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S. HRG. 112–831 

MARKETPLACE FAIRNESS: LEVELING THE PLAYING 

FIELD FOR SMALL BUSINESS 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

AUGUST 1, 2012 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

JOHN D. ROCKEFELLER IV, West Virginia, Chairman 

DANIEL K. INOUYE, Hawaii 

JOHN F. KERRY, Massachusetts 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

TOM UDALL, New Mexico 

MARK WARNER, Virginia 

MARK BEGICH, Alaska 

KAY BAILEY HUTCHISON, Texas, Ranking 

OLYMPIA J. SNOWE, Maine 

JIM DEMINT, South Carolina 

JOHN THUNE, South Dakota 

ROGER F. WICKER, Mississippi 

JOHNNY ISAKSON, Georgia 

ROY BLUNT, Missouri 

JOHN BOOZMAN, Arkansas 

PATRICK J. TOOMEY, Pennsylvania 

MARCO RUBIO, Florida 

KELLY AYOTTE, New Hampshire 

DEAN HELLER, Nevada 

ELLEN L. DONESKI, Staff Director 

JAMES REID, Deputy Staff Director 

JOHN WILLIAMS, General Counsel 

RICHARD M. RUSSELL, Republican Staff Director 

DAVID QUINALTY, Republican Deputy Staff Director 

REBECCA SEIDEL, Republican General Counsel and Chief Investigator 

(III) 

C O N T E N T S 

Page 

Hearing held on August 1, 2012 ............................................................................. 1 

Statement of Senator Rockefeller ........................................................................... 1 

Statement of Senator Ayotte ................................................................................... 3 

Letter dated July 30, 2012 to Hon. Kelly Ayotte from Joe Cortese, Owner, 

NobleSpirit .................................................................................................... 4 

Statement of Senator Wicker .................................................................................. 11 

Statement of Senator Hutchison ............................................................................ 36 

Prepared statement .......................................................................................... 36 

Statement of Senator Klobuchar ............................................................................ 40 

Letter dated July 31, 2012 to Hon. Any Klobuchar from Mark Dayton, 

Governor, State of Minnesota ...................................................................... 40 

Statement of Senator DeMint ................................................................................. 46 

Statement of Senator Pryor .................................................................................... 49 

Statement of Senator Boozman .............................................................................. 50 

Statement of Senator Begich .................................................................................. 52 

Statement of Senator Blunt .................................................................................... 54 

Prepared statement .......................................................................................... 54 

WITNESSES

Hon. Michael B. Enzi, U.S. Senator from Wyoming ............................................. 5 

Hon. Richard J. Durbin, U.S. Senator from Illinois ............................................. 7 

Hon. Lamar Alexander, U.S. Senator from Tennessee ......................................... 9 

Prepared statement ..........................................................................................

Paul Misener, Vice President for Global Public Policy, Amazon.com .................. 12 

Prepared statement .......................................................................................... 13 

Steven Bercu, CEO and Co-Owner, BookPeople ................................................... 15 

Prepared statement .......................................................................................... 16 

Scott Peterson, Executive Director, Streamlined Sales Tax Governing Board ... 19 

Prepared statement .......................................................................................... 20 

Steve DelBianco, Executive Director, NetChoice Coalition .................................. 22 

Prepared statement .......................................................................................... 24 

APPENDIX

Hamilton Davison, President and Executive Director, American Catalog Mailers Association, prepared statement .................................................................. 59 

Jerry Cerasale, Senior Vice President, Government Affairs, Direct Marketing 

Association, Inc., prepared statement ................................................................ 68 

Bill McClellan, Vice President, Government Affairs, Electronic Retailing Association, prepared statement ................................................................................ 71 

Andrew Moylan, Vice President, Government Affairs, National Taxpayers 

Union, prepared statement ................................................................................. 74 

Letters of support from Republican Governors Haslam (TN), Daniels (IN), 

LePage (ME), Bentley (AL), Snyder (MI), Daugaard (SD), and Corbett (PA) . 77 

David French, Senior Vice President, Government Relations, National Retail 

Federation, prepared statement .......................................................................... 85 

Harold A. Schaitberger, General President, International Association of Fire 

Fighters, prepared statement .............................................................................. 88 

National Governors Association, prepared statement .......................................... 89 

Page

IV 

Letter dated July 24, 2012 to Hon. John Boehner, Hon. Nany Pelosi, Hon. 

Harry Reid, and Hon. Mitch McConnell from Robert Bentley, Governor 

of Alabama; Dennis Daugaard, Governor of South Dakota; Paul LePage, 

Governor of Maine; Tom Corbett, Governor of Pennsylvania; Mitch Daniels, 

Governor of Indiana; Bill Haslam, Governor of Tennessee; and Rick Snyder, 

Governor of Michigan .......................................................................................... 91 

Federation of Tax Administrators, prepared statement ....................................... 91 

Letter dated July 31, 2012 to Hon. John D. Rockefeller IV and Hon. Kay 

Bailey Hutchison from Donald J. Borut, Executive Director, National 

League of Cities .................................................................................................... 92 

Letter dated July 31, 2012 to Hon. John D. Rockefeller IV and Hon. Kay 

Bailey Hutchison from Bill Hughes, Senior Vice President, Government 

Affairs, Retail Industry Leaders Association ..................................................... 93 

Letter to Hon. John D. Rockefeller IV from David Broyles, Chairman, West 

Virginia Retailers Association and Owner, Calvin Broyles Jewelers .............. 94 

Joseph Henchman, Vice President, Legal & State Projects, Tax Foundation, 

prepared statement .............................................................................................. 95 

Letter dated August 1, 2012 to Senator Jay Rockefeller and Senator Kay 

Bailey Hutchison from State Senator Jay Emler, Kansas, CSG Chairman 

and Governor Luis Fortun ̃ o, Puerto Rico, CSG President ................................ 102 

Letter dated August 1, 2012 to Hon. John D. Rockefeller IV and Hon. Kay 

Bailey Hutchison from American Federation of Labor and Congress of 

lndustrial Organizations (AFL–CIO); American Federation of State, County 

and Municipal Employees (AFSCME); American Federation of Teachers 

(AFT); Department for Professional Employees, AFL–CIO (OPE); International Association of Fire Fighters (IAFF); International Federation of 

Professional and Technical Engineers (IFPTE); National Education Association (NEA); Service Employees International Union (SEIU); The International Union, United Automobile, Aerospace and Agricultural Implement 

Workers of America (UAW) ................................................................................. 103 

Letter dated August 1, 2012 to Hon. John D. Rockefeller IV and Hon. Kay 

Bailey Hutchison from Mark E. Nebergall, President, Software Finance 

& Tax Executives Council ................................................................................... 104 

Senator Pamela Althoff, Illinois; Delegate Sheila Hixson, Maryland; and Senator Curt Bramble, Utah; Executive Committee Task Force on State and 

Local Taxation, National Conference of State Legislatures, prepared statement ...................................................................................................................... 106 

National Association of Chain Drug Stores, prepared statement ........................ 108 

R. David L. Campbell, Chief Executive Officer and Joan Wagnon, Executive 

Vice President, The Federal Tax Authority, LLC, prepared statement .......... 109 

Kelly William Cobb, Government Affairs Manager, Americans for Tax Reform, 

prepared statement .............................................................................................. 111 

Letter dated August 1, 2012 to Hon. John D. Rockefeller IV and Hon. Kay 

Bailey Hutchison from Lincoln D. Chafee, Governor, State of Rhode Island 

and Providence Plantations ................................................................................. 114 

Letter dated August 1, 2012 to Hon. John D. Rockefeller IV and Hon. Kay 

Bailey Hutchison from Tod Cohen, Vice President and Deputy General 

Counsel, Government Relations, eBay, Inc. ....................................................... 114 

Article dated July 30, 2012 entitled ‘‘The Marketplace Fairness Act Would 

Create a State Sales Tax Cartel and Hurt Consumers’’ by Jessica Melugin, 

Competitive Enterprise Institute ........................................................................ 125 

Article dated October 2011 entitled ‘‘The Internet, Sales Taxes, & Tax Competition’’ by Veronique De Rugy and Adam Thierer, Mercatus on Policy ....... 129 

Article dated February 2010 entitled ‘‘Uncollected Sales Taxes on Electronic 

Commerce: A Reality Check’’ by Jeffrey A. Eisenach and Robert E. Litan, 

Empiris LLC ......................................................................................................... 134 

Letter dated July 31, 2012 to Hon. Jim DeMint from Timothy P. Judge, 

Owner, Purple Bomb LLC ................................................................................... 153 

Article from the Backgrounder dated April 6, 2012 entitled ‘‘Congress Should 

Not Authorize States to Expand Collection of Taxes on Internet and Mail 

Order Sales’’ by David S. Addington .................................................................. 154 

Letter dated July 30, 2012 to Hon. Dean Heller from Jason T. Smith, Owner, 

TikiPug Music ...................................................................................................... 163 

Response to written question submitted to Paul Misener by: 

Hon. Frank R. Lautenberg ............................................................................... 167 

Hon. Mark Begich ............................................................................................. 167 

Written questions submitted by Hon. Jim DeMint to Paul Misener ................... 167 

Page

V 

Response to written questions submitted by Hon. Jim DeMint to Steve Bercu . 168 

Response to written questions submitted to Scott Peterson by: 

Hon. Frank R. Lautenberg ............................................................................... 169 

Hon. Jim DeMint .............................................................................................. 169 

Response to written question submitted to Steve DelBianco by: 

Hon. Frank R. Lautenberg ............................................................................... 170 

Hon. Mark Begich ............................................................................................. 174 

Hon. Jim DeMint .............................................................................................. 177 

(1) 

MARKETPLACE FAIRNESS: LEVELING THE 

PLAYING FIELD FOR SMALL BUSINESS 

WEDNESDAY, AUGUST 1, 2012 

U.S. SENATE, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Committee met, pursuant to notice, at 2:30 p.m. in room 

SR–253, Russell Senate Office Building, Hon. John D. Rockefeller 

IV, Chairman of the Committee, presiding. 

OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 

U.S. SENATOR FROM WEST VIRGINIA 

The CHAIRMAN. I want to welcome our three distinguished colleagues here: the soon to be distinguished when he comes in the 

door, Senator Durbin; Senator Alexander, who is an old friend, and 

he and I were Governors together, and I wanted him to make me 

president of Vanderbilt and he never did—but I do love him; and 

Senator Enzi, who I met when he had long sideburns and was 

mayor of Gillette, and who I co-sponsored this bill with in 2001. So 

we’ve got some history there. 

And I invite all of you, if you can, when you finish your testimony, to just come up and join us on the dais and be part of the 

questioning. So if that’s of interest to any of you, there is a seat 

for you and a welcome. 

