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THE INTERNET SALES TAX: HEADACHES AHEAD

FOR SMALL BUSINESS?

HEARING

BEFORE THE

SUBCOMMITTEE ON REGULATORY REFORM AND 

OVERSIGHT

OF THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

WASHINGTON, DC, FEBRUARY 8, 2006

Serial No. 109–39

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

JEB BRADLEY, New Hampshire 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

RIC KELLER, Florida 

TED POE, Texas 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

DANIEL LIPINSKI, Illinois 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

RAU ́ L GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

JOHN BARROW, Georgia 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Deputy Chief of Staff/Policy Director 

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT 

W. TODD AKIN, Missouri Chairman 

MICHAEL SODREL, Indiana 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

SUE KELLY, New York 

STEVE KING, Iowa 

TED POE, Texas 

MADELEINE BORDALLO, Guam 

ENI F. H. FALEOMAVAEGA, American 

Samoa 

DONNA CHRISTENSEN, Virgin Islands 

ED CASE, Hawaii 

LINDA SA ́ NCHEZ, California 

GWEN MOORE, Wisconsin

CHRISTOPHER SZYMANSKI, Professional Staff

(II) 

C O N T E N T S 

WITNESSES

Page 

Hellerstein, Mr. Walter, Distinguished Professor of Law, University of Georgia, Athens, GA .................................................................................................... 4

Bierbon, Mr. Brian, Senior Director, Federal Government Relations, eBay, 

Inc. ......................................................................................................................... 6

Misener, Mr. Paul, Vice President, Office of Global Policy, Amazon.com ........... 8

Perry, Mr. Ernest, Owner, Perry’s at Southpark, Charlotte, NC ........................ 10

Rawlings, Mr. Rory, Founder and Chief Tax Automation Officer, Avalara, 

Inc., Seattle, WA .................................................................................................. 11

APPENDIX

Opening statements: 

Akin, Hon. W. Todd .......................................................................................... 23

Bordallo, Hon. Madeleine ................................................................................. 24

Christensen, Hon. Donna ................................................................................. 25

Prepared statements: 

Hellerstein, Mr. Walter, Distinguished Professor of Law, University of 

Georgia, Athens, GA ..................................................................................... 27

Bierbon, Mr. Brian, Senior Director, Federal Government Relations, 

eBay, Inc. ....................................................................................................... 42

Misener, Mr. Paul, Vice President, Office of Global Policy, Amazon.com ... 49

Perry, Mr. Ernest, Owner, Perry’s at Southpark, Charlotte, NC ................. 60

Rawlings, Mr. Rory, Founder and Chief Tax Automation Officer, Avalara, 

Inc., Seattle, WA ........................................................................................... 62

(III) 

(1)

THE INTERNET SALES TAX: HEADACHES 

AHEAD FOR SMALL BUSINESS? 

WEDNESDAY, FEBRUARY 8, 2006

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON REGULATORY REFORM AND

OVERSIGHT

COMMITTEE ON SMALL BUSINESS

Washington, DC 

The Subcommittee met, pursuant to call, at 10:00 a.m., in Room 

2360 Rayburn House Office Building, Hon. W. Todd Akin [Chairman of the Subcommittee] presiding. 

Members present: Representatives Akin, Sodrel, Kelly, Bordallo, 

and Christensen. 

Mr. AKIN. The committee will come to order. I am Congressman 

Todd Akin. We will proceed as I make an opening statement. There 

will also be a couple of other opening statements, one by the Ranking Member Ms. Bordallo. She is due here any minute. And also 

from Congresswoman Kelly, also very interested in this topic. After 

that what I would like to do is to proceed through all of our witnesses. 

I think it is better for us who are in Congress, the different staffers that are here as well, I think we get a better picture by just 

running through all of your testimony. Then you can submit written statements if you would like. What I would like to do is in 

order of time, keep you to somewhere in the five minutes range? 

I just want to hit the highlights of what you want to say in five 

minutes. 

When we get done going through all the witnesses we will come 

back with specific questions. Different members here will ask you 

questions based on comments that you made but maybe comments 

that someone else made and want to just cross check with you. 

Typically I have a pretty good record of being able to get things 

done in an hour. 

Today this may be a hot enough topic that we may want to run 

a little bit more than that but I would think maybe at the most 

an hour and a half we should be able to wrap things up. You will 

see these little lights. There is a little light in front of you. When 

it gets red that means your five minutes is up. I don’t usually 

throw these things but still we want to keep things moving. 

Good morning and welcome to today’s hearing entitled ‘‘The 

Internet Sales Tax: Headaches Ahead for Small Business?’’ I want 

to especially thank those witnesses who have traveled to particiVerDate 0ct 09 2002 19:13 Jul 20, 2006 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 G:\HEARINGS\27415.TXT MIKE
2

pate in today’s hearing, particularly all the way from Washington 

State. 

The Internet has emerged as an extremely important channel of 

commerce in our nation. For this reason, we must be vigilant in 

keeping this medium as unencumbered from regulations and taxes 

as possible. I am skeptical of anything that constitutes a new tax 

or imposes new onerous regulations on our nation’s businesses, especially those selling over the Internet. 

We are here to investigate recent federal and state efforts to shift 

responsibility to collect state sales and use taxes to out-of-state 

Internet vendors. A state currently can not impose that burden unless a business has a constitutionally significant presence or ‘‘substantial nexus’’ within the state. Because e-commerce has become 

a vital channel for businesses of all sizes, many states are concerned with the loss of potential tax revenue. 

Consequently, these states have banded together to form the 

Streamline Sales and Use Tax Agreement, which is an effort to 

harmonize sales and use tax laws and simplify tax collection for 

vendors. Member states of this agreement argue that by creating 

a more uniform system of laws in this nation and easing burdens 

on vendors, they in turn should be given the authority by Congress 

to collect sales and use taxes from out-of-state Internet vendors. 

Currently, two nearly identical bills have been introduced in the 

Senate that would provide such authority to states. Both measures 

include an exception from remote sales and use tax collection for 

small businesses. However, the bills differ in how this should be accomplished. Thus far, no companion legislation has been introduced 

in the House. 

Today our panelists will address the many issues surrounding 

implementation of the Streamline Sales and Use Tax Agreement. 

Particular emphasis will be placed on the scope of the current federal legislation and the many new compliance burdens that could 

be placed on our nation’s businesses if this legislation is enacted. 

I look forward to the testimony from our witnesses today. I now 

yield for an opening statement from the gentlelady from Guam. If 

she is not here, we will proceed to a second opening statement. I 

want to explain if it wasn’t previously clear that this is the Small 

Business Committee and one of the things that we are jealous to 

do is to guard small businesses from unnecessary red tape and regulations because we are big believers that small businesses are the 

engine of the future growth of our country. Certainly that is the 

angle that we are looking at this issue from is the Small Business 

Committee. That is why we are having the hearing in the first 

place. 

Now I would recognize the gentlelady from New York State, Ms. 

Kelly. 

[Chairman Akin’s opening statement may be found in the appendix.] 

Ms. KELLY. Thank you very much, Mr. Chairman. I represent 

New York’s Hudson River Valley where small businesses simply 

can’t bear additional burdens, especially as they relate to taxes. 

The existing moratorium that affects state and local taxation of 

Internet transactions should be handled in a way that certainly 

does not have a negative impact on these small businesses. 

