to yield my time. 

Mr. CANNON. Actually, the gentleman is recognized for 5 minutes. You didn’t have to strike the last word here. 

Mr. DELAHUNT. Thank you. I just want to make one comment 

about productivity. We all agree that the Internet has made the 

American worker more productive, and that is why we recently 

unanimously from this Committee supported the enactment of a 

permanent moratorium on access to the Internet. And yet, at the 

same time, I think, Mr. Isaacson, your example of Taiwan and 

China could very well be restated as a State in this country which, 

for all intents and purposes, becomes a warehouse for goods from 

Taiwan to be distributed elsewhere, a State with no sales tax. 

And yes, while we see data indicating that the economy has 

grown, the reality is, and I think your example, Mr. VanWoerkom, 

supports that, is that the United States in the past three or 4 years 

has lost almost three million jobs. So I dare say, think about this 

in terms of a job bill. 

And with that, I will yield to my friend from Alabama, Mr. Bachus. 

Mr. BACHUS. Thank you. Let me ask some of the panelists, 

maybe the representative of the National Retail Association. Recently, I went on and purchased something from Eddie Bauer on 

the Internet and they did charge me a sales tax, and I have had 

that happen several times. But I heard Mr. Isaacson say it is almost impossible to do that. How is it that some national companies 

are charging people when they purchase over the Internet? They 

are deducting a sales tax. 

Ms. RIEHL. Mr. Bachus, in the case of Eddie Bauer, Eddie Bauer 

has nexus with all 50 States, including Alabama, because there is 

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a store someplace probably in Birmingham or in Montgomery, and 

that is the reason why it is done and collected. 

As Mr. VanWoerkom had mentioned, and as is true for most retailers right now, you are having to do it in your online sales if you 

have nexus, and there is questionable nexus that exists for some 

online merchants, which is why Illinois’ Attorney General is going 

after and suing those companies for compliance under whether or 

not nexus has been established. 

We are looking for a solution here that is good for the growth of 

business over time, so that we can plan our business and grow our 

business without being limited by pros and cons in the taxing field. 

That is it. 

Mr. BACHUS. Governor Owens, I enjoyed your speech when you 

came to Alabama recently. Are you here representing the governors, as a representative of the National Governors Association, 

or just on your own behalf? 

Governor OWENS. No, sir, I am not representing the National 

Governors Association. As we had discussed earlier, most governors 

are actually on the other side of me on this issue, though I think 

most Americans would probably be on my side. [Laughter.] 

Mr. BACHUS. I would think most Americans are opposed to any 

tax, I mean, for any reason whatsoever. They would probably be 

against government. They would probably abolish the State Government and the Federal Government. [Laughter.] 

But I think we all agree that probably wouldn’t be prudent. 

[Laughter.] 

But having said that—— Mr. DELAHUNT. It depends who is in charge. [Laughter.] 

Mr. BACHUS. And I am not sure that they wouldn’t have a good 

argument. [Laughter.] 

What percentage of total tax revenue coming into Colorado is 

sales tax? 

Governor OWENS. You know, at the State level, Congressman, it 

is about 30 percent of our budget. 

Mr. BACHUS. In some Southern States, it is 70 percent. I know 

Alabama, Governor Bob Riley tried to shift that recently and it was 

voted down, even though he was going to try to shift it to income 

and property tax, which some people here had proposed as a solution, just don’t rely on sales tax. But our Constitution says you submit it to the people and they chose overwhelmingly to keep our 

sales tax and to continue to raise 70 or 80 percent of our funds 

with the sales tax, which, whether it is wise or not. 

That sales tax in Alabama that is imposed, do you have any reason to believe it is unconstitutional or that it is illegal, the sales 

tax they have proposed, or our sales tax in Alabama or these other 

States which have sales tax? 

Governor OWENS. No, sir. I certainly believe that a sales tax is 

constitutional. I think the Alabama experience was probably confused a little bit by the additional $800 million in addition to the 

shift to income. 

Mr. BACHUS. Well, actually, a $692 million deficit, and then $500 

million, and I knows the figures are argued. I don’t know as a governor. I will tell you that we are under Federal court order on three 

different things to come up with money. So I believe that if you 

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were the governor of Alabama and Federal courts had ordered you 

to come up with additional revenue, to comply with Medicaid and 

to manage those programs, whether you wanted to or not, you 

would probably have to do that. 

But I will say this. The State of Alabama, in defense—I know 

that Congressman Feeney said that other States have been better 

about being more efficient, but if you look for what the State of 

Alabama raises per capita, it is substantially less than the State 

of Colorado or the State of Florida. So the State Government in 

Alabama, in defense of it, is getting by on about 60 percent of what 

the State Government in Colorado or Florida is. 