This is about the legislation, the Marketplace Fairness Act, and 

I am pleased to join them in their efforts to get this legislation into 

law. I know that Senator Enzi has worked on this issue for more 

than a decade. And I recall that Senator Enzi’s original bill on this 

issue was referred to this committee. That’s not a macho statement. That’s just a fact. And he is to be commended for his commitment on this issue. 

I’ve always thought it was the right idea and co-sponsored that 

first bill with Senator Enzi, just as I am co-sponsoring his current 

bill. When he first introduced this bill, it was not a popular idea, 

and it may not be today. But I don’t care. It’s the right thing to 

do. Over time, more people have come to understand that this is 

an issue of basic fairness and critical to states’ financial health— 

precarious health—not just now but in the future. 

There is a growing bipartisan consensus on this, and not only 

here but around the country, that the Congress should address this 

issue. In West Virginia, we are fighting to keep our small towns 

vibrant. We have nothing but small towns. Our largest town is 

50,000, barely, and we just keep it a little bit above 50 so we can 

2 

qualify for certain government grants. Where it actually is, I’m not 

entirely sure. 

But we need local retailers. I’m sick of traipsing up and down our 

streets in our small communities and seeing all these shuttered 

stores where people used to do business. We need local retailers to 

make that happen. I believe we can have both a vibrant main 

street economy and e-commerce businesses. 

Let’s be honest. Allowing states to collect sales tax on online purchases will not stop the growth of e-commerce. Now, I’ll be interested in any arguments to the contrary. But no matter where or 

how the purchase is made, our commerce needs the revenue from 

these sales to fund basic functions of state government. As I recall, 

when I was Governor many years ago, I think about 70 percent of 

the sales tax went to our school system. Now, obviously, it doesn’t. 

I think that’s right. 

When we debated the Internet sales tax reform 10 years ago, 

Internet commerce was still in its relative infancy. Fewer people 

had online access, and many were reluctant to share their credit 

card information, for heaven sakes, with online retailers. But as 

the Internet has grown, so too has the consumer’s confidence in 

Internet transactions. Millions of consumers now click and buy online with ease. 

Because sales tax is not collected for most Internet transactions, 

consumers know how they can benefit from a 5 percent to 10 percent discount online. In fact, the mobility of cell phones allows 

shoppers to scan products for information. This bothers me so 

much. They can wander around our local stores—hardware, whatever, books—and they can sort of check things out, see what they 

want, and then they go buy it online. I think that’s terrible behavior, it’s very costly to our states, and I think it’s very wrong. 

Again, I think it is profoundly unfair to traditional shops. They 

are, after all, small businesses, and small businesses are always in 

peril. And they end up serving as a kind of display case for consumers who see the product in person but buy it online to avoid 

paying state sales tax. 

State and local governments are losing billions. West Virginia 

loses a staggering $100 million a year. In my opinion, this revenue 

could be used to help, for example, in those couple of years before 

Medicaid expansion—of Governors who go that direction—kicks in. 

There’s a couple of years where more money is needed from the 

states, and it could go to this, and it could go back to the Board 

of Education. It could go to lots of things. $100 million is a lot of 

money. 

Welcome, Senator Durbin. And after you’ve given your testimony, 

if you want to come up and join us up here, you’d be welcome. 

If Congress does nothing, we’ll end up with states forced to raise 

income or property taxes to offset the growing losses of sales tax 

revenue, which is just a fact. That doesn’t seem like the right solution to me. To be clear, this debate is not about imposing new 

taxes. It is not. Instead, it’s just allowing states to collect taxes 

they are currently owed under existing law but are being systematically avoided. 

Today’s technology, with the tremendous advances made in recent years, makes tax collection simply cheap and reliable. In many 

3 

ways, the Internet is the perfect environment to collect sales tax 

because it can be automated. And our witnesses will talk to us 

about that. 

I know there is still debate on this point, and I look forward to 

hearing from the witnesses about the cost that businesses will bear 

and why they believe that small business exemption is not enough 

to alleviate these concerns. So I look forward to the testimony that 

will be forthcoming. 

And Senator Hutchison not being here, and Senator Ayotte being 

here, I would welcome you. 

STATEMENT OF HON. KELLY AYOTTE, 

U.S. SENATOR FROM NEW HAMPSHIRE 

Senator AYOTTE. I thank you very much, Chairman Rockefeller, 

and I appreciate the opportunity to give a statement today. I know 

you didn’t have to allow me to do that, but I’m very appreciative 

of that. 

This proposal we’ll discuss today is very critical to New Hampshire and to other states that have opted to not have a sales tax. 

And I really want to welcome our colleagues who are here, all three 

of whom I have great respect for, Senator Durbin, Senator Enzi, 

and Senator Alexander. So thank you very much for being here to 

personally introduce your bill. 

Under current Supreme Court precedent, in the absence of a sufficient nexus, a state cannot reach beyond its borders to compel 

out-of-state vendors to collect taxes on a particular transaction. 

This is the result of the 1992 decision, Quill v. North Dakota, in 

which the Supreme Court held that requiring remote vendors to 

collect such taxes would place an unconstitutional burden on interstate commerce. 

By circumventing the court’s will, the proposal under discussion 

today would undermine an important limitation of the Commerce 

Clause, the nexus requirement. By imposing collection requirements on businesses that have no physical presence outside of their 

home state, I fear the proposal may erode existing protections on 

state sovereignty. These concerns should resonate even for the 45 

states that do have a sales tax. 

I am particularly concerned about how this proposal will hurt 

small businesses in my home state of New Hampshire. Our online 

retailers, for the first time, would have to collect and remit sales 

taxes to over 9,600 tax jurisdictions across the country. New Hampshire has no sales tax. For non-sales tax states like New Hampshire—and I know my colleague in Alaska—Alaska does not have 

a sales tax, either—this is simply an unfair burden for our businesses to bear. Why should New Hampshire businesses be penalized because we have chosen not to have a sales tax and, as a result of it, frankly, we do have a leaner state government. 

This bill, in my view, tramples on New Hampshire’s choice not 

to have a sales tax. This week, I received a letter from Joe Cortese, 

who owns NobleSpirit, an online retailer based in Pittsfield, New 

Hampshire. NobleSpirit sells stamps, coins, and other collectibles. 

And in that letter, Joe argues that under the proposal we will discuss today, quote, ‘‘Other states where I have no presence or affiliation would mandate that I have to start collecting and remitting 

4 

sales tax for items that my own state, New Hampshire, has deemed 

exempt.’’ 

He further points out that ‘‘I don’t believe it is fair to New 

Hampshire businesses that another state has the authority to turn 

us into their personal tax collector.’’ I couldn’t agree with Joe more. 

And Joe’s position mirrors that of many businesses across New 

Hampshire that I have heard concerns from about this bill. 

With your permission, Mr. Chairman, I would like to submit this 

letter for the record. 

The CHAIRMAN. Of course. 

[The letter follows:] 

NOBLESPIRIT

Pittsfield, NH, July 30, 2012 

Hon. KELLY AYOTTE, 

United States Senate, 

Washington, DC. 

Dear Senator Ayotte, 

I write regarding the upcoming Senate Commerce Committee hearing scheduled 

for Wednesday, August 1, 2012 on the Internet sales tax issue. We have met previously to discuss this issue, and I sincerely appreciate your sensitivity to the small 

business dimension of this debate. I know it can be a challenge for some of your 

colleagues to understand the small business impacts of this legislation, as well as 

the impact on non-sales tax state sellers. As a New Hampshire small business 

owner that uses the Internet to market my products, I wanted to share my experience. 

My story starts out in a dinner car of a Florida-bound train. While on the train, 

I happened to meet a gentleman who collected World War II memorabilia. Being a 

collector myself, I was very interested in hearing his story. The man shared with 

me that he just sold some items on this place called eBay and ‘‘the checks just rolled 

in.’’ At this point in my life I didn’t have much use for a computer, much less the 

Internet, but this man’s story stuck with me long after we departed company. 

About a year later I remembered this man’s story and decided to check eBay out 

for myself. As a coin and stamp dealer, I was always looking for innovative ways 

to sell my goods. eBay and the Internet marketplace ended up being a very important tool in growing my business. I had Originally been focused on wholesale, but 

eBay allowed me to transition to being a retailer that goes straight to the end user. 

The minute I sold that first duck stamp to a stamp collector in Alaska, I knew that 

I was hooked and over the last 15 years I have had numerous opportunities to bring 

joy to collectors all around the world. After 15 years, I remain enthralled to this 

day by the notion that we in the United States are able to market to the world via 

the concept of the Internet. 

Access to the global marketplace is one of the beauties of selling on the Internet. 

It can give a small business in a rural state, like mine, endless opportunities to 

reach consumers beyond the boundaries of their county, state or even country. The 

idea that a small business in New Hampshire could reach a customer thousands of 

miles away in remote Alaska is a truly amazing thing. Access to the global marketplace is no longer reserved for large corporations. With the Internet and platforms 

like eBay and PayPal small businesses finally have the opportunity to try and compete head to head with the big guys. 

However, I am concerned that the Internet sales tax proposal currently before the 

U.S. Senate has the ability to diminish the amazing strides small business retailers 

have made through the use of the Internet. If policymakers decide to impose new 

sales tax collection burdens on small businesses and force them to collect and remit 

in 9600 tax jurisdictions nationwide, the legal, compliance and administrative costs 

alone would undoubtedly make it harder, and in many cases impossible, to enjoy 

the opportunities and benefits that come with access to the Internet marketplace. 

In addition, as a New Hampshire small business, I am not required by my state 

to collect and remit sales tax on the goods I sell. Our great state has made a decision to be a non-sales tax state and I believe that this decision has helped drive 

economic activity across our state. However, I am concerned that under the current 

proposal, other states, where I have no presence or affiliation, would mandate that 

I have to start collecting and remitting sales tax for items that my own state has 

deemed exempt. I don’t believe it is fair to New Hampshire businesses that another 

5 

state has the authority to turn us into their own personal tax collector. It seems 

odd to me that one state would be given that much authority over another state 

and I urge you to fight to protect New Hampshire’s ability to protect their businesses from out of state tax authorities. 

Our nation’s economy is top of mind as we approach the next general election. 

Our small business infrastructure forms the very backbone of that economy. At a 

time when we are so uniquely positioned to provide our fundamental economic roots 

with uniquely defensible strategies, we as a nation would benefit greatly from exploring ways to foster those resources instead of permitting them to be impacted 

and impaired. Big Box retailers enjoy specific advantages, the scope of which is unchallenged by small business, which is exactly why they are pressing so hard to 

eliminate their competitive small business counterparts. If we as a nation allow that 

to take place we will impede our Nation’s prosperity on a global scale, in both the 

short and long term. 