3

We cannot forget that we are dealing with small businesses that 

have limited resources in terms of employment and finances which 

also means limited capabilities. When the Government puts unnecessary and unreasonable strains on such, those small businesses 

will be forced to close. There is no doubt that having to collect and 

remit taxes for states other than the state where the small business resides would be an extreme burden. It is not just collecting 

and remitting. 

Specifically, these taxes involve tracking closely where the items 

are purchased as well as the tax code of that state to be certain 

that the proper tax is collected. Further, the paperwork would 

prove to be a nightmare for these small businesses and it would be 

expensive. It is a burden that many small businesses simply cannot 

meet. Companies would be forced to limit sales outside the state 

they are in. 

No business should be held to such limitations simply because 

the tax requirements are insurmountable. I am hopeful that 

through discussions such as this today and in the future that we 

can develop a solution that does not hurt the people who are involved. Most importantly we must work to eliminate existing tax 

burdens on our small businesses and not create new ones. 

I thank all of our panel here today. I look forward to your testimony and I appreciate the sensitivity that you have to this issue. 

Thank you for being here. 

Mr. AKIN. Thank you, Congresswoman. Appreciate your perspective and your care and interest in small business as well. 

Also now from our ranking member, Ms. Bordallo, opening statement, please. 

Ms. BORDALLO. Thank you very much, Mr. Chairman. Greetings 

to all of the witnesses here. I apologize for being a few minutes 

late. 

I want to thank you, Mr. Chairman, for holding this hearing to 

review the application of a sales tax to Internet commerce and the 

affect that this would have on the vitality of American small businesses. I look forward to hearing the testimony today. 

I represent Guam, way out there in the Pacific. Internet based 

commerce is particularly important to my constituents. The advent 

of the Internet and the massive growth of the e-commerce sector 

have certainly opened up a wealth of opportunity for business owners and consumers on Guam and across the country. 

On site such as Amazon.com, eBay and countless others have allowed sellers and buyers and it has made it easier for the purchasing of goods and services at the competitive price. Internet 

based commerce has had a notable positive impact on the U.S. 

economy that has resulted in tens of thousands of new highlyskilled and high-paying jobs. Expectations are that the Internet 

commerce industry will continue to grow in the coming years. 

For example, retail e-commerce sales projected to top $80 billion 

for fiscal year 2005 which is up from $69.2 billion in on-line retail 

sales generated in fiscal year 2004. Many small businesses will 

contribute to and benefit from this growth. The Internet allows 

them to expand their markets at marginal additional cost allowing 

them to compete more fairly with their larger counterparts. 

4

However, the uncertainty of the sales tax treatment of goods sold 

over the Internet is a major obstacle for many small businesses entering into Internet based commerce. In particular, the collection 

and remittance of taxes on Internet commerce is a complex and 

costly problem from small businesses to solve. 

Currently, on-line buyers are taxed according to where the item 

they purchased will be delivered as opposed to where the vendor 

is located. The opposite is the case with traditional over-thecounter sales in traditional businesses. A buyer, for instance, from 

Guam who makes a purchase from a store in Virginia will pay Virginia sales tax. 

Because the tax law varies from state to state and among U.S. 

territories, small businesses, many of which only have a few employees, face difficulty in comply with the complexity of these various tax codes and a barrage of federal regulations that they need 

to follow. 

Although the Internet may be able to quickly connect you to 

every community across the U.S. knowing the particulars for the 

roughly 7,500 distinct tax jurisdictions in the United States, is 

quite a daunting task even for the most talented of entrepreneurs. 

The application of a sales tax to Internet commerce would appear 

to be a potential to curb the further growth of this unique sector 

of the American economy. 

Today’s hearing, gentlemen, will provide us with an opportunity 

to hear more about this issue in an effort to better understand the 

potential impact of tax collections on small on-line retailers. I am 

particularly interested in hearing more on how these changes will 

impact the future development of our nation’s 23 million small 

businesses many of which have already tried their hand at Internet 

sales. Thank you very much, Mr. Chairman. 

[Ranking Member Bordallo’s opening statement may be found in 

the appendix.] 

Mr. AKIN. Thank you for that opening statement. With that we 

are going to just proceed pretty much down the line here with our 

witnesses. Our first is a distinguished professor of law at the University of Georgia, Walter Hellerstein. Did I get that right? 

Mr. HELLERSTEIN. That’s good enough. 

Mr. AKIN. Pretty close? And I note you are a graduate of Harvard 

and the University of Chicago Law School. Look, we’ve only got five 

minutes but we are going to try to be good students and go back 

to class here and try and pick your brain for five minutes of highlights. Thank you. Proceed, please. 

STATEMENT OF MR. HELLERSTEIN, UNIVERSITY OF GEORGIA 

Mr. HELLERSTEIN. Thank you very much, Mr. Chairman. I really 

appreciate your invitation and the opportunity to address this Subcommittee. I want to just try to do two things in my oral testimony. 

One, briefly — 

Mr. AKIN. Is your mic on or is it aimed at you in anyway? 

Mr. HELLERSTEIN. First of all, I want to thank you very much for 

inviting me. I want to focus just on two points in the oral testimony. One, to try to give you a broad overview of what the law is, 

the law of Internet sales taxation. Second, to try to focus on what 

5

policy choices you have should you decide to change the law in any 

way that you deem appropriate. 

First of all, what is the law? Every state that started to have a 

sales tax had this problem. The problem was if someone went to 

a jurisdiction that didn’t have a sales tax, they would lose revenue. 

Their business would lose revenue. So they couldn’t impose a sales 

tax. Washington can’t impose a sales tax on a sale that takes place 

in Oregon which doesn’t have a sales tax. What do they do? They 

impose something called a use tax. What is a use tax? A use tax 

is the same thing as the sales tax but it is within the state’s jurisdiction because it is imposed on the use of property in the state. 

I will give you an example. I come from Georgia. Say I go to Oregon to buy a car. Do I pay a sales tax? No. Why not? Oregon 

doesn’t impose a sales tax. I bring my car back to Georgia. What 

happens? I go to register my car and I pay a use tax equal to the 

sales tax that I would have paid had I bought the car in Georgia. 

Okay. Now, I buy a book from Amazon.com. Do I pay sales tax? 

No. Why not? The sale takes place in Washington or wherever 

their fulfillment facility is. I bring the book back to Georgia. Very 

simple. I go to the book registry. Right? There is no book registry. 

As long as we have a first amendment there probably won’t be a 

book registry. I owe the use tax but I’m not going to be the first 

person in the history of Georgia voluntarily to remit a use tax. Now 

you see the problem. 

The tax is due, I’m not going to voluntarily remit it, and there 

is no jurisdiction over Amazon to require Amazon to collect the tax 

in the same way that a Wal-Mart or a local vendor would collect 

the tax. Why not? For the very reasons that you have already alluded to. There are so many different state tax laws and so many 

different states and counties that the U.S. Supreme Court said, ‘‘It 

is so complicated we’re not going to require the out-of-state vendor 

to collect the tax unless there is a physical presence.’’ 

There you have it very briefly. There is power to tax the stuff 

that I am bringing into Georgia wherever I buy it. There is no 

power to require the out-of-state vendor to collect it and, therefore, 

these taxes that are legally due don’t get collected. 