Mr. CANNON. Would the gentleman yield? Can we bring your 

governor to Utah for a short period of time and see if we can’t get 

our per capita down? 

Mr. BACHUS. I am sure that he might be more comfortable in 

Utah than Alabama. [Laughter.] 

Mr. CANNON. Since we collect more taxes, he probably actually 

is. 

Governor OWENS. Congressman, Colorado has the fourth-lowest 

per capita taxes in the country. I don’t know——

Mr. BACHUS. Well, Alabama is the second lowest. Arizona is first 

and Alabama is second. We are substantially below the number 

three by about 14 percent. 

Mr. CANNON. Do you have any new districts opening up down in 

Alabama? 

Mr. BACHUS. Do we have what? 

Mr. CANNON. Any new districts opening up? 

Mr. BACHUS. I hope not. 

Mr. CANNON. I am just thinking about moving. 

Mr. BACHUS. But I would say this. It is a difficult issue and I 

think the wonderful thing about our democracy is we discuss all of 

them. We take different opinions and then we try to come to consensus. I agree with Governor Owens on about 99 percent of what 

he normally, his positions. 

Mr. WATT. Would the gentleman yield? 

Mr. CANNON. Mr. Delahunt controls the time. 

Mr. DELAHUNT. I will yield. 

Mr. WATT. I thank the gentleman for yielding. I just wanted to 

do two things. Number one, I wanted to ask unanimous consent to 

submit for the record a statement from the National Conference of 

State Legislators——

Mr. CANNON. Without objection, so ordered. 

Mr. WATT.—which apparently indicates that it is not only the 

governors who are on the opposite side from Governor Owens, it is 

the State legislators, also. 

[The prepared statement of the National Conference of State 

Legislators follows:]

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PREPARED STATEMENT OF THE NATIONAL CONFERENCE OF STATE LEGISLATORS


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Mr. WATT. And number two, I wanted to just tick off the four 

concrete things that I have heard that I would like to undertake 

to work on about this bill and then invite the panelists, if they 

want to add to the list in writing, to do so. 

I heard compensation for collection, which Ms. Riehl talked 

about; catalog sales paid for by check, which Ms. Riehl talked 

about; the possibility of access to the Federal courts as a quid pro 

quo, which Mr. Isaacson talked about; and certainly the privacy 

issue which might ought to be addressed in the bill, which Governor Owens and Mr. Isaacson talked about. 

What I wanted to do was invite you all as witnesses to, if there 

is an additional thing—don’t give me your philosophy about whether a bill is needed. I think I am beyond that. I think we have got 

a problem. We need to try to solve it, but we need the best bill we 

can, and if this bill has shortcomings, we need to know what those 

shortcomings are. 

I will yield back to Mr. Delahunt. 

Mr. CANNON. Would the gentleman yield? Thank you. 

I would like to point out that NCSL is not all legislators and, in 

fact, represents some that others probably are not with NCSL but 

rather with Mr. Owens on this issue. 

Just one question, Mr. Owens, for you. You have done a lot of 

tax cutting in Colorado. Have you considered or do you have a use 

tax and have you considered getting rid of that, since I think it is 

the most hateful tax on earth? It makes guilty people out of all of 

us that have it in our States. 

Governor OWENS. Mr. Chairman, Colorado in 1992 put in place 

a constitutional requirement that any new taxes go to a vote of the 

people, and because of that, we have had a very conservative record 

of taxing over the last 12 years. We are the fourth-lowest tax State 

in the country. And so I don’t believe there has been much discussion in terms of doing away with the use tax, but I do understand 

your concern. 

Mr. CANNON. I hope that picks up some momentum somewhere. 

Mr. Isaacson, the SSTA adopts a destination-based sales tax system. Can you talk a little bit about the advantages or disadvantages of that system? 

Mr. ISAACSON. It creates tremendous problems, especially for 

catalog shoppers. If you take an example of a, for example, a generous grandmother in the State of Utah who wants to send Christmas gifts to children in four different States, it means that she 

needs to determine the tax rates in all four of those different 

States. She needs to determine what the exemptions are, because 

in some States there may be food or clothing which are exempt and 

others where it is not. There are local taxes in those States, and 

so she has to determine what the local taxes are. 

Mr. CANNON. Well, let me ask you, just as a permutation of that, 

suppose she goes into a local florist and she has four children 

around the State that she wants to send something to. What is the 

burden on that local florist? 

Mr. ISAACSON. The ease that is associated with a point-of-sale retailer is that the tax is being collected across the counter, and that 

is where the major difference comes between the in-State retailer 

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and the out-of-State tax collector, who has to determine and comply 

with the laws of all of these different jurisdictions. 