Thank you for the opportunity to share my story and express my concerns with 

the Internet sales tax proposals currently before the U.S. Senate. I want to personally applaud you for all of the work that you have done on this issue. You have been 

a true champion for New Hampshire and small Internet-enabled businesses, like 

me, and I appreciate everything that you are doing on our behalf. If there is anything that I can do to assist you in the future on this issue, please do not hesitate 

to call me. Thank you again for all of your efforts and I appreciate you keeping me 

and the other New Hampshire small businesses in mind as the Senate Commerce 

Committee considers Internet sales tax policies. 

Sincerely, 

JOE CORTESE, 

Owner, 

NobleSpirit. 

cc: The Honorable John D. Rockefeller IV, Chairman, Senate Committee on Commerce, Science, and Transportation 

The Honorable Kay Bailey Hutchison, Ranking Member, Senate Committee on Commerce, Science, and Transportation 

Senator AYOTTE. Thank you. 

One final point: Why would we enact legislation that would increase the cost of online commerce and also will cost consumers 

more? Ultimately, it will be the consumers who pay for the cost of 

this. By imposing onerous collection requirements, this bill would 

be a disincentive for retailers to embrace the e-commerce model. 

I understand that there are a number of witnesses here today 

who will have a different viewpoint. I certainly look forward to 

hearing from them. And I thank the Chairman for the opportunity 

to give a statement today. 

The CHAIRMAN. Thank you, Senator. 

And now looking at these three distinguished senators, I’ve settled on the distinguished gentleman in the middle, the senator 

from Wyoming, remembering his long sideburns from many years 

ago. 

Senator Enzi, you’re welcome. 

STATEMENT OF HON. MICHAEL B. ENZI, 

U.S. SENATOR FROM WYOMING 

Senator ENZI. Thank you, Mr. Chairman, for holding this hearing 

and also for your visit to Wyoming at that time. I do have that picture that has you in a little bit different dress than you wear right 

now, too. It was an enjoyable time having you come out to take a 

look at our coal mines in Wyoming, and I’ve been to West Virginia 

and looked at your coal mines, too. 

But I appreciate you holding this hearing today. It’s an important issue for retailers, for state and local governments, and for 

consumers. State and local governments, particularly, have been 

6 

hit by the fact that we don’t do earmarks anymore, and we’ve run 

out of money so we can’t do the projects even in a grant form that 

we’ve done before. So they’re looking for a way to be able to continue to sustain their state. 

So I’ve been working on this sales tax fairness issue since I came 

to the Senate in 1997. As a former small business owner, it’s important to level that playing field for all retailers, whether they’re 

in-store, catalog, or online, and so an outdated rule of sales tax collection doesn’t adversely affect those small businesses and main 

street retailers. 

I remember, as a state legislator in Wyoming, we never passed 

a law that burdened the people who pay the property tax, who hire 

the residents, who participate in the community, who are in all the 

events, and then tell the businesses from out of state that we’re 

going to give them a special deal so that they don’t have to collect 

the money. We’d take money from the local community, but those 

from out of state wouldn’t have to do anything in return for the 

services that our consumers are getting as a result of the tax. 

So we never intended to give those out-of-state businesses an advantage over those businesses that are a part of the community. 

Yet that’s exactly what we are facing unless Congress allows the 

states the opportunity to fix it, if they so choose. My original 

versions—and I’ve had a number of different versions of this bill— 

were considerably more complicated until Senator Alexander suggested to Senator Durbin and I, who had been working on the previous versions, that this should be a states’ rights bill and be considerably simpler, and it is. 

For the past 20 years, states have been unable to enforce their 

own sales and use tax laws on sales by out-of-state catalog and online sellers due to the 1992 Supreme Court Quill decision, Quill v. 

North Dakota. In 1992, the Supreme Court stated that the Congress needs to decide how to move forward. In other words, the Supreme Court challenged us to do a law. I strongly believe that now 

is the time for us to act. 

Most customers do not realize that when they buy something online or order something from a catalog from a business outside of 

their own state that they still owe the sales tax. And a lot of the 

sales are small enough that they don’t even realize they’ve made 

the purchase. So this isn’t a new tax. This is a tax that’s already 

owed. The bill doesn’t tax Internet use. The bill doesn’t tax Internet services. The bill doesn’t raise taxes. It collects what’s owed by 

the purchasing individual. 

Last year, Senator Durbin, Senator Alexander, Senator Tim 

Johnson and I introduced with six of our other colleagues—half Republican, half Democrat—the Marketplace Fairness Act to close the 

20-year loophole that distorts the American marketplace by picking 

winners and losers and by subsidizing some businesses at the expense of other businesses and subsidizing taxpayers at the expense 

of other taxpayers. All businesses in the retail sales and all consumers in their purchases should be treated equally and fairly. 

I want to provide you with some highlights of the Marketplace 

Fairness Act. It does allow states, if they choose to do so, to have 

out-of-state retailers collect the sales tax that’s due on all sales, 

whether they’re online, catalog, or in-store sales. The legislation 

7 

would streamline the country’s more than 9,000 diverse sales tax 

jurisdictions, and it provides two options by which states can begin 

collecting sales taxes from online and catalog purchases. But those 

are voluntary options that would allow them to collect the sales 

taxes if they choose. 

Now, the bill also carves out small businesses so they’re not adversely affected by the new law by exempting businesses with less 

than $500,000 in online or out-of-state sales from collection requirements. This small business exemption will protect small merchants and give them time to get started. 

Don’t let the critics get away with saying this kind of simplification cannot be done. In the early 1990s when the Quill decision 

was handed down, the Internet was still in diapers and cell phones 

came in bags and looked like bricks. Now, the Internet permeates 

just about every part of our life and it’s time to stop treating businesses that rely almost exclusively on that like a novelty. 

Cell phones now have Internet capability. Software, computers, 

technology—they’ve all advanced at an exponential pace. And the 

different rates in various jurisdictions are no problem for today’s 

software programs. 

I want to publicly commend Senators Durbin and Alexander for 

taking a leadership role in this and looking for some of the flaws 

that were in the bill and helping us to eliminate them, because this 

is a really important policy issue. Marketplace fairness is simple. 

It’s about states’ rights and it’s about fairness. At a time when 

states’ budgets are under increasing pressure, Congress should give 

state and local governments the ability to enforce their own laws. 

This will give states less of an excuse to come knocking on the Federal door for handouts, and it will reduce the problem of federally 

attached strings and give the states a choice to reduce property 

taxes or other taxes. 

So I strongly encourage my colleagues to support S. 1832, the 

Marketplace Fairness Act, and get it enacted in public law, hopefully, this year. 

The CHAIRMAN. Thank you, Senator Enzi. 

And then Senator Durbin to be followed by Senator Alexander. 

STATEMENT OF HON. RICHARD J. DURBIN, 

U.S. SENATOR FROM ILLINOIS 

Senator DURBIN. Thank you very much, Mr. Chairman. It’s an 

honor to be with you today. I do want to thank Mike Enzi. I picked 

up this banner when Byron Dorgan retired. This is something that 

he worked on with Senator Enzi over the years. 

But I think Mike and I would both give special credit to Lamar 

Alexander. He stepped in, helped us through some complicated 

issues, simplified them, and made this much easier to explain and 

implement. 

So, Lamar, thank you. Mike and I appreciate very much all the 

help that you’ve put into this. 

I want to go directly to Senator Ayotte’s question, because I 

think she really has raised what is a concern expressed by many. 

And let me say at the outset: if you don’t have a sales tax in New 

Hampshire or in Alaska, this bill will not impose one penny of 

sales tax obligation on any resident of New Hampshire, Alaska, OrVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00013 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\85318.TXT JACKIE
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egon, or any other state without a sales tax. Not a single resident 

of that state has to pay an additional penny in sales tax, period. 

Whatever your state law is, that governs. 

The second point I want to make is one that she addresses, and 

I think it’s very important. What kind of burden are you putting 

on NobleSpirit? I don’t know what they sell. 

Senator AYOTTE. Stamps and collectibles. 

Senator DURBIN. What kind of burden are you putting on a business like NobleSpirit that wants to do business in other states? 

Well, right now, there are burdens in every single state represented here today. 

Senator Isakson, if somebody wants to come into Georgia and do 

business, it’s probably the same as Illinois. You have to register 

with the state that you’re there, where you can be served with 

process, and, once there, follow Georgia law as it applies to your 

business. That happens in every single state in the Union. 

And what we’re saying here is that if NobleSpirit wants to do 

business in Illinois and open a storefront to sell stamps, it’s pretty 

obvious what they have to do. There’s a long list of state requirements in each and every state. So what if they want to do it remotely? What if they want to sell their product electronically or by 

catalog? What obligation do they have in the state of Illinois or in 

the state of West Virginia? That’s what this addresses. 

First, there’s a small business exemption. If they’re selling 

Grandma Ayotte’s Apple Butter, that famous New Hampshire 

apple butter, and they’re selling less than $500,000 worth—— 

Senator AYOTTE. That’s maple butter. 

[Laughter.] 

Senator DURBIN. Sorry—maple butter—and selling less than $500,000 in value in a given year, they’re exempt. And we’re ready 

to talk about what the right level of small business exemption is. 

Let’s get that right. Let’s find something we all agree on. 

Second, does this mean you have to go out and buy a new computer network and software and hire some technology manager? 

No. What we’ve said here is if you’re not under the streamlined 

version, which has already been in the law for a number of years, 

we’re setting up a simple access for retailers selling online or by 

catalog so that, when they punch in Senator Wicker’s address in 

Mississippi, they know automatically how much has to be added to 

the bill, because the sales tax obligation is there. 

And who do they remit that money to? One agency in the state. 

So, frankly, it’s going to be as simplified and direct as possible at 

the end of the day. 

So it comes down to this. It is about fairness, marketplace fairness. Each and every one of us represents a brick-and-mortar businessman or woman who came up the hard way with their own entrepreneurial determination and said, ‘‘I’m going to make a go of 

it.’’ Ninety-five percent of them fail. But the 5 percent that make 

it really are the backbone of the American economy. 

Right now, they’re facing unfair competition, unfair competition 

in my state—maybe not so much in New Hampshire with no sales 

tax—when their competitors online are not collecting sales tax and 

they have to collect it. They collect it, obviously, to keep the lights 

on in the streets, the traffic functioning, and the police and fireVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00014 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\85318.TXT JACKIE
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men, and all of the rest that we expect. So at the end of the day, 

this is about fairness for all businesses across the board. 