Now, what do you do about this? If you like the law the way it 

is, you leave it. You do nothing but maybe you don’t and here it 

seems to me there is a question of what you might think about in 

terms of your choices. First of all, I think one policy choice not before you is whether or not something that I buy over the Internet 

is taxable. It is taxable. 

Every state, the 45 of the 50 states that have sales taxes say, 

‘‘We want to tax stuff that you buy in other states that don’t have 

sales taxes.’’ I don’t think that should be on your plate. What is on 

your plate is whether or not it’s right to require a small mom and 

pop business to collect. I think you might want to look at these 

questions in deciding whether the law is appropriate as it is or 

should be fixed. 

What are the costs of collecting sales and use tax under this new 

regime? What are the additional revenues collected under the proposed regime? What is the relationship between nationwide gross 

sales and these costs? What is the relationship between costs in a 

particular state and cost of collection and revenues? What is the reVerDate 0ct 09 2002 19:13 Jul 20, 2006 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 G:\HEARINGS\27415.TXT MIKE
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lationship between having a separate legal entity and cost collection? 

I think in the end you have to decide on the basis of facts that 

I don’t have personally but you will hear from other witnesses what 

is the appropriate line to draw? Right now we have a physical presence test. Does that make sense? Does it make sense if we are concerned about small business, for example? A small business sends 

one sales person into a state and they have physical presence. 

They have to collect a huge multi-million dollar retailer that 

maybe has sophisticated software and a staff of tax people. Maybe 

it is appropriate for them to collect. I don’t know but I think one 

thing you have to ask is what test makes sense, if any? Maybe you 

want to say nobody who sells over the Internet should ever have 

to collect a tax because that makes sense. All I’m telling you, or 

urging you to focus on, is the policy issues associated with the collection of taxes and the revenues of the states that derive from it. 

With that I see the yellow light is on. I will end my testimony. 

[Mr. Hellerstein’s testimony may be found in the appendix.] 

Mr. AKIN. You have redeemed about 30 seconds of your time. 

That is admirable and a great way to start a hearing. Thank you 

very much for coming in and we’ll get back with some questions. 

Our next witness is Brian—is it Bieron? 

Mr. BIERON. Bieron. 

Mr. AKIN. Bieron. And you are the Senior Director of Federal 

Government Relations with eBay? 

Mr. BIERON. Yes, sir. 

Mr. AKIN. And hailing from Washington, D.C. right here. Is that 

right, Brian? 

Mr. BIERON. Well, before I started in Buffalo, New York. I’m 

originally from Buffalo, not from here. 

Mr. AKIN. Thank you, Brian. Please proceed. 

STATEMENT OF MR. BIERON, EBAY, INC. 

Mr. BIERON. Mr. Chairman, thank you, and thank you to the 

members of the Subcommittee. I would like to thank the Committee for giving eBay this opportunity. We agree that this is a 

critically important issue to small business entrepreneurs who increasingly use the Internet to compete in the 21st century economy. 

One of the most important developments on the eBay market 

place is that hundreds of thousands of small businesses from across 

America have discovered that eBay is a vibrant place to do business. Currently over 700,000 of our nation’s small business people 

are using eBay as a valuable marketing channel. We believe that 

nearly a half million of these began their business off of eBay, in 

many cases in brick and mortar stores. 

They are using the Internet as a new way to compete and grow. 

Increasingly main street and the Internet are not competing with 

each other so much as main street small businesses are using the 

Internet to compete and survive against global retail companies. 

That creates small business jobs in communities all across the nation. The stated goal of the Streamline Sales Tax Project is to increase state revenues. 

7

Before I talk about the SSTP process itself, I wanted to mention 

a few points related to the overall economic environment that we 

think are important in this debate. One is that the U.S. economy 

is strong and growing and small business entrepreneurs and 

innovators using Internet technologies in many cases are one of the 

most important engines of growth in job creation. 

No. 2 is that state tax revenues including sales tax revenues are 

up at record levels. There simply is no state revenue crisis. Three, 

off-line and on-line retail are both growing and in terms of actual 

dollars of retail sales, off-line retail actually grew $65 billion more 

than on-line retail in the last quarter that we have data. 

Please keep in mind that off-line retail is still 97 percent of total 

retail sales. The SSTP is supposed to deliver real simplification and 

true sales tax simplification would have real merit but we believe 

that the SSTP is a long way from true simplification. 

Complying with the sales tax regimes in every state tax jurisdiction is about more than just calculating how much sales tax is required for each product sold. Although with over 7,600 different tax 

jurisdictions, just calculating is a major job in itself. Complying 

with the SSTP would require four distinct phases, calculation and 

collection of the money, remittance to the proper jurisdiction, and 

all the record keeping because you can be audited every year. 

I am afraid that it is not possible to do justice to the SSTP in 

just five minutes but I think it is revealing that both into the entire SSTP scheme is the clear understanding that small businesses 

cannot comply on their own ever. The SSTP is designed to required 

small businesses to be associated with technology firms, Certified 

Service Providers, or CSPs for short, that will need to do the job 

for them. 

I believe that it is really a critical point for every one here to 

walk away with. The SSTP supporters admit that their system 

won’t work unless outside technology companies are involved. If 

small businesses can’t or don’t use an outside technology, then 

under the SSTP they basically need to get off the Internet. While 

states claim that they will pay those providers, the amount promised is likely to prove very insufficient and would put small businesses at the mercy of a very unreliable system 

With this in mind and with over 700,000 Americans using the 

eBay market place to help run their small businesses, we believe 

that a workable and robust exemption for small business is an indispensable component of any Internet sales tax plan. 

SSTP legislation in recent Congress has included a small business exemption in name, often called an SBE, but the substance 

fell short of the mark. The level of the SBE was arbitrary and far 

below established federal small business side standards for retailers. This deficiency still plagues S.2152, the recently introduced 

Enzi bill. 

Senator Byron Dorgan, a long-time advocate of the SSTP, recently introduced S.2153 with a small business exemption process 

that eBay believes would protect small businesses. It would empower the Small Business Administration to establish the SBE-size 

standard in process. They are the federal agency with the mission 

to help promote America small business and entrepreneurs and the 

experience to do this job right. 

8

On behalf of the hundreds of thousands of small businesses using 

eBay today and the countless small business entrepreneurs that we 

are confident will be empowered by the Internet in the coming 

years, we are committed to working with Congress and this Committee, as well as the SBA to ensure that this process is done right. 

Thank you and I am happy to answer any questions. 

[Mr. Bieron’s testimony may be found in the appendix.] 

Mr. AKIN. Thank you, Brian. I appreciate your bringing it in on 

time also. Our next witness is Paul—is it Misener? 

Mr. MISENER. Yes, sir. 

Mr. AKIN. And you are with Amazon? 

Mr. MISENER. That is correct. 

Mr. AKIN. So we have got both eBay and Amazon side by side 

agreeing on every point or maybe not. 

Mr. MISENER. Usually. Usually. 

Mr. AKIN. Proceed, please, Paul. 

STATEMENT BY MR. MISENER, AMAZON.COM 

Mr. MISENER. Thank you, sir. Thank you for inviting me to testify as well. I appreciate that. 

Mr. Chairman, the Internet is a great enabler of small business. 