The consumer is severely disadvantaged by a system that says 

that they need to self-compute the tax when they are filling out 

their catalog order form and when they are filling out—when they 

are making out their check. It becomes an almost insurmountable 

task for a catalog shopper to comply with that kind of system. 

Mr. CANNON. Just one other question. How do the expansion of 

State taxing powers affect the competitiveness of U.S.-based e-commerce companies and the increasing problem of American jobs 

being lost to foreign competition? 

Mr. ISAACSON. I think it is inevitable and responded to Mr. 

Chabot accordingly, that the effect especially on digital commerce 

would be that businesses would flow overseas. You know, the Commerce Clause has been the principal engine of economic development in this country for 200 years before Europe created a common 

market. And the effect of creating this kind of balkanization of the 

American tax system, I think would have the inevitable effect of 

driving American direct marketers and foreign direct marketers to 

be taking American jobs overseas. 

Mr. CANNON. Thank you. The gentleman’s time——

Mr. DELAHUNT. I would just like to have one more minute, and 

I want to address this request specifically to Ms. Riehl to add to 

the list of items in terms of homework that Mr. Watt has already 

requested. 

What I would be interested in is, clearly, there are a number of 

small mom-and-pop retail operations, brick-and-mortar, that are 

working on the margins. Mr. Isaacson talks about direct marketers. 

I dare say that there is a much larger number of, again, small businesses in our local communities that sponsor the Little League 

team, that are involved in school programs on a regular basis, that 

really, if you will, are part of the fabric of our community. Have 

there been surveys, some sort of empirical data that indicate the 

impact on them and what does that mean in terms of the economy, 

the local economies, and clearly one talks about another traditional 

source of revenue for localities, which is the property tax. What 

kind of an impact has that had? 

Ms. RIEHL. Small businesses are also represented by the National Retail Federation to many hundreds. We have an Independent Stores Board, which I can say is as vocal or more vocal 

than our large multi-State sellers in pushing for simplifications. A 

sole proprietorship in any State, and I dare say that a sole proprietorship in the State of Colorado is probably worse off than in any 

other State because of how complex Colorado is in its tax collection 

system. Nonetheless, that sole proprietorship spends days each 

month just complying with the local forums and with the remittance responsibilities. 

The simplifications in the Streamline Agreement would automatically reduce to hours, if not days, of compliance. It gives the 

option to a small seller to outsource that responsibility altogether, 

and if Congress, in fact, does act, they would probably fall below 

a de minimis for any remote sales they do outside their State unless they exceeded $5 million in remote sales. So there are advanVerDate 0ct 09 2002 16:45 Dec 16, 2003 Jkt 089266 PO 00000 Frm 00108 Fmt 6633 Sfmt 6601 C:\WORK\COMM\100103\89635.000 HJUD1 PsN: 89635
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tages, and believe me that there are members of National Retail 

Federation that are vocally in support on a small business scale. 

Mr. CANNON. The gentleman’s time has expired. 

One of the issues we didn’t deal with very much was this $5 million exemption. I am surprised—I was astounded at the number, 

for instance, of companies that are going to be over $5 million that 

do business on eBay, so that is an issue that I think we probably 

need to look at again in the future. 

One other point that was intriguing today was the issue of privacy. This Committee probably has the biggest grief or the most jurisdiction on the issue of privacy of any Committee in Congress, 

and that is one that we care about a lot. My chief of staff just flew 

out from Utah to Washington, and to see what would happen, he 

bought his ticket with cash, and you might just guess what happened. I mean, he was given the—he was taken directly from the 

ticket line into security. I think he expected that. I think he went 

to the ATM and got the cash just to see what would happen. 

But we have a series of problems that are emerging and they relate to privacy, because you are doing a significant—if nothing else, 

by going zip code plus four, you are requiring people in America to 

produce a great deal more information. That is an issue that I expect we are going to pursue in the future. 

But I want to thank the panel for being here today. We appreciate your comments. They have been very enlightening. I think 

that the issue is now going to join. I think that after this hearing, 

the number of people on both sides of the issue are going to come 

out and start organizing, start moving the issue. We appreciate 

your willingness to be here today and help frame it at its inception. 

Thank you again, and the Committee is adjourned. 

[Whereupon, at 3:40 p.m., the Subcommittee was adjourned.] 

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PREPARED STATEMENT OF GROVER NORQUIST

Chairman Cannon and other members of this committee, thank you for the opportunity to address you regarding the Streamlined Sales Tax Project, or SSTP. 