And let me go to the point that Senator Enzi made, which I probably should have addressed at the beginning. It is not a new tax. 

It is a question of collecting a tax already owed. 

A couple of years ago, my bookkeeper, when she was putting together our tax returns, which I file with my disclosure each year, 

said, ‘‘Well, on your state tax return, are you going to pay the sales 

tax that you owed for your Internet purchases?’’ I said, ‘‘I didn’t 

think of that.’’ She said, ‘‘It’s an obligation under the law.’’ So you’ll 

not be surprised, since I’m announcing it, to know that I paid it. 

[Laughter.] 

But you may be surprised to know that fewer than 5 percent of 

Illinoisans who make purchases on the Internet actually pay what 

they already owe under the law. This bill says no new tax. We’re 

just collecting the tax already owed. 

It’s like enforcement. If you happen to believe that people who 

are evading taxes now, illegally evading taxes now, should not be 

required to pay them, then I can understand the logic of your argument that this is a new tax. But if the tax already exists, and we’re 

just talking about compliance and collection, that’s all this bill 

does. And I think it’s an important thing. 

I won’t tell you what it means in terms of revenue for each state. I think you each know it—$23 billion nationwide. For many of us, 

our states are struggling with their budgets. I take a look at those 

who have announced support for this bill: 240 business and labor 

organizations, eight Democratic Governors, 13 Republican Governors, including Governor Quinn, Democrat from Illinois; Governor Christie, Republican from New Jersey; Governor McDonnell, 

Republican from Virginia; Governor LePage, Republican from 

Maine; and Governor Daniels, Republican from Indiana. 

There’s bipartisan support not only at this table but across the 

country. And I hope this committee will support the bill as well. 

The CHAIRMAN. Thank you, Senator Durbin. 

Senator Alexander, we look forward to your testimony. 

STATEMENT OF HON. LAMAR ALEXANDER, 

U.S. SENATOR FROM TENNESSEE 

Senator ALEXANDER. Thanks, Mr. Chairman. Thanks for inviting 

us. And a salute to Senator Enzi and Senator Durbin for doing 

what would be a Washington, D.C., miracle. They’ve come up with 

an 11-page bill about a two-word issue, and the issue is, in my 

view, states’ rights. 

The longer I’ve been in Washington—and I’ve tried to be here 

long enough to be vaccinated but not infected over the years—the 

more I’ve come to the conclusion that the two biggest problems 

here are, one, that we spend money we don’t have, and two is that 

we make a lot of decisions here that ought to be made at home by 

families, communities, and states. 

I have a conservative Republican Governor and a very conservative Republican Lieutenant Governor and a very conservative Republican legislature, who represent a lot of conservative Tennesseans. And they believe that it is their business, not ours, to decide whether they should collect taxes from everybody who owes it 

10 

in Tennessee or from just some of the people who owe it, or whether we should give a 10 percent tax break to out-of-state businesses 

but not to in-state businesses. 

They may make a wrong decision from our point of view about 

that. But in our Constitutional 10th Amendment Federal system of 

government, states have a right to be wrong. 

We’re talking about this. If I buy a TV set from the hardware 

store, the hardware store collects the sales tax and pays it to the 

state. If I buy a TV set from a catalog, I still owe the tax, but the 

catalog owner doesn’t collect the tax so it’s not usually paid. So 

we’re talking about really whether—it’s like a game we used to 

play when we were kids—‘‘Mother, May I?’’—whether Washington 

will allow the people of Tennessee to elect Governors and legislators who will make the decision about whether to collect taxes from 

everybody who owes it or just some of the people, and whether to 

treat all businesses in the same way. 

We don’t have to make that decision. The only decision we have 

to make is whether we respect the right of states to make that decision for themselves, which is why I say it’s about two words, 

states’ rights. It’s not a new tax. In fact, as Governor Jeb Bush, 

former Governor Jeb Bush, said, he thinks many of the states will 

use the extra revenue collected, when you collect from everybody 

who owes it, to lower rates. I’m almost certain we’ll do that in Tennessee. 

It’s not an Internet tax. We have a Federal moratorium on Internet taxes. That’s very important. We have a Federal law that puts 

a moratorium on Internet taxes, and it’s not a Washington mandate. In fact, it’s just the reverse. If I were to ask the question: 

What does Al Cardenas, the Chairman of the American Conservative Union, and Governor Chris Christie and Governor Jeb Bush 

and Governor Mitch Daniels and Governor Snyder of Michigan and 

Governor Corbett of Pennsylvania and the Governor of Maine, who 

is sometimes called a Tea Party Governor, and even William F. 

Buckley—what do they all have in common, they’re conservatives, 

they’re Republicans, and they all support this legislation. 

Mr. Buckley wrote about it before he died, this principle. I’d like 

to put in the record some of the things they said, including Governor LePage saying, ‘‘Passing this bill would give thousands of 

small Maine businesses a real boost. Federal policy now gives some 

out-of-state corporations an unfair advantage over other Maine retailers.’’ 

Al Cardenas describes this instance as an area where prejudice 

is most egregious. It’s unfair. Mike Pence: ‘‘I don’t think Congress 

should be in the business of picking winners and losers.’’ Inaction 

by Congress today results in a system today that does pick winners 

and losers. This is not the Americans for Democratic Action that 

are making these comments. This is an honor roll of conservative 

Republicans who believe in making decisions at home instead of in 

Washington. They believe this is a matter of states’ rights. 

The question has been raised about whether this puts a burden— 

the Supreme Court said 20 years ago that states couldn’t do this. 

It was too much of a burden. But they invited Congress to solve 

the problem, to do what we’re proposing to do today. It will be just 

as easy today to collect the sales tax online as it will be over the 

11 

counter. You just take your credit card—it has your address on it. 

The software in your machinery will add the tax. The software will 

pay the state. You won’t have liability. You only have one audit a 

year from the state. That’s the system that will be set up here. 

My conservative Governor, Lieutenant Governor, and legislature 

don’t believe I get any smarter each week when I fly to Washington 

and any dumber when I go home. They don’t want me making decisions up here that they’re elected to make by the people of Tennessee. They’re perfectly capable, they believe and I believe as well, 

of deciding whether or not to collect taxes, their taxes already owed 

from the people who already owe it, from some of them or all of 

them, or whether to prefer some businesses over others. 

They might make a wrong decision. They have a right to do that 

in our American system of government. But if we give them this 

structure and authority, I’m pretty sure that they will collect tax 

from everybody who already owes it, that they will use most of the 

revenues to lower our tax rates in Tennessee. And I’m pretty sure 

that if we pass this bill and they’re allowed to act that it will eliminate for the foreseeable future the possibility that Tennessee will 

ever have to have a state income tax, which is the one thing we 

really don’t want in our state. 

Thank you very much for the invitation to be here. 

The CHAIRMAN. Thank you very much, Senator Alexander. 

And I will repeat, Senator Durbin, before you came in, any of 

you—and I believe that Senator Alexander may do this—and I 

would welcome you and Senator Enzi just coming up on the dais 

here and listening to the testimony and asking questions. If it’s 

true that you’re busy, you probably won’t do it. 

Senator ENZI. I appreciate it, but I’m going to have to go to some 

other meetings. Thank you for the offer. 

The CHAIRMAN. Thank you both, all of you. 

Senator, you can just come forward here. 

I’d like to call forward now our witnesses. 

And, Senator Alexander, do you insist on being the most junior 

Republican? 

Senator ALEXANDER. I kind of like it. 

[Laughter.] 

The CHAIRMAN. You do? OK. 

Mr. Paul Misener, who is Vice President for Global Public Policy, 

Amazon.com; Steve Bercu, Chief Executive Officer of BookPeople; 

Scott Peterson, Executive Director of the Streamlined Sales Tax 

Governing Board; and Steve DelBianco, Executive Director of the 

NetChoice Coalition. 

STATEMENT OF HON. ROGER F. WICKER, 

U.S. SENATOR FROM MISSISSIPPI 

Senator WICKER. Mr. Chairman, did we get all of the quotes that 

Senator Alexander offered submitted to the record by unanimous 

consent? Because I do want them in the record. 

The CHAIRMAN. They’re in the record by virtue of him having 

said them. But we can make it more formal. 

Senator WICKER. I think there were other quotations that he 

didn’t read. [Please see pp. 164–166, ‘‘Conservatives Support EFairness’’] 

12 

Senator ALEXANDER. Mr. Chairman, if I may ask consent to include this in the record. 

The CHAIRMAN. That will be in the record. 

Mr. Misener, we’ll start with you. 

STATEMENT OF PAUL MISENER, VICE PRESIDENT FOR 

GLOBAL PUBLIC POLICY, AMAZON.COM 

Mr. MISENER. Thank you, Chairman Rockefeller and members of 

the Committee, for inviting me to testify. I greatly appreciate it. 

Amazon has long supported an even-handed national framework 

for state sales tax collection, and only Congress may create this 

framework. To this end, Amazon believes that Congress should authorize the states to require out-of-state sellers to collect sales tax 

already owed, and we strongly support enactment of S. 1832 from 

Senators Enzi, Durbin, and Alexander. 

Mr. Chairman, the last time I testified before your committee on 

this particular topic was 9 years ago. And much has changed since 

then, including the introduction of S. 1832 with its several innovations and the development of advanced, widely available sales tax 

collection services. Also since then, most of the important questions 

around this legislation have been answered. 

For example, is it a new tax? No. It authorizes enforcement of 

existing state laws. Does it impose burdens on states? No. To the 

contrary, it protects states’ rights to make policy. May the states 

take care of this on their own? No, only may Congress. Does it require states to join the Streamlined Sales Tax Project? No. States 

have the choice of joining the project or making other stipulated 

simplifications. 

Does it violate the ATR pledge? No. That pledge only applies to 

income tax. Is it taxation without representation? No. Those paying 

the tax are represented in the state doing the taxing and the Supreme Court holds that constitutional due process is met when requiring interstate sellers to collect. Does it harm tax competition? 

No. Taxpayers still may choose low-tax states. 

Does it represent more Federal involvement in state tax matters? 

No. To the contrary, by inaction, Congress continues to deny the 

states’ rights to make policy choices, like low income tax rates or 

no income tax at all. Only by passing this legislation would sales 

tax decisionmaking devolve to the states. 

Asked another way, does Federal action on this issue promote 

centralization of power? No. Passing this legislation will decentralize policymaking to the states and localities. So is it constitutional? Yes. The Supreme Court has invited Congress to act. Does 

it restore federalism? Yes. As Justice Scalia has pointed out, dormant commerce clause decisions like Quill render superfluous part 

of the 10th Amendment. 