In it’s early days the Internet was a haven for innovative technically savvy small businesses. Today it has become an important 

channel for all kinds of small retail businesses, not just those with 

technical expertise. Less we forget, a decade ago Amazon.com, 

eBay, Yahoo, and other current household names were observe 

small businesses with something in common. 

Technical skills that enabled them to provide content-based services useful to nontechnical people. These small business owners 

overcame the technical challenges of putting up and running a 

website, tracking consumer traffic to the site, and with the help of 

electronic payment processors facilitating retail transactions. 

At the time none of this was easy but as these small businesses 

grew into the big businesses they are today, they have actually 

simplified the task of getting a small retail business on-line. Indeed, these companies and others now provide services so that today’s small businesses don’t have to be technically savvy to make 

good use of the Internet. 

There are several different e-commerce business models now coexisting and vigorously competing on the web. One model of platform retail where large companies such as Amazon.com and eBay 

and Microsoft’s MSN provide e-commerce services to other companies both large and small. 

My friends at eBay deserve particular credit for their success 

with the platform model. eBay sells marketing, inventory management, sales tracking, reporting, and other services to small businesses and annually has tens of billions of dollars of sales transactions running through their website. 

The first public policy question presented by these circumstances 

is whether the states should be authorized to require remote sellers 

to collect tax. By conserving fuel, saving time, and using fewer public roads and other local services, e-commerce arguably should remain under taxed. Amazon.com does not have a position on this 

high-level policy question. We concluded almost six years ago, howVerDate 0ct 09 2002 19:13 Jul 20, 2006 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 G:\HEARINGS\27415.TXT MIKE
9

ever, that Amazon would not be hurt by a sales tax collection requirement so long as the administration burden of collection were 

eliminated in that our on-line competitors also would collect. 

The second key question for policy makers is have the states adequately simplified their tax codes. Although Amazon believes that 

even more simplifications could and should be made, we think the 

current Senate bills if applied fairly would require adequate simplification, at least for sellers on line or using other electronic 

transaction services. 

This brings us to the third and last key question. Is there any 

justification for requiring only some classes of sellers to collect but 

not others? It has been suggested, for example, that small out-ofstate businesses be given a blanket exemption from tax collection 

requirements. At Amazon.com we are not particularly familiar with 

transactions involving paper money or substitutes like personal 

checks or traveler’s checks. There may be good reasons to exempt 

truly small interstate sellers using such instruments. 

But we are very familiar with electronic payment systems, especially those operating on-line. With these systems, transactions are 

processed by a relatively small number of very large companies 

that can and will provide tax collection services if they are required 

directly or by law or by market forces. 

To be sure, no one expects truly small businesses to do the work 

of sales tax collection alone but that doesn’t mean they shouldn’t 

be required to do it at all. By analogy we require small business 

persons to sign their legal documents in ink but we don’t expect 

them to make their own ballpoint pens. 

Amazon.com will offer sales tax collection services to our small 

seller customers. I am sure that our on-line competitors also can 

and will. Of course, this discussion so far as been limited to small 

businesses conducting interstate sales. What about small main 

street businesses selling locally? Even after a decade of e-commerce, as Brian has pointed out, still over 90 percent of retail sales 

are off line. 

Small main street businesses already collect sales tax and, thus, 

have both the administrative burden of tax collection and the higher prices caused by it. If out of state small businesses would not 

have to collect, then their main street brethren would be saddled 

with a competitive disadvantage both as to burden and price. Hopefully policy makers never would conclude that this disparity would 

be fair to main street small businesses. 

In conclusion, Mr. Chairman, the Internet is a great enabler of 

small business and if Congress eventually decides to allow states 

to require out of state sellers to collect sales tax, large companies 

will provide the necessary tax collection services to small businesses and cure the preexisting disadvantages to small businesses 

off-line. 

Thank you again for inviting me to testify. Of course, I look forward to your questions. 

[Mr. Misener’s testimony may be found in the appendix.] 

Mr. AKIN. Thank you very much, Paul. Appreciate your coming 

in and we will get back to you with some questions in a minute. 

10

Ernest Perry. You are actually one of the people we are talking 

about. You are the owner of a small business from, I believe, Charlotte, North Carolina. Is that correct? 

Mr. PERRY. That is correct. 

Mr. AKIN. Please proceed, Ernest. 

STATEMENT OF MR. PERRY, PERRY’S AT SOUTHPARK 

Mr. PERRY. Mr. Chairman and members of the Subcommittee, 

my name is Ernest Perry and I have been a small business owner 

in North Carolina for more than 25 years. I started in the jewelry 

business in 1978, managing a store for the retail chain Jewel Box 

Stores Corporation in Greensboro and learned as much as possible 

about running a business and the jewelry industry. 

Always wanting to go into business for myself, I had also become 

a licensed auctioneer and began offering my services to non-profits 

where I helped sell donated estate and antique jewelry to raise 

funds for their organizations. I later opened my own store called 

Perry’s Jewelry Emporium, specializing in antique and estate jewelry in 1980. 

In 2002 I got my business on-line. As I was undergoing a remodeling project for the store, a woman who was helping me with the 

remodeling introduced me to eBay. She talked about the ease of 

conducting business on eBay and of the many success stories and 

I was immediately interested. While my storefront was continuing 

to do well, I was intrigued about having an on-line presence for my 

jewelry collection and being able to reach a much broader customer 

base. It was then that I recognized eBay’s marketing potential and 

I developed the concept for Treasures Recycled. 

Along with the overstocked items from my store, I began to accommodate the growing number of people turning to me to handle 

the resale of their personal jewelry. People bring me the items they 

would like me to sell for them and I turn to eBay to get the job 

done. This approach has allowed me to sell items to people in every 

state and many, many countries.My sales from my eBay business 

continue to increase each year, approximately generating $1 million in annual sales. With just the on-line store, I have five employees and offer full benefits. 

While some people claim that there are big technology companies 

that would be happy to step in and take care of the tax collection 

and remittance job, I think that the SSTP process is filled with risk 

for small business owners. There are significant potential costs that 

I can see for any complicated sales tax plan, especially when a 

small business is forced to contract the job out to one of a handful 

of technology companies. 

Computer system upgrades or changes, training employees on 

new systems, and the possibility that the off-the-shelf solution 

doesn’t work right, are all expensive risks. And finally, what if a 

couple of years down the road the fees go up? There is no going 

back and small businesses will be the losers. 

There is no question that it has not been easy to be a small business retailer over the last few decades. The world has changed so 

much. The Internet is obviously one big change, and it’s been both 

a challenge and an opportunity in the retail business. 

11

I understand the tax issues and the ‘‘fairness’’ question raised by 

on-line businesses that do not collect and remit sales tax for sales 

to out-of-state customers. Be assured I do collect and remit taxes 

for Perry’s according to the tax code in North Carolina. There is 

single sales tax rate and a single tax authority to remit the taxes 

to. 

Legally I am not required to collect and remit sales taxes for all 

the customers outside of North Carolina who visit Treasures Recycled, my on line presence. There is really no doubt in my mind regarding the complexity of what would be required to collect and 

remit taxes on the thousands of different tax jurisdictions around 

the country. My understanding is that there are more than 7,600 

jurisdictions nationwide. There would undoubtedly be new costs 

imposed on my on-line business that would be very hard, if not impossible, to deal with as a small business owner. 