My name is Grover Norquist and I am president Americans For Tax Reform (ATR), a non-partisan, not-for-profit non-partisan coalition of taxpayers and taxpayer groups who oppose all federal and state tax increases. 

I submit my comments to you today in strong opposition to legislation that 

gives states that implement the Streamlined Sales Tax Proposal (SSTP) the 

authority to require remote sellers to collect sales and use taxes. 

As numerous Governors and State Legislators faced large deficits due to the erroneous promises made by several state legislatures during the economic boom of the 

1990s, many moved to cut spending and reign in government programs in an effort 

to balance their budgets. States such as Colorado have worked tirelessly to enact 

budgets that do not raise taxes or include consumption or use fees. However, several 

legislators believe that taxing Internet commerce is an acceptable solution to balance their budgets and create new revenue streams to expand government. Under 

the guise of providing competitive balance with main street businesses SSTP supporters have hoodwinked individuals and businesses into supporting this tax harmonization plan. 

The SSTP is the first and essential step to create a stealth tax hike that would 

extend a national state sales tax to out-of-state Internet and other remote purchases, costing consumers hundreds of millions of dollars. Taxpayers expect that all 

pro-taxpayer lawmakers should oppose the creation of this tax and spend cartel. 

Organizations that support the expansion and growth of government, such as the 

National Governors Association (NGA) and the National Council of State Legislatures (NCSL), strongly support the creation of a Streamlined Sales and Use Tax 

Agreement (SSTP). Supporters of the plan claim that the agreement, which has 

been entered into by 34 States, is merely an effort to allow states to participate in 

national discussions about how to ‘‘simplify’’ and ‘‘streamline’’ their sales and use 

tax system. 

Proponents of SSTP include state tax commissioners and their staff, multi-state 

accounting firms, who stand to benefit from the compliance complexity SSTP induces, and tax-and-spend lawmakers desperate to ease the process of collecting 

taxes—so as to more easily increase taxes. 

These organizations claim that if they don’t tax the Internet, they will have to 

result to drastic measures to keep schools open, prisoners off the street, and the 

lights on in government buildings. 

SSTP advocates tout the merits of a study by two professors at the University of 

Tennessee who concluded that state and local governments would collect over $440 

billion in ‘‘new revenue’’ by expanding the sales tax to all Internet commerce, pushing their case for ‘‘tax simplification.’’ However, these numbers are extraordinarily 

optimistic. Recent reports released by organizations such as the Direct Marketers 

Association refute these claims. Their studies cite revenue estimates of only $4.5 billion in increased tax revenue. 

However, neither study takes into consideration the negative impact of extending 

sales taxes to include many currently untaxed online transactions. Since Internet 

sales only comprise 1.5% of all sales, a new tax will harm small online retailers and 

severely impact online economic growth and productivity. In short, the SSTP attempts to create a new policy taxing a very small sector of the retail market and applies a regressive, overly punitive tax on online sellers and buyers. 

Additionally, supporters of the SSTP claim that it is not fair citizens must pay 

taxes on purchases in stores but not on purchases through catalogues or over the 

Internet. However, they do not honestly address the need for sellers to have a significant nexus in order to collect sales and use taxes. A bricks and mortar store collects tax on purchases in order to pay for services provided by the local government, 

including police and fire protection. A customer that does not reside in that 

state or locality should not be forced to pay taxes for services he/she does 

not receive. This is the epitome of taxation without representation. 

Creating a harmonized sales tax code, to be applied to all Internet commerce, 

adds to the tax burden of the very ‘‘bricks and mortar’’ stores that SSTP supporters 

claim to protect. To succeed in an information-based economy, ‘‘bricks and mortar’’

or Main Street merchants have set up shops online and expanded their businesses 

to a universe of customers far beyond their immediate geographic locations. To implement a new sales tax collection system would require merchants to master the 

nation’s every tax jurisdiction, adding to the already overwhelming tax burden of 

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vestment—not taxation—are the keys to improving the economy and creating new 

jobs. 

Behind the scenes, the Streamlined Sales Tax Project is not benign. The SSTP 

movement has printed a national park’s worth of paper about its benign intentions, 

but none of its operatives will attest to the net taxpayer impact of SSTP, now and 

in the future. 

At its quarterly meetings, held in various geographic locations across the country 

to allow as many budget-constrained tax commissioners to attend as possible, SSTP 

planning committees debate various tax changes while members of the audience 

work to agree in consensus. Taxpayers—and most lawmakers—would have a hard 

time understanding many of the minutia discussed at these meetings. These 

minutias are precisely the problem; many tax code changes could make tax increases easier to implement and exemptions more difficult. 

Implementing a sales tax in a state like Oregon would be much easier if the code 

is readily available and previously agreed upon by every state, or a majority of 

states. 