Do the states want it? Yes. The long list of state government supporters, including many prominent Republican Governors, highlights this fact. How about voters? Do they want it? Yes. A recent 

national survey by a prominent Republican pollster showed that 69 

percent of registered voters support this legislation; 67 percent of 

Republican registered voters support it; and even among conservative registered voters, 61 percent support it. 

13 

So what important questions are left unresolved? There is really 

only one. Would the legislation impose significant administrative 

burdens on small sellers, including small businesses? For five key 

reasons, we can be confident that this legislation would not impose 

a significant administrative burden on small sellers, including 

small businesses. 

First, we shouldn’t lose sight of the fact that this legislation 

clearly would help, not burden main street businesses selling locally. Second, the legislation would restore the revenue and jobs 

lost by small online advertisers, who have suffered under counterproductive state laws enacted over the past 4 years. 

Third, S. 1832 specifically protects small interstate sellers. The 

bill outright exempts sellers with less than $500,000 per year in 

interstate sales, and this is well over 99 percent of online sellers, 

including the occasional sellers and small businesses that sell 

through eBay and Amazon. 

Fourth, even for medium and large businesses, those with interstate sales over $500,000, third-party sales tax collection services, 

like those provided through eBay or run on Oracle, facilitate compliance. A key point is that sellers already are collecting with the 

help of third-party service providers like Avalara. And, last, S. 

1832 provides for sales tax simplifications and other provisions that 

will make it even easier for third-party service providers to assist 

sellers and the states. 

Mr. Chairman, this issue has been considered by Congress for 

over a dozen years. Advanced sales tax collection services are available today that weren’t available even just a few years ago. The 

sponsors of S. 1832 have drafted the bill so that it addresses all 

the important questions that have been raised in over a decade of 

discussions, including with respect to small volume interstate sellers. 

Respectfully, therefore, I ask that you support enactment of S. 

1832, and I look forward to your questions. Thank you. 

[The prepared statement of Mr. Misener follows:] 

PREPARED STATEMENT OF PAUL MISENER, VICE PRESIDENT FOR GLOBAL PUBLIC

POLICY, AMAZON.COM

Thank you, Chairman Rockefeller and Ranking Member Hutchison, for inviting 

me to testify. Amazon has long supported an even-handed nationwide framework for 

state sales tax collection, and only Congress may create this framework. To this end, 

Amazon believes that Congress should authorize the states to require out-of-state 

sellers to collect the sales tax already owed, and we strongly support enactment of 

S. 1832, a bipartisan bill already before the Senate. 

Mr. Chairman, at the Philadelphia Convention, which the Founders convened 

principally to consider the challenging issue of trade among the states, Congress 

was granted exclusive power to regulate interstate commerce. Exactly two centuries 

later, in 1987, North Dakota challenged this exclusivity and, following five years of 

litigation, the U.S. Supreme Court held in Quill v. North Dakota that requiring outof-state sellers to collect tax would impose an unconstitutional burden on interstate 

commerce. Importantly, the Quill court also invited Congress to act, saying that this 

issue is ‘‘not only one that Congress may be better qualified to resolve, but also one 

that Congress has the ultimate power to resolve.’’ 

Far from an e-commerce ‘‘loophole,’’ the constitutional limitation on states’ authority to collect sales tax is at the core of our Nation’s founding principles. For this 

reason, Amazon has steadfastly opposed state attempts to require out-of-state sellers to collect absent congressional authorization. We believe that, instead, Congress 

should enact S. 1832, the Marketplace Fairness Act, to authorize the states to reVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
14 

quire out-of-state retailers to collect sales tax at the time of purchase and remit 

those taxes on behalf of consumers. 

Mr. Chairman, Congress should enact S. 1832 to protect the states’ rights, address 

the states’ fiscal needs, and level the playing field for all sellers. 

Congress should act to protect the states’ right to make their own revenue policy 

choices. For example, some states have chosen to eschew personal income tax, making them particularly vulnerable to uncollected sales tax. The right of any state to 

make such a policy choice effective should be protected by allowing states to ensure 

that sales and use taxes already owed are collected in a uniform manner, including 

when sales are made across state lines. And doing so would not violate pledges that 

are limited to questions of income tax rates and deductions. 

The states’ financial needs should be addressed. The states face serious budget 

shortfalls. Adopting sales tax collection reform is a way for Congress to help the 

states without spending Federal funds. S. 1832 would simply allow the states to collect more efficiently the billions of dollars of uncollected sales/use tax revenue already owed. 

Fairness among sellers also should be created and maintained. Sellers should 

compete on a level playing-field. Congress should not exempt too many sellers from 

interstate collection, for these sellers will obtain a lasting un-level playing field advantage versus Main Street and other retailers. Congress should rectify the current 

imbalance and avoid a future imbalance. 

Mr. Chairman, the facts in the Quill decision arose a quarter of a century ago, 

and the Supreme Court’s decision was rendered a year before the World Wide Web 

was invented. With today’s computing and communications technology, widespread 

collection no longer would be an unconstitutional burden on interstate commerce, 

and Congress feasibly can authorize the states to require all but the smallest volume sellers to collect. Much attention has been paid to the size of a ‘‘small seller 

exception’’ threshold in Federal legislation—and rightfully so. Such a threshold, 

which would exempt some sellers from any collection requirements, must be kept 

low to attain the objectives of protecting states’ rights, addressing the states’ needs, 

and creating fairness among sellers. 

In this context, several kinds of small volume sellers must be considered. Foremost are the Main Street small business retailers who, unless the small seller exception threshold is kept very low, will forever face an un-level playing field compared to a newly-created exempt class of out-of-state sellers. Next are the online advertising affiliates, tens of thousands of whom have lost jobs or income as the result 

of ineffective, counterproductive sales tax laws recently enacted in many states. 

Congressional adoption of reform legislation would immediately restore the lost jobs 

and income by creating a national framework for state sales tax collection. 

Small volume online sellers have received much of the attention, and not without 

reason. No one wants these sellers to shoulder alone additional burdens compared 

to those faced by the small business retailers who already collect sales tax in our 

local communities. Yet no one should want these online sellers to have a newly-created un-level playing field advantage over small Main Street businesses, and no one 

should want government to pick business model winners and losers this way. 

The consequences of the threshold level are significant, because a surprisingly 

large fraction of e-commerce is conducted by smaller volume sellers. According to 

research commissioned by Amazon, only one percent of online sellers sell more than 

$150,000 per year. In other words, the $500,000 threshold in S. 1832 would exempt 

well over 99 percent of online sellers. 

Fortunately, today’s computing and communications technology will readily allow 

all but the smallest online sellers to collect and remit tax like Main Street retailers. 

Large volume online sellers already have and use this technology. Amazon, for example, collects tax on sales to consumers in states where our retail businesses have 

nexus. And the online arms of large multichannel brick and mortar retailers collect 

in the states where they have retail stores. Quite obviously, state sales tax can be 

collected across state lines, and the technology is not limited to large sellers. Rather, 

service providers also make the technology available to medium and small volume 

sellers. Thus, collection is either by sellers or for sellers. There are many service 

providers already: ADP, Avalara (which works with eBay), and FedTax, for example. 

Amazon also helps third party sellers by providing sales tax collection services to 

them, and we are committed to expanding these services. 

In conclusion, Mr. Chairman, Congress may, should, and feasibly can attain the 

objectives of protecting states’ rights, addressing the states’ needs without Federal 

spending, and leveling the playing field for all sellers. Amazon is grateful for the 

opportunity to submit these comments, and we look forward to working with you 

and your colleagues in Congress to enact S. 1832. 

15 

The CHAIRMAN. Thank you very much, Mr. Misener. 

And we’ll go on now to Mr. Bercu, and I’ll repeat that you are 

the CEO of BookPeople. 

STATEMENT OF STEVEN BERCU, CEO AND CO-OWNER, 

BOOKPEOPLE

Mr. BERCU. Thank you, Mr. Chairman, for inviting me here to 

present my views on the Marketplace Fairness Act today. 

My name is Steve Bercu, and, as you said, I’m the CEO and Coowner of BookPeople, an independent book store in Austin, Texas. 

I employ about 100 people. My store is a general interest, large format store. And, parenthetically, two members of this committee 

have appeared at my store to sign copies of their books—Senator 

Hutchison twice and Senator Kerry once. 

I’m in favor of this act. I’d like to share with you just a little 

about how sales tax collection impacts my small business. Online 

retailers, as the chairman pointed out, encourage behavior that has 

been called show-rooming, in which consumers spend the time and 

energy of brick and mortar stores to inform themselves about products, and then purchase those products online to avoid paying the 

sales tax due for those purchases. 

I’ve had the misfortune to observe this behavior in my store 

many times. But my store is a small ticket item store. My friends 

who have large ticket item stores will go apoplectic about this. 

They spend many hours a day explaining every aspect of cameras, 

musical instruments, jewelry, electronic gadgets, and more, only to 

have the consumers at the end of the day tell them that they are 

going to buy these items online to attempt to avoid paying the sales 

tax that is due for those purchases. My friends lose millions of dollars a year in sales in this manner. 

We can all compete on price, and all of us can actually compete 

on any offer that’s made on the Internet. But what none of us can 

do who have a brick and mortar store is sell without collecting 

sales tax. This Act protects small, online retailers. As mentioned, 

sellers who sell under $500,000 in annual online sales would be exempted from the Act. BookPeople would be exempted from the Act 

under its present provisions. 

However, I will tell you that BookPeople already collects in every 

state that has sales tax by simply using currently available software. We do so because it’s the right thing to do, and also because 

none of my books can arrive at any remote location without using 

public roadways and public services in those remote locations. Everybody is the same with regard to this. 

I do not feel burdened, and I doubt anyone else who is in my position would feel burdened by doing our small part to help maintain those services that are instrumental in the operation of our 

businesses. The Act’s requirement that states simplify their tax 

laws should remove any major burden a small retailer has to deal 

with the tax issues. I can send a package across the globe with a 

simple table of shipping costs. I should be able to handle a little 

sales tax. 

As pointed out by Mr. Misener, collecting sales tax is simply not 

that difficult. By typing in a shipping address, a customer already 

has given the online retailer the exact information necessary to colVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00021 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\85318.TXT JACKIE
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lect the appropriate tax. The calculation takes a nanosecond. 

Small, truly small sellers, will be exempt. But remember that 

many small sellers also sell the majority of their products through 

eBay, Amazon, and others. And those companies do have the ability to collect and remit the appropriate sales tax, and they offer 

that service to their sellers. 

Collection has become radically simpler with new and cheaper 

software. Combined with a streamlined process, there is simply no 

legitimate excuse for Congress to be treating some retailers differently than others, to be picking winners and losers in the marketplace. 