But small retailers have also had to adapt and adjust to megaretailers like Wal-Mart and the Big Box Stores who have used all 

kinds of technologies to revolutionize their global retail businesses. 

And in my experience, the Internet has actually empowered small 

business people to deal with those dramatic changes. 

I believe there is no question that the Internet offers a small 

business more opportunity than risk. And I believe that Congress 

changing the status quo on state sales tax laws would make it 

harder in the long-term for small businesses and entrepreneurs to 

succeed in the face of those challenges. 

Again, thank you for inviting me to speak to this Committee 

today. 

[Mr. Perry’s testimony may be found in the appendix.] 

Mr. AKIN. Ernest, thank you for your testimony. That is really 

the heart of what this Committee is about is to take a look at small 

business and make sure that we are not going in some direction 

that is going to hurt our small businesses. Thank you very much 

for sharing with us. 

Our last witness, Rory Rawlings. I believe that you are one of the 

people that has taken a look at this complexity and kind of dared 

to step into that nexus of red tape and everything and actually try 

to provide a service. Is that correct? 

Mr. RAWLINGS. That is correct. 

Mr. AKIN. To try and sort this out and make it simple for small 

business. Rory Rawlings, you are the Founder and Chief Tax Automation Officer of Avalara is it? 

Mr. RAWLINGS. Yes. 

Mr. AKIN. In Seattle. 

Mr. RAWLINGS. Yes. 

Mr. AKIN. You get the award for coming the farthest today. We 

really thank you for making the travel for us. Thanks, Rory. Go 

ahead. 

STATEMENT OF MR. RAWLINGS, AVALARA, INC. 

Mr. RAWLINGS. Thank you, Mr. Chairman. I believe that we really have two competing interests that we are dealing with. First of 

all, we’ve got the state and local jurisdictions. I live on Bainbridge 

Island. It is a suburb of Seattle separated by eight miles of water. 

On Bainbridge Island we vote periodically on whether or not we 

12

should levy new taxes for the city of Bainbridge Island. Those taxes 

are for various different local services, services that are needed by 

our city. 

Those services vary from transient taxes to police services to 

needed local services. The real question is when people on Bainbridge Island or people in any local jurisdiction purchase goods on 

the Internet or purchase goods anywhere from out of state should 

they really be required to pay those sales taxes. So that is on one 

side. 

On the other side we have got small businesses. We work with 

small businesses day in and day out. Out whole mission is to serve 

small businesses and make sales tax less taxing. I believe that 

small businesses are the key to continued growth and prosperity 

for our nation. I believe that red tape is a very bad thing for small 

businesses. The administrative burden on the current tax law is 

very high. So how do we reconcile those two issues? 

Well, we reconcile those two issues with Sales Tax Management 

Services. Sales Tax Management Services, or STMS, is really the 

result of the convergence of various technologies and public policy. 

If you take a look at the tax industry over the years, it really began 

as information services or information subscriptions from companies like CCH and RIA, data subscriptions, statute, research, that 

sort of things. 

Then it evolved into sales tax software, sales tax software that 

was very large, very complex to implement, and very expensive to 

purchase. Sales tax software that was applicable to very large businesses and fulfilled the needs of very large businesses. 

Now with the Internet technologies, with security technologies, 

with spacial and geographic information systems we can take the 

software that was built and provided to large businesses and put 

it into a service environment. Just as main street merchants sell 

goods across the Internet as well as their brick and mortar store, 

we can now offer the Sales Tax Compliance Services across the 

Internet. 

With STMS, or Sales Tax Management Services, we can provide 

at very low cost these full compliance services. Not only can we accurately validate, correct, and standardize the address which then 

feeds into the jurisdiction assignment but at a street level we can 

determine what the boundaries are. We can determine what the 

product taxability is, customer exemptions, as well as automatically generate those returns, automatically do the remittance for 

any size business. 

Whether that is a small business or a large business we can do 

this at a very affordable price. The reason we can do it at a very 

affordable price is because we are not selling software. It is a service. It is very similar to a cell phone plan. With a small up front 

fee and a monthly fee based on transaction volume, Avalara sells 

a service today as well as other companies. This service starts in 

the case of Avalara at $29.99 a month. So with this service we can 

resolve the competing interest of both the local jurisdictions who 

have passed the taxes who really are owed the taxes. 

These taxes have been on the books for many years and have not 

been collected. As well as eliminate the burden on small business. 

I believe that the real issue is not whether or not we should exVerDate 0ct 09 2002 19:13 Jul 20, 2006 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 G:\HEARINGS\27415.TXT MIKE
13

empt small business from taxes or whether or not we should not 

provide the taxes owed to local jurisdictions. It really is a matter 

of resolving both of these two competing interests through the use 

of technology. 

[Mr. Rawlings’ testimony may be found in the appendix.] 

Mr. AKIN. Thank you for completing your testimony. It is interesting. All of you have had fascinating questions, potential questions anyway, that are quite interesting. Obviously from a political 

point of view there are a whole series of different questions involved here. 

Some of them are fairly complicated in the sense that they are 

touching so many different jurisdictions. Then there is the overall 

question about taxes themselves. As the Chairman I guess I have 

the opportunity to start with some questions. Maybe I’ll start, Walter, with you. I’ll just say what will happen if Congress does nothing and the states try to relitigate the Quill decision? 

Mr. HELLERSTEIN. That is a very good question. I think a question frankly that no one really knows the answer to. What it will 

depend on is whether or not the court, which in the past has said 

things are so complex for the remote or out-of-state vendor that we 

can’t require them to collect without imposing a burden on commerce and, therefore, they can’t be required to collect. 

The question is have things gotten simple enough that that burden doesn’t exist anymore? Honestly, Mr. Chairman, I don’t think 

we know the answer to that question. If you ask me, I suppose 

right now would I take on a contingency a case that was going to 

relitigate Quill no I wouldn’t. 

If Streamlined were enacted, obviously in the absence of congressional blessing, and every state or 35 out of the 45 states joined, 

and there was additional evidence of administrative simplification, 

maybe my answer to that would change. I think it is a very good 

question and the key to the answer is to what extent have the 

states actually simplified to remove the underlying premise of Quill 

which is that life is too complicated. 

Mr. AKIN. Then just a follow-up question. Should Congress enact 

legislation that enable the collection of taxes on remote sales? 

Mr. HELLERSTEIN. If Congress can satisfy itself that it has provided sufficient standards to simplify the life of the small business 

person. I think presumably with some reasonable threshold. I think 

it is important to have a threshold, a reasonable threshold that 

makes sense, whether it is based on 100 pounds of flesh in the 

state or $200 million of sales in the state, I don’t know. 

I think you need to have evidence on that issue but I would very 

much encourage you to do that because I think that way you have 

a fair collection of revenues without putting a burden on small 

business. And you satisfied yourself that the simplification is sufficient but I think those are the questions you need to look at very 

carefully. What is sufficient simplification and what is the appropriate standard for exempting small business. 

Mr. AKIN. I guess part of what I was asking and maybe to venture into a little bit of a policy question, is it possible that this nontax part of commerce is something that actually is very positive 

and will drive the economy. Maybe by exempting it in a sense we 

14

are just allowing something to go on which is good for the economy 

overall. I guess I was getting a little bit at that. 