For these reasons, every major free-market and pro-growth association opposes 

the SSTP. These groups include Americans for Tax Reform, the National Taxpayers 

Union, Citizens for a Sound Economy, Club for Growth, Citizens Against Government Waste, the Cato Institute, the Heritage Foundation, the American Enterprise 

Institute and dozens of state-based think tanks across the nation. 

These groups oppose the adoption of the SSTP because the history of the movement does not support a commitment to tax neutrality, and because its present proponents cannot guarantee that the net impact on taxpayers in every state will be 

zero. 

Increasing taxes should not be easy. All efforts to reform tax collection must ensure that competition among states and localities is protected and encouraged. Legislators must work to minimize impact of taxation to the greatest extent possible. 

Simplifying or streamlining the process is a very laudable goal and should be done 

to limit the paperwork and bureaucratic nonsense that taxpayers face each year 

when filing their taxes. However, a lawmaker’s first priority should be to create a 

method that benefits taxpayers first and accounting firms second, while promoting 

economic growth and improving the efficiency of commerce. 

I will address refute four of the ’s seven goals outlined in ‘‘The Lawmaker;s 

Guide,’’ subtitled ‘‘2003, The Year of Decision.’’ This booklet is issued by the 

Multistate Tax Commission (MTC) to provide talking points and outline a plan for 

SSTP supporters to use when lobbying Congress, businesses, and other organizations to support the implementation of the SSTP. These four goals cause taxpayers 

to suffer directly and/or afford taxpayers no protection from future harassment. I 

will quote directly from the SSTP text and rebut. 

STATE AUTOTONOMY

SSTP tax-and-spenders: 

‘‘Legislatures will choose what is taxable or exempt in their state. However, participating states will agree to use the common definitions for key items in the tax 

base and will not deviate from these definitions. As states move from their current 

definitions to the Projects definitions, a certain amount of impact on state revenues 

in inevitable. However, it is the intent of the Project to provide states with the ability to closely mirror their existing tax bases through common definitions.’’ (Page ii, 

Lawmakers Guide: 2003). 

Taxpayers rebut: 

A good example of how the SSTP removes a state’s autonomy to shape your own 

tax code and how the plan will harm taxpayers is provided by the changes Minnesota made to conform to the SSTP. Prior to adopting the SSTP, Minnesota imposed sales taxes only upon the price of each product purchased from a seller that 

had nexus in the state. The new SSTP definition of ‘‘sales tax’’ broadened Minnesota’s sales tax to include shipping, handling, and postage. Now, thanks to the 

SSTP, the people of Minnesota pay a new tax on goods purchased outside the state, 

but the also get the added bonus of paying a higher price for goods bought from 

in-state vendors. 

In the second sentence the SSTP booklet uses the term ‘‘key items’’ to explain how 

the plan will simplify the tax code by ensuring that each state applies an equal 

sales tax to these items. However, SSTP supporters do not define or clarify what 

the taxable ‘‘key items’’ are. In fact SSTP supporters have changed or manipulated 

the plan in order to gain the support of politically powerful states such as Texas 

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and New York. Therefore, the stated goal that the plan will ‘‘simplify and streamline’’ the tax code is completely false. 

In addition, MTC admits that the possibility of ‘‘impact’’ will occur when states 

implement SSTP tax code recommendations. Exemptions provide no long-term relief 

for taxpayers; adopting an exemption is more difficult than implementing the code 

in its entirety. Any effort to ‘‘reform’’ the tax code in each state must begin with 

the policy that the code will offset any possible tax increase by a dollar-for-dollar 

tax reduction. 

It is clear, from this example, that supporters of the SSTP tax cartel are not up 

front or honest about the negative impact of extending sales taxes to include many 

currently untaxed online transactions. 

RATE SIMPLIFICATION

SSTP Tax-and-spenders: 

‘‘States will be allowed one state rate and a second state rate in limited circumstances (food and drugs). Each local jurisdiction will be allowed one local rate. 

A state or local government may not choose to tax telecommunications services for 

example at one rate and all other items of tangible personal property or taxable 

services at another rate. State and local governments will accept responsibility for 

notice of rate and boundary changes at restricted times.’’ (Page ii, lawmaker guide 

2003). 

Taxpayers rebut: 

The booklet does not explain that allowing each state and local government to 

have their own tax rate compounds the current problem of tax simplification. 

The free market, free enterprise movement has a long record of supporting fundamental tax reform and competitive tax jurisdictions. Rate simplification towards one 

flat rate is a commendable goal. The SSTP does not accomplish this objective! 