This Act is not a new tax. Texas has done its part to attempt to 

remedy this situation, but it’s only a partial solution in Texas. And 

Texas and other similarly situated states need Federal help. We 

need a Federal solution. As pointed out, the estimated revenue loss 

by the states approaches $23 billion. I certainly believe that most 

Americans would consider that to be a sum worth taking congressional time to resolve and make this situation clear, fair, and complete. 

And for all those reasons, I certainly believe that this Act will 

create jobs. It will help retail. It will help our states. It will help 

consumers stop being scofflaws. And because the free market deserves fair competition, I urge you to support the Marketplace Fairness Act. 

And, by the way, if anyone has a book to promote, please get in 

touch. I’ll be glad to get you a signing in Austin, Texas. 

[The prepared statement of Mr. Bercu follows:] 

PREPARED STATEMENT OF STEVEN BERCU, CEO AND CO-OWNER, BOOKPEOPLE

Chairman Rockefeller, Ranking Member Hutchison, and Members of the Committee: Thank you for inviting me to present my views on the Marketplace Fairness 

Act. I hope to be able to give you an insight into the day-to-day impact of collecting 

sales tax, both in-store and for remote sales online. 

My name is Steven Bercu, CEO and co-owner of BookPeople, an Austin, Texas, 

independent bookstore that has been in business since 1970. I employ about 100 

people, with some slight seasonal variations. My store is a large format, general interest bookstore that hosts numerous community events, including about five author 

signings per week. Parenthetically, two members of this Committee have appeared 

at my store to sign copies of their books, Senator Hutchison (twice) and Senator 

Kerry. I am actively involved with both independent retail and the book world, serving as Vice President of the American Booksellers Association, Vice President of the 

American Independent Business Alliance, Founder and President of the Austin 

Independent Business Alliance, and as a Board Member of the Texas Retail Association. 

I am in favor of the Act. There are many reasons why I urge you to support it. 

The Act will end the unfair advantage online retailers have over traditional 

stores and level the playing field. 

Currently, many online retailers are exercising a business model that encourages 

tax avoidance by consumers as the online retailers fail to collect and remit sales tax. 

This provides them with an unfair advantage over brick-and-mortar stores as traditional Main Street stores must collect sales tax at the point of purchase every day 

(and for orders they take via their e-commerce sites). As a result, remote online retailers receive a government-sanctioned price advantage of up to 10 percent in many 

states. Furthermore, as well as tax avoidance, online retailers encourage a behavior 

that has been called ‘‘showrooming,’’ in which consumers spend the time and resources of brick-and-mortar stores to inform themselves about products, and then 

make their actual purchases online to avoid paying the sales tax. I have had the 

misfortune to observe this in my store many times; but what is somewhat discouraging in a small-ticket environment like mine becomes cause for apoplexy in bigVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00022 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
17 

ticket worlds. Peers of mine have spent hours explaining every aspect of various 

cameras and other electronic gadgets only to have the customer tell them they intend to buy online to save the hundreds of dollars due in sales tax. A friend with 

a jewelry store tells me he loses over $2 million per year in sales to the Internet 

to avoid sales tax. We can all compete on price and match any price offered online, 

but we cannot sell without collecting the sales tax. This Act would level that playing 

field. 

The Act will allow for free markets to pick and choose winners, as opposed 

to the government. 

America is built on a free-market economy that encourages business competition. 

By allowing some businesses to avoid collecting sales tax while others are required 

to do so, the government is effectively picking winners and losers in the marketplace. I do not believe the government should be in the business of picking winners 

and losers in the marketplace, but so long as the government allows remote retailers to work at this unfair advantage, that’s exactly what is happening. Nobody likes 

paying or collecting sales taxes, but everyone should be playing by the same rules. 

It makes no sense to promote tax avoidance for some sales while taxing the rest. 

A sale is a sale no matter where it takes place. 

This bill will save and create jobs. 

The approximately 1,600 member stores of the American Booksellers Association 

who operate in approximately 2,000 locations nationwide generate annual sales of 

approximately $1 billion. When those bookstores, and small businesses just like 

them, lose sales to out-of-state, online-only retailers due to an unfair competitive advantage, it threatens jobs nationwide and damages the very retailers that currently 

create millions of jobs everywhere. An economic impact study conducted in Texas 

by Angelou Economics, an economic development consulting firm, showed that more 

than 13,000 jobs would be created annually in Texas alone as a result of collecting 

the sales tax from online-only retailers, and more than 9,600 of these jobs would 

be created in the retail sector. In addition to the $774.4 million in sales taxes that 

would be collected in Texas as a result of collecting the sales tax from online-only 

retailers, nearly $400 million more in local and state tax revenues would be generated annually throughout the state (figures from Susan Combs, Texas Comptroller 

of Public Accounts). These numbers derive from conservatively estimating what the 

thousands of Texas businesses that employ about two million people would generate 

if they only added 0.5 percent to their payrolls to handle the increase in business 

to be expected when the approximately ten percent competitive disadvantage they 

suffer is removed. We will be able to track those gains to some degree over the coming year now that the largest online retailer has begun to collect sales tax for Texas 

sales. 

Collecting sales tax is good for local economies. 

BookPeople participated in a landmark economic impact analysis in 2002. The 

study showed that shopping at locally-owned businesses provides 3.5 times the economic impact as shopping at chain retail. Shopping online at remote Internet retailers has no economic impact locally. This Act would help remedy this unfortunate 

situation. 

It is well known that recycling money within a community causes what economists call a ‘‘multiplier’’ effect as the money recirculates within the community and 

its value is ‘‘multiplied’’ at each subsequent use. Since 2002, numerous other economic impact analyses in cities across the country (Chicago, San Francisco, Grand 

Rapids, Salt Lake City, etc.) have confirmed these findings. These and more studies 

can be found at www.civiceconomics.com, the website of the economists who did 

most of these studies, under their ‘‘library’’ tab. 

The Act is not a new tax. 

Under existing law, tax on these sales is due. The Act simply defines who is liable 

to collect an existing tax, as consumers already owe use taxes on purchases. However, as most state comptrollers will tell you, unless you collect sales tax at the 

point of purchase, it is very hard (impossible) to collect. The Act provides an evenhanded solution to sales tax collection that would require online-only retailers to 

play by the same rules as every other business. It provides states with the clear 

authority to require retailers to collect sales tax. 

It is sometimes argued that the Act would authorize states to impose a new tax 

with complex burdens on businesses without a storefront, in that it would impose 

obligations on out-of-state businesses. Just because some online retailers do not currently collect sales tax does not mean the tax is not due. Online retailers are simply 

shifting the burden to report and remit the tax to consumers, knowing that the 

18 

overwhelming majority will never declare and remit the tax. Undoubtedly, the Act 

contemplates that retailers would be obliged to collect sales tax for another jurisdiction, but the collection is not difficult and the Act simplifies the process of remitting 

the collected revenues. These days there are numerous services that can manage as 

much of the sales tax collection process as a retailer would want from simply supplying the data necessary (the tax rates) to becoming the backend of your website 

and handling the entire process. 

The Act allows states to decide whether or not to collect sales and use 

taxes already owed under state law. 

This legislation is not a government mandate. Under this legislation, it is the 

states that decide whether or not they will collect sales tax on online sales. If they 

do choose to collect, they can do so by either becoming a member state of the 

Streamlined Sales and Use Tax Agreement, or they can adopt minimum simplification requirements. 

The Act preserves states’ rights. 

The Marketplace Fairness Act would help states enforce their own tax laws and 

collect millions of dollars in lost revenue from online retailers that do not collect 

sales tax. 

The Act protects small online retailers. 

Sellers with less than $500,000 in annual online sales would be exempted from 

collecting sales and use taxes, so they are not overly burdened by tax collection requirements. BookPeople would be exempted from collection under the Act, but 

BookPeople already collects for every jurisdiction that has a sales tax using some 

of the software mentioned above. We do so because it is the right thing to do and 

because our books can only arrive at a remote location by using public roadways 

and services in those remote locations. That is true for everyone. It is fatuous to 

argue that we are burdened by being asked to help maintain the services necessary 

to the functioning of our businesses. 

The Act requires states to simplify their tax laws if they do not participate in the 

Streamlined Sales and Use Tax Agreement. Those provisions remove any major burden a small retailer might face. If I can send a package across the globe using a 

simple table of shipping costs, then I should be able to handle a little sales tax. 

Collecting sales tax will not be difficult. 

The simple fact is, collecting sales tax is not all that hard. Those who trot out 

this red herring are doing so solely to keep the special tax treatment they currently 

enjoy. By typing in a shipping address, a customer has already given the online retailer the exact information they need to collect the appropriate sales tax—the calculation will happen in a nanosecond. 

Whether a state is part of the Streamline Sales Tax and Use Agreement or not 

(Texas is not) a common set of definitions of what is or is not taxable, along with 

a single collection authority for the entire state, will make collection quite simple 

for online retailers. Truly small sellers will be exempt, but remember that many 

small sellers also sell the majority of their products through eBay, Amazon, Best 

Buy, and others. Those companies all have the ability to collect and remit the appropriate sales tax, and all offer that service to their sellers. 

This isn’t that hard. The truth is that collection has become radically simpler with 

new and cheaper software. Combined with a streamlined process, there is simply 

no legitimate excuse for Congress to be treating some retailers differently than others. 

The Act does NOT add a penny to the Federal deficit. 

This legislation does not impose funding requirements on the Federal Government. In fact, it should have a positive impact on government since all extra revenue to the states should reduce their reliance on Federal funds (and their requests). It is argued that the anticipated revenue does not justify whatever might 

be required to collect it since e-commerce generates only about 1 percent of total 

tax revenue. That reasoning makes anything irrelevant. The estimated revenue lost 

by the states is around $23 billion. I think that most Americans would think that 

is enough to worry about. 

Conclusion 

For all the reasons above and because the Act will create jobs, help retail, help 

our states, help consumers stop being scofflaws, and because the free market deserves fair competition, I urge you to support S. 1832. 

19 

The CHAIRMAN. Thank you very much, sir. 

We go now to you, Mr. Peterson. 

STATEMENT OF SCOTT PETERSON, EXECUTIVE DIRECTOR, 

STREAMLINED SALES TAX GOVERNING BOARD 

Mr. PETERSON. Thank you, Chairman Rockefeller and members 

of the Committee. My name is Scott Peterson. I am the Executive 

Director—— 

The CHAIRMAN. And you’re the one who can answer all the questions about paperwork. 

Mr. PETERSON. Thank you for the warning, sir. 