Mr. HELLERSTEIN. Again, my answer is that that is an important 

policy point but I guess I would say assuming that is correct, it is 

important to have a rational standard for exemption. I am not sure 

that 100 pounds of flesh is a rational standard. 

Mr. AKIN. My co-Chair here. 

Ms. BORDALLO. Thank you very much, Mr. Chair. I have just one 

question, I guess, for each one of them but I will go back to you, 

Mr. Chairman. The first is for Dr. Hellerstein. Is that correct? 

Mr. HELLERSTEIN. Some people call me Dr. I think doctors give 

injections. Walter is just fine. 

Ms. BORDALLO. Walter is fine. All right. It is understandable that 

local communities wish to collect taxes from the sale of goods over 

the Internet just as they tax the sale of goods over the counter. 

Local communities stand to generate a significant amount of revenue by doing so. However, in your opinion would a tax on Internet 

sales prevent small firms from doing business on the Internet? 

Mr. HELLERSTEIN. I think, Representative, the answer to that 

question is really what you have already talked about and what 

other witnesses have spoken about which is the extent to which 

that burden would impose cost on the small business. I think that 

at some point if the marginal cost of collecting tax is greater than 

the marginal revenue of the sale, they will no longer do that. That 

is a factual question. I don’t know the answer to it but I think I 

know how I would go about inquiring. 

Ms. BORDALLO. Thank you. Then I have one for Brian Bieron. Is 

that correct? 

Mr. BIERON. Yes, ma’am. 

Ms. BORDALLO. If sellers on eBay were required to collect sales 

taxes in as many as 7,500 taxing jurisdictions, would you expect to 

see some of eBay’s sellers close their businesses? 

Mr. BIERON. Well, we have been told by many of them that they 

think that it would be a significant burden. As Mr. Hellerstein 

said, it would raise their cost. It would make it far more complicated to do business. In many cases we think it would dissuade 

them from starting down the path. In a lot of ways eBay is a market place that is very friendly to small business so small businesses 

come and start doing some business over our market place. 

As I said, we have about 500,000 of the small businesses that are 

using the market place now. They didn’t start there. They weren’t 

born on eBay but they were small businesses who came to it to get 

at a global market really. We think that it would create a new complicated burden where let’s say you have a storefront somewhere 

and you are competing with the Wal-Marts of the world. You think 

that the Internet is a new place to start to get some marginal sales. 

If part of that first hurdle was to have to take on this whole burden, we think that would stop a number of the small businesses 

from trying that avenue. 

Ms. BORDALLO. Thank you. I have a couple more questions, Mr. 

Chairman. 

Mr. AKIN. Go for one more. 

Ms. BORDALLO. All right. Okay. This is for Ernest Perry. If your 

business were to be charged with collecting sales taxes from cusVerDate 0ct 09 2002 19:13 Jul 20, 2006 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\HEARINGS\27415.TXT MIKE
15

tomers from out of state, what impact would this have on your bottom line and what kinds of human and technical resources would 

you need to fulfill this particular requirement? 

Also, it seems to me that if you are required to collect sales taxes 

on Internet sales to out-of-state customers, this could be an expensive proposition for you that might require you to raise prices on 

items in your storefront. Is this possible? 

Mr. PERRY. You are exactly right and I am glad you asked that 

question. I was just sitting here thinking listening to these comments that I am paying taxes now in the state of North Carolina 

and I was just thinking about how much paperwork that it takes 

that I have to keep for like five years. It would be the equivalent 

of this table just to keep the North Carolina sales tax. Can you 

imagine if I had to keep tax records for 50 different states, although it would be maybe simplified. 

Then I have got to worry about maybe being audited by any or 

all of those 50 states at any given time of the year. It would be a 

nightmare and I just don’t think that it would be—I think it would 

discourage a lot of Internet sellers, especially the small mom and 

pop that are working out of their garage or out of their bedrooms 

even to just throw their hands up and not even try. It would be 

impossible. 

I mean, there is no way they can keep up with the paperwork 

they would have to keep up with. Also the worry about the audits 

that they may have to worry about. I am sure the technology companies can do it but we have to pay these guys to do this and we 

don’t know if it is going to work or not. We will still be the ones 

that would saddle the burden for all of that. 

Ms. BORDALLO. Thank you. 

Mr. AKIN. I just think I will continue along the same line of 

questioning just to make things fair here. 

Rory, you have got the company that has got all this stuff programmed. You must be a very patient fellow to have programmed 

all of these different jurisdictional laws into a computer, or else you 

have hired some very patient people. I wanted to give you a chance 

to respond to the other comments. 

Mr. RAWLINGS. Sure. I appreciate that opportunity. When it really comes down to the burden on small business, small businesses 

are currently burdened. Small businesses currently pay sales tax. 

Small businesses currently spend a lot of money paying sales tax. 

Sales tax compliance is very difficult. It is very complicated. It is 

very confusing. 

Even with a single taxing jurisdiction you have got to deal with 

product exemptions. You have got to deal with entity based exemptions. You have got to deal with filling out the forms. Many of 

these small business owners don’t know how to fill out these forms. 

They are making guesses. 

The real solution, or I believe the real solution, is solved in technology with the convergence of Internet technologies, security technologies, and geo-spacial technologies we can accurately determine 

what those taxes are. We can take those tax transactions and the 

history of those tax transactions and store it in a secure database 

behind multiple firewalls. We can use the power of the Internet, 

the same Internet that we are talking about. 

16

Mr. AKIN. If I could jump in, are you saying that you would then 

as a service provide all the record keeping that was necessary for 

a small business? 

Mr. RAWLINGS. Absolutely. That is what we do today and that is 

what we have been doing for the past three years. 

Mr. AKIN. Go ahead and proceed. 

Mr. RAWLINGS. So we maintain those tax transactions. We automatically generate those tax returns through a web browser interface. Here again the power of the Internet. The small business 

owner opens up their web browser, logs on through a secure log on, 

and views their tax return, prints out all of their historical transactions. All that information is available for an audit. Under 

Streamline it even gets simpler. 

I do believe there are opportunities under Streamline to make 

the taxes even simpler. Really from a technology standpoint it 

doesn’t make a difference. All of those rules are coded into the software. The software will be, and is in the process of being certified 

by the states. The security and the reliability is being certified by 

the states. 

We have gone through months of audits and months of review 

and months of working with the states submitting multiple test 

decks and verifying that we can generate it in an electronic return 

and verify that we can, in fact, collect the taxes, that we can, in 

fact, remit those taxes to the states. We have gone through many, 

many hours of review. 

From my perspective, it is not a matter of increasing the burden 

on small business. It is a matter of providing a service that is affordable. Now, whether that is paid for by the state or paid for by 

the small business, frankly we have got 2,200 users from the beginning of 2005 so our business is growing 200 percent quarter over 

quarter. 

We have got a very big need to fill with or without sales tax, 

with or without a change in policy. Our belief and our experience 

is that small businesses are burdened today with the collecting and 

complying with sales tax in their local jurisdiction. Here, again, we 

have 2,200 users. We are growing at 200 percent quarter over 

quarter rate. 