If enacted the SSTP would force each merchant in the U.S. to collect a national 

sales tax. This means that a vendor would be forced to monitor and calculate up 

to 7,500 different tax rates on any and all sales. Furthermore, merchants would be 

responsible for determining each customer’s nine-digit zip code, since many zip 

codes cross local jurisdictions. 

The SSTP does not achieve simplification. In fact, the plan adds a new tax and 

regulatory burden on every business in America. 

ADMINISTRATION OF ALL STATE AND LOCAL SALES AND USE TAXES

SSTP Tax-and-Spenders: 

‘‘Businesses will no longer file tax returns with each local government within 

which it conducts business in a state. Each state will provide a central point of administration for all state and local sales and use taxes and the distribution of the 

local taxes to the local governments. A state and its local governments will use common tax bases.’’

Taxpayers rebut: 

Several states have looked at reducing compliance costs to reduce local jurisdictions’ liability. Taxpayers’ concern is that this will reduce competition between local 

jurisdictions to attract businesses and homeowners, and increase the likelihood of 

a tax cartel in which counties, cities, and towns are subject to the special interests 

of a central tax collector. 

Taxpayers do not benefit from centralized power, when the purpose of that power 

is to collect and redistribute their tax dollars. For example, in Maine, some localities 

sent more tax dollars to Augusta than were returned to them, causing massive taxpayer dissatisfaction and eventual overturn of the law. 

UNIFORM SOURCING RULES

SSTP Tax-and-spenders: 

‘‘The states will have uniform and simple rules how they will source transactions 

to state and local governments. The uniform rules will be destination/delivery based 

and uniform for tangible personal property, digital property, and services.’’

Taxpayers rebut: 

A single entity responsible for all destination/delivery based transactions and resulting tax compliance in each state will create more bureaucracies to consume more 

taxpayer dollars. The same argument made against a single state tax collection 

agency can be made in opposing a central third-party tax collection agency. The central collection of all sales taxes again increases the likelihood of a tax cartel that 

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will limit competition among states and ensures that individual states are subject 

to the special interests of a central tax-collecting agency. 

Furthermore, defining source transactions to conform to a uniform definition will 

open a Pandora’s box for privacy watchdogs. Authorizing a central tax collection 

agency to integrate the new SSTP created tax collection software into the business 

mainframe of every merchant in America raises numerous questions about the protection of consumer privacy. The central agency would have access to an individual’s 

home address, phone number, financial information, and other pieces of information 

that are highly sensitive and confidential. 

CONCLUSION: 

The SSTP was created to implement a tax harmonization scheme that would 

allow states the authority to implement a predetermined and already-designed system for taxing consumers. Under the guise of tax simplification, SSTP supporters 

want to override a Supreme Court decision that prevents states from taxing interstate commerce without explicit Congressional permission. Thus creating a ‘‘stealth 

tax’’ that extends sales tax to currently untaxed products, services, and sales. 

In addition, the plan forces state legislatures to cede important control over aspects of their state’s sovereign tax system in deference to a national tax cartel. This 

is the first and essential step to implement a quiet tax hike and extend a national 

state sales tax to out-of-state Internet and other remote purchases, costing both 

buyers and sellers millions of dollars. In sum, the SSTP diminishes states from having the autonomy to shape their own tax policy, costs each state’s economy jobs, and 

devastates their technology sector. 

Americans for Tax Reform remains committed to defeating efforts to expand the scope of sales taxes and reducing current barriers to e-commerce.

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LETTER FROM AND PREPARED STATEMENT OF MICHAEL J. TAVILLA

AND STEVE DELBIANCO


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LETTER FROM KARIN BROWNLEE


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LETTER FROM KENNETH DANIEL


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LETTER FROM MICHAEL COPELAND, WITH ENCLOSURE


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ENCLOSURE


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LETTER FROM KEN HITE


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LETTER FROM STAN CLARK


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LETTER FROM THE SOCIETY OF AMERICAN FLORISTS


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PREPARED STATEMENT OF THE INTERNATIONAL COUNCIL OF SHOPPING CENTERS

ICSC is the global trade association of the shopping center industry. Its more 

than 43,000 members in the United States, Canada and 77 other countries around 

the world include shopping center owners, developers, managers, investors, lenders, 

retailers and other professionals. The shopping center industry contributes 

significantly to the U.S. economy. In 2002, shopping centers in the U.S. accounted for over $1.2 trillion in retail sales and over $53 billion in state 

sales tax revenues and employed almost 11 million people. ICSC is a founding member of the e-Fairness Coalition, a diverse group of brick-and-mortar and online retailers and trade associations that support a level playing field with regard 

to sales and use tax collection. 