My name is Scott Peterson. I am the Executive Director of the 

Streamlined Sales Tax Governing Board. Prior to that, I was the 

Sales Tax Director for the state of South Dakota for 10 years. So 

I do have a lot of experience in how states administer their sales 

tax. 

I’d like to talk to you today about three things. The work done 

by the Streamlined Sales Tax to make their sales tax simpler and 

more uniform, the impact of unpaid sales tax—you’ve heard that 

from Mr. Bercu—and the need for Congress to act. 

Streamline was created by the National Governors’ Association 

and the National Conference of State Legislatures in 1999 in response to the 1992 Quill decision, which the states felt that they 

lost, and years and years and years and years of debate and argument and court battles. The leaders of those two organizations at 

the time felt it was time for the states to sit down and have a legitimate conversation with businesses about the issue, and the 

issue was complexity. 

We spent years trying to identify what the complexity issues 

were, coming up with best practices. Streamline is an organization 

designed to help states use best practices, modern business practices, in the way they administer their sales tax. 

Our three goals—make things uniform that can’t be made simple. Sometimes things can’t be made simple. But if you can make 

them uniform, the retailers benefit from the fact that it’s always 

the same way. 

Balance the interest of state sovereignty with simplicity and uniformity. Don’t ask a state legislator or a Governor to change their 

constitution for the sake of simplicity and uniformity. Find some 

way of doing these things that don’t revolve around a political suicide or a practical impossibility. 

Help the private sector make their software better. We strive to 

eliminate the administrative differences. We don’t try to tell states 

you have to tax shoes if you don’t tax shoes today; you have to tax 

digital goods if you don’t tax digital goods today; you have to exempt groceries if you don’t exempt groceries today. 

Those are legitimate state policy issues that the consumers of 

those states and the legislators and the Governors of those states 

have an interest in having. Is there a legitimate reason for one 

state’s sale tax return to be 16 lines different than its neighboring 

state’s sales tax return when they tax exactly the same thing and 

have the exact same rate? 

We created dozens of uniform definitions. One of the things retailers told us years ago was ‘‘You all tax and exempt almost exVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00025 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\85318.TXT JACKIE
20 

actly the same thing, but you use definitions that differ from each 

other to a degree that makes it impossible for us to understand 

what you’re trying to do.’’ 

Candy—half the states in this country exempt groceries, but they 

tax candy. And the state law would say ‘‘We hereby exempt groceries from the sales tax except candy.’’ And it’s the same word in 

every state’s law, except when it comes time to administering the 

law, the Departments of Revenue and the retailers in those states 

came up with a different definition of what candy meant. So if 

you’re a retailer looking at the state’s law, and it says candy is taxable and groceries are exempt, you don’t have a clue what candy 

means. We came up with a definition of candy. 

Create uniform processes for sales tax returns, sales tax remittances. Try to get to one sales tax return around this country. 

Come up with one uniform exemption certificate. And, first and 

foremost, make sales tax administration software that exists in the 

private sector today better. We made it better in a couple of different ways. 

One, we certify the accuracy. There are six companies in this 

country that sell the certified software. We’ve looked at their sales 

tax decisions. We have said to retailers, ‘‘If you use this software, 

it’s going to give you the right answer every time.’’ 

Now, if on the off chance it’s wrong one out of a million times, 

it’s not your fault, Mr. Retailer. It’s the state’s fault, because the 

state didn’t do a very good job of certifying the software. In addition, the Streamline states pay those six companies to provide this 

service to retailers when that retailer doesn’t have an obligation to 

collect that state sales tax. 

The impact of unpaid sales tax—I’m not going to tell you it’s lost 

revenue, because that’s not a very good selling point. I am going 

to tell you that it’s unfair for one consumer to pay 100 percent of 

their sales tax and the next consumer not to pay 100 percent of 

their sales tax when they both make the exact same purchases. 

They just choose different venues in which to make the purchases. 

And this isn’t a bricks and mortar versus the Internet. This is 

a retailer versus retailer. Main street retailers who use the Internet are just as disadvantaged as Internet retailers in another state, 

just as disadvantaged as the bricks and mortars are. 

And I’ve run out of my time, Mr. Chairman. Thank you. 

[The prepared statement of Mr. Peterson follows:] 

PREPARED STATEMENT OF SCOTT PETERSON, EXECUTIVE DIRECTOR, 

STREAMLINED SALES TAX GOVERNING BOARD

Thank you Chairman Rockefeller, Ranking Member Senator Hutchison and Members of the Commerce Committee for the invitation to talk to you today. 

Introduction 

I am the Executive Director of the Streamlined Sales Tax Governing Board. I 

want to talk with you today about three things: 1) sales tax simplification done by 

the 24 Streamline states, 2) the impact of unpaid sales and use taxes, and 3) the 

need for Congress to act authorizing willing states to require out-of-state vendors 

to collect sales and use taxes. 

Background 

Streamline was created in response to years of court battles ending in the 1992 

Quill decision. The National Governor’s Association and the National Conference of 

State Legislatures decided it was time to sit down with business to identify and 

21 

solve the sales tax administration issues business said made sales tax compliance 

complicated. 

Streamline’s Efforts 

The three goals of Streamline are to: (1) make uniform those things that cannot 

be made simple, (2) balance the interest of state sovereignty with uniformity and 

simplicity, and (3) help the private sector make the best possible sales tax software 

and services available to retailers. We strive to eliminate the administrative differences between states while maintaining a state’s sovereign authority to choose 

what and what not to tax. 

The 24 Streamline states created and implemented uniform definitions for many 

commonly taxed and exempted products and services, such as groceries, candy, durable medical equipment, and digital goods. Streamline states created and implemented uniform procedures for electronic sales tax returns and payments and a single, central registration system retailers can use to register to do business across 

the country. 

For a long time retailers have worked to automate every aspect of their business, 

including their sales tax obligations. Sales tax automation can be as simple as 

knowing what is the sales tax rate at any location or as complicated as knowing 

that a state has a 48 hour sales tax holiday on back-to-school supplies. The Streamline states enhanced the ability of retailers to automate sales tax collection by 

adopting uniform sales tax rules, such as defining what products are included in a 

back-to-school sales tax holiday, by evaluating and then certifying the accuracy of 

the tax answers provided by software companies, and by paying those companies to 

provide accurate answers and to file the tax returns and pay the tax. The Streamline certified software companies allow a retailer to automate and outsource their 

sales tax work. In addition each Streamline state pays the certified software companies to provide that service to retailers who do not have a physical presence in their 

state. 

The impact of unpaid sales and use taxes 

The impact of unpaid sales and use taxes isn’t just a matter of some state not 

collecting what its tax law says should be collected. The sales tax is too often the 

price difference that turns local retailers into display cases for consumers who come 

in and try out the product and then go home and buy on-line. According to the Department of Commerce, e-commerce sales doubled from 2005 to 2011 and e-commerce sales in the first quarter of 2012 increased 15 percent more than the same 

quarter in 2011. E-commerce sales are increasing at a rate greater than total sales 

and the difference are sales that would have otherwise gone to a local retailer. 

Should Congress authorize willing states to require out-of-state vendors to 

collect sales and use taxes 

The 24 Streamline states believe Congress should exercise its authority over interstate commerce and authorize states to collect their sales tax. Opponents say the 

sales tax is too complex, that it will harm small business, that it is a tax increase, 

and that the states have not done enough. 

Collecting is too complex 

Every retailer today looks to automate everything that can be automated. Sales 

tax collection software exists, it works, and it is affordable. Internet shopping carts 

may be the perfect technological environment in which to collect sales taxes because 

the customer can’t make a purchase without providing all the data necessary to determine what sales tax to collect. Technology exists today to easily collect sales tax. 

It will hurt small business 

Small main street businesses believe they are the small business that is being 

harmed as they try to compete against someone who isn’t collecting the tax. Many 

of them believe they are at the mercy of a 6–10 percent government mandated price 

disadvantage. The Marketplace Fairness Act protects truly small businesses by exempting them from state authority. In addition, the Marketplace Fairness Act requires states to simplify their laws and processes, and requires them to provide software and services. 

Collecting a tax that is already due is a NOT a tax increase 

If the retailer doesn’t collect the sales tax the consumer owes the use tax. Having 

the retailer collect the sales tax is the only efficient method. Collecting the use tax 

from consumers would require an army of auditors. 

22 

States have not simplified enough 

One of the goals of Streamline is to balance state sovereignty with simplification. 

It would be easy to create a simple sales tax if we were starting over and if every 

retailer sold only one product and sold that product in only one way. Unfortunately, 

that isn’t our reality. We have taken the knowledge of 70 years of sales tax collection and applied it to the millions of products being sold by millions of retailers and 

tried to achieve something that meets today’s need 

Conclusion 

In conclusion, we believe that between the great advances in technology and the 

simplifications found in the Marketplace Fairness Act it is time for Congress to act. 

Many today believe the government is picking winners and losers in the retail community. It is time to treat all retail businesses the same. Congress has the ability 

to balance simplification with state sovereignty and equity. We encourage you to 

make that decision and act now. 

The CHAIRMAN. Thank you very much, Mr. Peterson. 

And now Steve DelBianco, who is Executive Director of the 

NetChoice Coalition. We welcome you. 

STATEMENT OF STEVE DELBIANCO, EXECUTIVE DIRECTOR, 

NETCHOICE COALITION 

Mr. DELBIANCO. Thank you, Chairman Rockefeller, Senator 

DeMint, members of the Committee. I also speak for the True Simplification of Taxation Coalition just formed, and that includes the 

American Catalog Mailers, the Direct Marketing Association, and 

the Electronic Retailing Association. 

As the only one of seven witnesses you’ve heard today who 

doesn’t support the legislation, I sort of feel like the body at an 

Irish wake. Everyone expects me to be here, but nobody really 

wants me to say anything. 

But, after all, you’ve already heard how simple this is. Right? 

You’ve heard that constitutional restraint on state taxing powers is 

really a loophole and that it’s unfair. You’ve heard that it’s free and 

easy to pay taxes for 46 states and 9,600 jurisdictions. You’ve 

heard that the Internet is some foreign virus that’s killing main 

street businesses around the country. 

But not so fast, please. It’s not nearly that simple. First, the 

founders put Article I in the Constitution because they knew the 

colonies favored their own businesses over out-of-state businesses 

by tariffs and trade barriers. The founders deliberately limited 

states’ power to impede interstate commerce, and that was the 

basis of the 1992 Quill ruling. It wasn’t to shield e-commerce, because it hadn’t even been born yet. 