We charge a lot of our customers $29 a month for a complete 

compliance solution. Does it make sense to exempt small businesses? That really is a policy question. Avalara does not want to 

get involved in policy but I believe it is a timing issue. You know, 

it is a matter of adoption. We may want to as a nation exempt 

small businesses to begin with and then start dropping the exemption over time. Whatever makes sense for the country but I can tell 

you this. I can tell you that there are technology solutions available, that there are very easy almost zero burden tax compliance 

solutions available. In my mind it doesn’t make sense to use that 

as an excuse to exempt— 

Mr. AKIN. I hear what you are saying. If there is a mistake 

made, who is liable? Let us say that something isn’t calculated the 

right way and the small business guy says, ‘‘Hey, wait a minute. 

You did something wrong.’’ Is it your company or is it the small 

business guy that has to pick up the tab legally if something isn’t 

done right? 

17

Mr. RAWLINGS. Under Streamline I am liable. For anyone who 

uses my system I am liable. If I make a mistake, I have to pay the 

difference. 

Mr. AKIN. And not the small business guy? Okay. Thank you. 

Next question, Ms. Bordallo. 

Ms. BORDALLO. Thank you, Mr. Chairman. I have just one other 

question and I think it is along the same lines of your question. I 

don’t want a dollar figure but how much would a comprehensive 

software package cost to small business? Do you feel it would be 

reasonable? Is it affordable? Do you have different types of packages for them to engage in such as just the basics or full service? 

Also in line, you said your firm has conducted audits. Have they 

always been successful? 

Mr. RAWLINGS. First of all, the types of services that we do provide. We have various levels of service. We have a basic plan. We 

have a full product tax ability, what we call AvaTax Pro. Then we 

have a full breadth of services so we have a full service offering 

which is nearly zero burden as far as the business is concerned. 

The costs do start at $29.95 cents a month. 

Ms. BORDALLO. That is the basic package? 

Mr. RAWLINGS. Yes. 

Ms. BORDALLO. Your audits. 

Mr. RAWLINGS. Oh, the audits. Here again, we have 2,200 users 

and none of those users have ever had an issue with the tax audit. 

We have had numerous clients that have gone through multi-year 

audits with California and virtually every state in the country. Not 

once have we had anyone of those clients come back and say, ‘‘Hey, 

you guys really screwed up and we are having trouble.’’ 

Ms. BORDALLO. Having trouble, yeah. All right. Thank you, Mr. 

Chairman. That concludes my questions. 

Mr. AKIN. Thank you. 

This is a general question. Usually now sales tax is collected at 

the original of where a sale is made is my understanding. What we 

will be talking about here would be a destination type of sales tax. 

Does that make things more complicated or how do you see that 

influencing things? Walter, if you want to start. 

Mr. HELLERSTEIN. Mr. Chairman, I really don’t think it is appropriate to say that the sales tax is tax at origin. The sales tax is 

a destination tax. It is a consumption tax. In fact, for example, if 

a Georgia vendor sells to an out-of-state purchaser, there is no tax. 

When we buy over the counter, origin and destination happen to 

be the same. In the end a consumption tax, which a sales tax generally is, is normally imposed at the destination. That is exactly 

why Georgia will impose a use tax on me when I go to Oregon to 

buy a car. 

In fact, if a Washington dealer could ship a car out of Washington, the title not passing, they wouldn’t impose a tax. Nobody 

wants to impose a tax on exports. So really we have a destination 

based sales tax in this country except when we have destination 

and origin that in the particular transaction are at the same point. 

Mr. AKIN. So you are saying in a way that is a false distinction. 

You are saying everything is destination. Is that what you are saying? 

18

Mr. HELLERSTEIN. What I am saying is that, in general, sales tax 

is a destination based tax and states generally tax things coming 

into the state and exempt things going outside the state. When I 

go to South Carolina and I buy something over the counter, to be 

sure I am going to pay a South Carolina sales tax. 

In principle when I get back to Georgia I would owe a use tax 

and get a credit against the South Carolina sales tax but that is 

just a matter of cross-border shopping. No one tries to trace an over 

the counter transaction back to my destination. But I think it is 

fair to say that we have a destination-based sales tax in the U.S. 

Mr. AKIN. A couple of others. Brian and then Paul. 

Mr. BIERON. Just to mention that a couple of states who are in 

the effort to make their state taxes compliant with the SSTP concept have actually headed down the path that you are talking 

about which is switching from a source based internal state sales 

tax process because, of course, until Congress changes the law it 

would not apply to out-of-state sales. 

But in a state, and I will use the example of Kansas, where they 

have different sales tax rates at the county level, and it is a state 

that has a huge number of counties, they have actually over the 

last couple of years headed down the path of trying to become internally compliant and changing their internal sales tax regime 

from a source based to a destination based. I know that at eBay 

we have had complaints from some sellers— 

Mr. AKIN. I don’t quite understand how that would work in Kansas. 

Mr. BIERON. I will give you an example. I am not an expert on 

Kansas geography so I am afraid I might run into problems but I 

think Topeka and Lawrence, for example, are both inside Kansas. 

We have some eBay sellers who have been concerned that if they 

sell over eBay from Lawrence to Topeka that their sales tax requirements will have changed because currently let us say they 

have a store front. If somebody comes from Topeka and buys it in 

Lawrence, they charge the source tax rate whatever is the Lawrence tax rate. But if they mail the product, if they deliver the 

product into Topeka because they sell over eBay or over another 

Internet or— 

Mr. AKIN. Are they worried that they have got to pay the— 

Mr. BIERON. They would. Kansas was proposing to change the 

law inside Kansas and with hundreds and hundreds of different jurisdictions in Kansas that was really going to be a little test case 

of what this whole switch from source based to destination based 

would be like. I can tell you that those Kansas sellers have been 

extremely dismayed by this change. I know that there were a couple of years where Kansas deferred, essentially delayed the implementation of this because of the uproar from small businesses. It 

really makes it much more complicated. Of course, it can only happen right now inside a state. 

Mr. AKIN. That means in Kansas the small business guy now has 

to know about all the jurisdictions within his own state. Not within 

the nation but within his own state. 

Mr. BIERON. Right. 

Mr. AKIN. Even that is a major headache for him. 

19

Mr. BIERON. My understanding is that many of those small businesses their attitude has been essentially they are going to charge 

their local rate because it is just too complicated. 

Mr. AKIN. It is just too complicated. And Kansas government is 

just going to have to put up or shut up. 

Mr. BIERON. To be honest I don’t think that the Kansas state 

government thinks that there is a huge revenue windfall from getting that compliance inside the state. But that is an example of 

what you are talking about and you can multiply it. I know that 

there are technology companies at the table who would describe on 

one hand how extraordinarily complicated this would be to go from 

just the complexity of one state or one county like Mr. Perry’s store 

just in one place in North Carolina to the whole country. 

Obviously I think we can all recognize that would be extraordinarily complicated. If a technology company were offering solutions, the fact is in the real world there is some relationship between how complicated something is, how much you have to have 

the service, and how much it ends up costing. If you require this 

mandate on everybody and it wasn’t just, for example, inside Kansas but the whole country that there would be a cost and it would 

be a cost that small businesses operating on fairly narrow margins 

would really feel. 

Mr. AKIN. Thank you. 

Paul, I’ll let you have a crack at that. 

Mr. MISENER. Thanks, Mr. Chairman. I think I was going to say 

some of the same things that Brian was but it also helps to calibrate this whole thing. If we step back a second and look at what 

the Streamline Sales and Use Tax Agreement is all about, Missouri 

is not part of it. They are not in it and not part of it. 