We strongly support the Streamlined Sales and Use Tax Agreement, as 

well as the Streamlined Sales and Use Tax Act (H.R. 3184) recently introduced 

by Representatives Ernest Istook (R-OK) and William Delahunt (D-MA), and appreciate this opportunity to submit our testimony to this Subcommittee. We believe 

that addressing remote sales tax collection separately from the Internet access tax 

moratorium will provide tremendous clarity to the debate, and we thank you for addressing this issue. 

The Streamlined Sales and Use Tax Agreement (SSUTA) is a voluntary multistate agreement that outlines a comprehensive system to streamline, simplify and 

collect our nation’s various sales and use taxes. Such simplification measures include uniform sourcing, definitions, registration, central administration 

(and limits to changes) of state and local rates, exemptions, seller compensation, remittance and amnesty rules. The SSUTA is the product of years 

of negotiations between various business and governmental groups including the 

National Conference of State Legislatures, National Governors Association, U.S. 

Conference of Mayors and the National Association of Counties. 

The SSUTA takes effect when at least ten states representing at least twenty-percent of the population have been certified compliant with the terms of the Agreement. While twenty states, including Texas, Ohio, North Carolina, Washington, Indiana and Utah, have so far enacted conforming legislation within their own states, 

it is unclear whether the threshold has been actually met (due to effective dates and 

other provisions within several states’ bills). 

While the SSUTA provides a blueprint for states to create a simplified 

sales and use system, it remains a voluntary system for out-of-state retailers. Remote sellers may benefit from the system (e.g., amnesty provisions) and decide to enter into it, however, they cannot be compelled to participate in the program and collect remote sales and use taxes. Only Congress has the authority 

to allow states to require out-of-state merchants to collect sales and use 

taxes on their behalf. If such authority is granted, only those states that have 

sales and use taxes and want to exercise their collection authority can do so. 

Contrary to what some have said, it is not the existing moratorium on Internet 

access taxes and new, multiple or discriminatory taxes on electronic commerce that 

precludes states from requiring out-of-state retailers to collect sales and use taxes. 

Instead, it is a 1992 Supreme Court case, Quill v. North Dakota, that held that remote merchants are not required to collect sales and use taxes for states in which 

they do not have a physical presence or ‘‘nexus’’. However, the Court clearly recognized Congress’ authority to enact legislation that would allow state and 

local governments to require out-of-state retailers to collect sales and use 

taxes on their behalf (even in the absence of a traditional ‘‘nexus’’). 

H.R. 3184, if enacted, would allow those states that comply with the simplification 

provisions of the SSUTA to require remote sellers to collect sales and use taxes on 

their behalf. It provides for reasonable seller compensation and proper governance 

of the SSUTA. H.R. 3184 applies only to sales and use taxes, and would not 

subject retailers to other out-of-state taxes such as franchise, business activity and income taxes. 

In addition, it contains a small business exemption whereby businesses with annual remote sales of less than $5 million would not be required to collect remote 

sales taxes. ICSC believes the $5 million small business threshold is appropriate and should not be lowered during the legislative process. 

Rationale: 

Simply stated, we believe that all goods, regardless if they are purchased over the 

Internet, via catalog or in traditional retail stores, should be subject to the same 

state and local tax collection requirements. One form of commerce should not 

receive preferential tax treatment over another. Unfortunately, existing tax 

law is structured to favor electronic commerce over sales made in local retail stores. 

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The following point cannot be overstated: The taxes which states should be 

able to require remote sellers to collect are not new taxes. Instead, they are 

existing use taxes which buyers are currently obligated to remit to their 

state and local governments. [Sales taxes are generally paid and collected by the 

retailer at the place of purchase, while use taxes are supposed to be paid by a buyer 

to his or her state of residence on an out-of-state item that is brought or mailed 

to his or her home.] 

As a practical matter, however, most individuals are either unaware of their use 

tax obligations, or simply do not bother to comply, and it is very difficult for states 

to enforce collection by their residents. Although some states have added a ‘‘use tax’’

line to its individual income tax returns, most taxpayers in these states remit just 

a small portion of what is legally owed. Unless an out-of-state merchant has a 

store or warehouse in a buyer’s home state, most consumers only remit use 

taxes to their home state when they purchase an item out-of-state that has 

to be registered in-state, such as an automobile or boat. 

We support electronic commerce and believe it should be fostered. In fact, many 

traditional brick-and-mortar retailers have incorporated e-commerce into their business models in order to obtain new customers and better serve existing ones. However, as a matter of fairness and sound tax policy, Internet-based retailers should 

not receive a competitive tax advantage over traditional brick-and-mortar merchants 

simply because electronic commerce is a newer and growing form of transacting 

business. 

The reality is, as more and more Americans go online to purchase goods, 

the competitive tax advantage that Internet-based retailers currently enjoy 

will continue to negatively affect many local brick-and-mortar retailers, 

shopping centers and their communities. Not only will traditional retailers sell 

fewer goods, but their employees will suffer from reduced working hours, wages or 

layoffs. 

In addition, many state and local governments are experiencing budget deficits, 

including significant drops in sales tax revenues—revenues that provide essential 

public services such as education, police and fire protection, and road repairs. Governments that rely heavily on sales tax revenues to fund key programs will 

either have to increase taxes (including sales, property and/or income taxes) 

or reduce or eliminate key services. If governments decide to increase sales tax 

rates to make up for lost revenues, lower-income individuals would wind up paying 

an even higher share of their income on sales taxes since they are less likely to own 

computers and purchase products on-line. 

Our critics assert that electronic commerce is a new and growing industry and, 

therefore, should not be saddled with ‘‘old world’’ sales tax collection requirements. 

Our response is that, while electronic commerce is a growing and important part 

of our economy, subjecting it to the same sales tax collection requirements that traditional merchants have been subject to for decades would not harm its growth or 

vitality. Electronic commerce will continue to flourish, regardless of whether or not sales and use taxes are collected by remote retailers. 

These critics also claim that forcing Internet retailers to collect sales and use 

taxes for the thousands of state and local taxing jurisdictions across the country 

would be too burdensome on electronic commerce and cannot be done. We agree that 

all businesses, especially small businesses, should not be overburdened by sales tax 

collection requirements. 

However, under H.R. 3184, states would have to comply with the simplification 

provisions of the SSUTA before they could require remote retailers to collect sales 

taxes. In addition, such retailers would be given reasonable compensation for their 

collection efforts, as well as access to certified tax collection software. Also, as stated 

earlier, the bill provides an exemption for businesses with annual remote sales of 

less than $5 million. 

In conclusion, ICSC supports the SSUTA and urges Congress to enact 

H.R. 3184 in order to level the playing field between Internet-based and 

traditional brick-and-mortar retailers. Thank you for this opportunity to express our views on this very important matter.

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PREPARED STATEMENT OF THE NATIONAL GOVERNORS ASSOCIATION

The National Governors Association supports H.R. 3184, the Streamlined Sales 

and Use Tax Act (SSUTA), introduced by Representatives Istook and Delahunt to 

enable states to implement a more equitable and simplified sales and use tax system. 

We are encouraged by the progress state and local governments and the business 

community have made to streamline America’s current state and local sales and use 

tax laws and combine them into a simple, uniform collection and administration system. Thirty-eight states have joined together to approve the Streamline Sales and 

Use Tax Agreement, a model interstate agreement that establishes uniform definitions for taxable goods and requires participating states and local governments to 

have only one statewide tax rate for each type of product. Over the past year 20 

states, representing over thirty percent of the population, have passed legislation to 

bring their sales tax laws into conformity with the agreement, and more are expected by the end of the year. 

This effort was necessary to restore fairness to competition between local retail 

store purchases and out-of-state mail transactions and to provide a means for states 

to collect taxes that are owed under existing law. The SSUTA will allow states to 

implement a twenty-first century sales tax system that can achieve fairness for all 

forms of sales: Main Street, mail order, and Internet. Congress should recognize the 

work of the states and approve the Simplified Sales and Use Tax Act as a means 

of securing equitable collection of sales and use taxes and ensuring that states are 

prepared to support the global electronic marketplace. 

Let us be very clear on one point: the SSUTA is not a new tax, tax increase, or 

a tax on the Internet. Every state that levies sales taxes requires a use tax to be 

paid if a customer’s purchase is made online or out of state. Under current legal 

standards, a state may only impose sales and use tax collection requirements on 

sellers with a physical presence, or nexus, in the state whether the transaction is 

over the Internet or not. As a result, remote sellers are able to compete for customers in a state—whether by mail, telephone, or the Internet—without being required to collect or remit tax on their sales into the state. Competitors that are 

physically present in the state are required to collect and remit the tax. The resulting inequity will only continue to grow as the digital economy expands. 

The streamline effort has the support of brick-and-mortar and online retailers; retail and real estate associations; publicly- and privately-owned shopping centers; 

state and local government groups; and organizations representing firefighters, 

teachers, police and other public sector workers. Congress should recognize the extraordinary work by states to streamline and modernize America’s sales tax system 

and restore fairness to Main Street businesses by passing the Streamline Sales and 

Use Tax Act.

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PREPARED STATEMENT OF CHARLES COLLINS


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