Mr. AKIN. Now you are getting personal. 

Mr. MISENER. It doesn’t apply to the territories outside at all. 

The states that are not party to it, the major ones, California, 

Texas, Illinois, all have the same source issue that Brian was describing. They currently have a longstanding rule of you buy something, if you live in Laredo and you buy it from Dallas, the retailer 

in Dallas makes the collection and sends it to the Dallas government. 

To flip flop that, to become compliant with the Sales and Use 

Tax Agreement would be a huge internal upheaval in states like 

California, Texas, Illinois. New York is not part of it either. I 

mean, the major population centers of the country have not been 

in and that is a key reason why. 

We have said at Amazon that we are going to collect for small 

businesses. We have a platform business and we are going to do 

it. We are a technology company. We are fairly sophisticated with 

computers. There are others that are as well. To small sellers I say 

that if Amazon can do it, your platform service provider also can 

do it almost certainly. If not, certainly you are welcome to come to 

Amazon. 

Mr. Perry’s business is perhaps the perfect example or the perfect kind of business to run through eBay. He is selling high value 

items that are very small and light. As a result, the opportunities 

for sales tax arbitrage are very great because the price differential 

between what is paid on-line and what is paid on main street is 

20

very great, but the shipping costs are very low. You don’t see many 

very successful eBay sellers that are selling, say, fertilizer which 

is just the opposite. 

What we have just suggested is that at some level you just want 

to not have quirky sales tax exceptions that drive businesses unnecessarily into different directions. I really meant the point about 

the ballpoint pen. A lot of small business persons are required to 

drive to their place of employment. We don’t expect them to make 

automobiles. 

We don’t expect them to make ballpoint pens to sign their legal 

documents but we still require them to sign in ink. This is a case 

where we don’t expect small businesses to be pouring over tax tables in 7,600 jurisdictions and all that. There will be service providers. Amazon has said it has stepped up and said that, ‘‘We will 

do this.’’ Eventually I would imagine others will as well. 

Mr. AKIN. We have another member that is joining us. Would 

you like to jump into the discussion? 

Mr. SODREL. No, I am just playing catch-up right now. Thank 

you. I may have some questions later. 

Mr. AKIN. Okay. Let me just toss a different question out entirely. One of the things that is at least being theoretically, and 

maybe even more than theoretically looked at is tax simplification. 

There are two competing schemes out there right now. 

One of them is the flat tax which has its own political problems 

and that is that every time you want to cut out an exemption somebody is going to offer an amendment so you end up with not a flat 

tax. That is one question. You take the basic income tax and you 

get rid of a whole lot of exemptions and the theory is you can file 

it on a card. 

The competing alternative out there is the national sales tax. I 

guess my question is if we were thinking about it, and obviously 

that would require probably an appeal of the constitutional amendment that created the income tax so that is a big hurdle, too, politically. Let us say we were to get to the point where we are really 

looking at a national sales tax. How does that impact our discussion? 

Mr. PERRY. I will speak to that briefly. In one of the papers this 

morning there is a little article about eBay complains about the 

European tax system. The Internet in Europe right now is really 

not growing anywhere like here in the states because of the complexity of the tax situation over there. 

Basically some of the tax rates over there are from 15 to 25 percent, I understand, and it scares me to death to think that as a 

retailer I have got to charge if we go this national sales tax somewhere between 15 to 20 percent sales tax. It is going to drive a lot 

of business back to the underground into the flea markets. It will 

be devastating to our economy in my opinion. The flat tax is okay. 

I think that would be fine. 

Mr. AKIN. Let me make a distinction, I didn’t do this, between 

what is called a value added tax which is what the Europeans do. 

It is a great thing for politicians because you can crank it a fraction 

of a percent and just gain tremendous taxes. The trouble is it just 

kills the economies and that is why a lot of the European economies are really flat. 

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We are not talking about a value added tax. It would be over 

most of our dead bodies to do something like that. We are talking 

about a straight sales tax which is very different. The value added 

is every time something changes like if you are starting with a 

paper clip, you start with an ingot or whatever it is, and the Coke 

Company and whoever, the Ingot Company. The guy who has got 

the rolling mirror there is a tax there. Then there is a guy that 

rolls it and a guy that bends it. You have all these layers of taxes 

where we are talking about just simply a simple sales tax as opposed to value added. 

Mr. PERRY. I am certainly not a tax expert but it just seems to 

me like if the burden is passed on as a national sales tax to retailers, we become the IRS in essence and I am not sure our customers 

are going to be real excited about looking on us in the same light 

they do now. 

Mr. AKIN. Any other thoughts? 

Mr. HELLERSTEIN. Yeah, just a few general observations. I am 

going to agree with Mr. Perry. I think at one level clearly we could 

not have a sales tax that substituted for the national income tax 

at the rates that we would need to generate the same amount of 

revenue and have it take the same form that we have. 

Let me just give a clarification of the value added tax. The truth 

of the matter is that in the end a value added tax and a retail sales 

tax do precisely the same thing. The value added tax is simply collected at many points, that is on the intermediary. If I am General 

Motors and I buy steel, I pay a value added tax on that. When I 

sell the car and I collect a value added tax on my output, I get a 

credit against the tax that I paid. In the end the only person that 

pays a value added tax is the ultimate consumer. 

Now, the truth is that if you are going to have something with 

rates from 15 to 25 percent as we have on a VAT, then you have 

to have it collected at each level because, as Mr. Perry correctly 

points out of the incentives to go to the black market. We have this 

in Europe, too with carousel fraud. 

There is a lot of fraud because the rates are so high but at least 

there are a lot of collection points. I think that if we were to switch 

to a consumption tax which is way beyond the scope of what you 

people are focusing on, it is a huge question. I think we would almost have to go to a VAT from a mechanical and administrative 

standpoint. If we are going to have a national consumption tax it 

would almost have to be a VAT because you couldn’t raise the revenues and rely on that final transaction, that 25 percent, as being 

the only place where we collected tax. 

Mr. AKIN. That is interesting. It is maybe a little bit afield but, 

on the other hand, as people think about one thing, it does sort of 

affect our overall question about sales tax and how that is collected. 

Brian, did you want to make a comment? 

Mr. BIERON. No, just to say that certainly eBay doesn’t generally 

take positions on broad tax reform, although we believe that if 

lower taxes incurred stronger economic growth, then that is good 

for everybody involved with the eBay market place. 

I would say, though, that as a retail company at the end of day 

eBay is a retail market place and having the entire tax burden on 

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the retail business we think would hurt all the—again, eBay’s success is tied entirely to the success of the sellers who actually do the 

business over eBay and we think those retailers—if all of the federal tax burden were put on the retail sector, that was the collection point, that would reduce consumption and hurt those sellers. 

Mr. AKIN. Right. I am not going to do the counter argument for 

the national sales tax. It is an interesting discussion and it is sort 

of a little philosophical change whether you are taxing consumption 

or whether you are taxing income. I mean, there is a difference 

there in what you are trying to accomplish but I hear what you are 

saying. 

Are there any other questions? 

Ms. BORDALLO. I have none. 

Mr. AKIN. Thank you all very much for attending today and helping us out with some of these difficult and vexatious items here. 

I appreciate your expertise. With that the hearing is concluded. 

[Whereupon, at 11:11 a.m. the Subcommittee adjourned.]

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