SSTP, as Scott described, was the states’ response to Quill, and 

for 10 years I’ve been to nearly all SSTP meetings and I’m a participant there. After a decade of trying, though, it’s clear that states 

don’t really want to give up the local rules and rates. They don’t 

want to give up their own definitions. They don’t want to give up 

thresholds, their own tax returns, and their own audits of every 

single seller. 

SSTP is stalled out right now, but the big box stores desperately 

want to make Amazon collect in more states. So they’ve asked you 

to force remote collection on everyone without the true simplifications that I detailed in my testimony. This legislation lets states 

impose their tax disaster on businesses in your states, businesses 

23 

that have no votes and no voice and no benefits from the taxing 

state. 

The second point is that I’m glad that Mr. Bercu claimed that it’s 

free and easy to collect sales tax for other states, because as it 

turns out, the way he’s doing it is perhaps free and it may be even 

easy, but it’s completely wrong. I used the web store to buy a book 

this morning about the U.S. Constitution for delivery to my Virginia home. And in front of you is a panel showing the screen shot 

from today. 

Like Mr. Bercu said, BookPeople did add sales tax, but not for 

me in Virginia where it’s 5 percent. They added 8.25 percent, which 

is Austin, Texas’ rate. They didn’t have to look up the rate in Virginia. They didn’t have to check to see if Virginia was having a 

sales tax holiday. They are later this month. They don’t have to file 

returns in Virginia, and they don’t have to face audits from Virginia. 

So what BookPeople does today is not even remotely close to 

what this bill, 1832, would require. Selling books, if you think 

about it, is pretty simple. There’s no size or color choices involved. 

But it’s much harder for a business who does complex fulfillment. 

The Silver Gallery has a store on Main Street in Waynesboro, Virginia. They do $3 million in sales through multiple channels, online, web store, their Amazon store as well, and phone orders. And 

they do custom engraving on a lot of the jewelry that they ship. 

So I’ve got a chart in front of you that shows the information systems that they built on their own to handle that custom engraving 

and ordering. They already collect for every single sale they make 

in Virginia, just like all online sellers do. They collect for their own 

states via their custom system. That’s at the top of the chart. 

But when discussing the challenges of collecting for 9,600 jurisdictions, a witness last week told the House Judiciary Committee, 

‘‘That’s easy. There’s an app for that. You can just punch it in and 

it’ll return the rate.’’ But that app would have to be in the bottom 

row, Mr. Chairman, of the chart in front of you. Imagine every time 

something moves through my system, I have to punch in a rate and 

then punch it back into the system. That would never work for an 

automated shopping cart with a company with just four employees. 

So is it free, the software? Yes, it’s free like a puppy is free. They 

come with a lifetime of costs. And the Silver Gallery did a detailed 

estimate that it will cost them $22,000 to implement free software—at the bottom of the chart with all those blue arrows that 

connect it to their in-house information systems. 

There are similar businesses in each of your states. I would be 

happy to talk to you about each of those examples, because they 

are real companies—Tamarack in Beckley, West Virginia, where 

2,800 artisans reach customers around the country through their 

website. Those businesses in your states that use the Internet— 

they haven’t made so much noise about this legislation so far. I 

think they’re too busy just trying to survive the competition from 

Wal-Mart, Amazon, and the big box stores, who have huge economies of scale and enjoy local tax benefits. 

But when your state’s businesses have to start spending money 

on new systems and have to face 46 state audits, I think that’s 

when you’ll start to hear from them. And the thing is you won’t be 

24 

able to help if you pass this legislation first. And don’t expect the 

small seller exception to provide any relief, either. At $500,000 in 

retail gross sales, it won’t even exempt a mom-and-pop operation 

in your states. And I look forward to talking to you about a more 

reasonable small business exception during the Q&A. 

So, to close, I’d say that this shows that the Internet is not some 

deadly virus from outer space. We invented the Internet. The Internet is in every town of America, and it helps every business and 

every consumer find what they’re looking for. So it doesn’t make 

sense to think of the Internet as unfair or the enemy. So to paraphrase Pogo, that comic strip, we have met the Internet and it is 

all of us. 

I look forward to your questions. 

[The prepared statement of Mr. DelBianco follows:] 

PREPARED STATEMENT OF STEVE DELBIANCO, EXECUTIVE DIRECTOR, NETCHOICE

Chairman Rockefeller, Ranking Member Hutchison, and members of the Committee: thank you for holding this hearing on whether new ‘‘internet tax’’ collection 

burdens would level the playing field for small business. My name is Steve 

DelBianco, and I serve as Executive Director of NetChoice, a coalition of leading ecommerce and online companies promoting the value, convenience, and choice of 

Internet business models. NetChoice members include industry leaders such as 

eBay, Expedia, Facebook, LivingSocial, NewsCorp, Overstock, VeriSign, and Yahoo, 

plus several thousand small businesses that go online to reach their customers. 

NetChoice has been deeply engaged on Internet tax issues for over a decade, including debates in the Wall Street Journal, on CNBC, Marketplace radio, CNN, and 

PBS. Since 2004, we have participated in meetings of the Streamlined Sales Tax 

Project (SSTP), a long-term effort that S. 1832 seeks to sweep aside with an ‘‘Alternative’’ method to let states tax remote businesses. 

NetChoice is a founding member of TruST, the coalition for True Simplification 

of Taxation, a new group whose association members also include: the American 

Catalog Mailers Association; the Direct Marketing Association; and the Electronic 

Retailing Association (www.TrueSimplification.org). Each coalition member has submitted written statements for today’s hearing, and we respectfully ask that their 

statements be included as part of the hearing record. 

In this testimony we are discussing legislation that would authorize states to impose sales tax obligations on out-of-state businesses. Our major points are: 

1. For online and catalog businesses, S. 1832 would let 46 states impose new tax 

burdens that are uniquely complex and far more unfair than the current Quill 

standard of physical presence. 

2. S. 1832 does not require nearly enough sales tax simplification to justify imposing these significant new burdens on out-of-state businesses. 

3. The new tax burdens imposed by S. 1832 are not justified by anticipated revenue, since total potential sales tax on all e-retail is well below one percent of 

total state & local tax revenue. 

4. S. 1832 does not adequately protect America’s small businesses, where these 

new collection burdens would be disproportionately complex and expensive. 

The Commerce committee has a unique perspective on the need to prevent stateimposed burdens on interstate commerce. To help with that deliberation, we begin 

with some straight answers to critical questions. 

Why don’t online retailers pay sales tax to every state? 

Last November, the editors of the Wall Street Journal asked NetChoice whether 

all online retailers should have to pay sales tax to every state. My argument in the 

published debate began with this: 

Should online retailers have to collect sales tax? Yes, and they already do. 

Just like all retailers, online stores must collect sales tax for every state where 

they have a physical presence. That’s why Amazon.com adds sales tax to orders 

from customers in the 5 states where it has facilities. But Amazon and online 

retailers aren’t required to collect tax for other states, leaving those customers 

to pay a ‘‘use tax’’ that states rarely enforce against individual taxpayers. This 

25 

1Steve DelBianco, Should States Require Online Retailers To Collect Sales Tax?, Wall Street 

Journal (Nov. 14, 2011) (emphasis added). 2 Nat’l Bellas Hess, Inc. v. Dept. of Rev. of Ill., 386 U.S. 753 at 758 (1967). 3Quill Corp. v. North Dakota, 504 U.S. 298 (1992). 4See Quill Corp. v. North Dakota, 504 U.S. 298 at 313 FN 6 (1992). 

framework frustrates state tax collectors and businesses that compete with online retailers. But when we learn how this physical presence requirement 

evolved, it becomes clear why we should retain this standard for imposing new 

tax collection burdens on online retailers.1

As members of this committee know, today’s physical presence standard is based 

on Article 1 of the U.S. Constitution, designed 225 years ago to stop states from impeding interstate commerce. The Commerce Clause was a necessary condition to 

unite the independent colonies, since they had a legacy of imposing customs duties 

and trade barriers to favor in-state businesses. 

Fast-forward to the 1960s, when state tax collectors wanted catalog retailers to 

collect their sales taxes, even where those catalogs had no operations in the state. 

The U.S. Supreme Court relied on the Commerce Clause in deciding that states 

could not impose tax collection requirements on catalogs ‘‘whose only connection 

with customers in the State is by common carrier or the United States mail.’’ 2

In 1992, the Supreme Court took another look at tax collection by an office products catalog company by the name of Quill.3 Seeing a patchwork of rates and rules 

for several thousand sales tax jurisdictions, the Court again held that requiring outof-state companies to collect and remit taxes was so complicated that it presented 

an unreasonable burden on interstate commerce. 

Moreover, the Supreme Court was not moved by the state’s argument that computer technology created the necessary simplification. Instead, the Supreme Court 

acknowledged the lower court’s finding that advances in computer technology had 

eased the burdens of tax collection, but still found the requirement of tax collection 

unduly burdensome.4

Quill was not concerned with ‘‘fairness.’’ While some argued fairness as justification for tax collection, ‘‘[i]n contrast, the Commerce Clause and its nexus requirement are informed not so much by concerns about fairness for the individual [state] 


801STEVE1.eps
26 

5 Id. at 312 (emphasis added). 6 ‘‘Vertex Press Release (Mar. 21, 2012), available at http://www.vertexinc.com/pressroom/ 

PDF/2012/vertex-address-cleansing.pdf (‘‘At the end of 2011, there were over 9,600 taxing jurisdictions across the U.S. with an average of 651 new and changed sales and use tax rates per 

year.’’). 

as by structural concerns about the effects of state regulation on the national economy.’’ 5

Quill is the law of the land today, protecting businesses from sales tax imposition 

by states where that business has no physical presence, while requiring businesses 

to pay sales tax for every state where they do have a physical presence. 

Haven’t states simplified their sales tax systems? What about the SSTP 

initiative? 

Quill also made it clear that states could simplify their sales tax systems and 

come back to the Supreme Court at any time to argue that they had eliminated the 

unreasonable burden on interstate commerce. But instead, a handful of states chose 

to skip the harsh judgment of the Court and go directly to Congress to request the 

power to impose these burdens on out-of-state businesses—whether or not state 

sales taxes were significantly simplified. 

State efforts began a decade ago with the Streamlined Sales Tax Project (SSTP). 

Despite a decade of concerted effort, the actual simplifications achieved by the SSTP 

are not nearly sufficient to justify Congress abandoning its role in protecting interstate commerce. Rather, the SSTP has shown that simplification has become just 

a slogan—not a standard. 

First, critics cite the fact that SSTP originally promised just one tax rate per 

state, but now accommodates over 9,600 local jurisdictions,6 each with its own tax 

rates and sales tax holidays. That’s up from 7,800 jurisdictions in the 20 years since 

Quill, and still growing. This makes the U.S. a true outlier when it comes to sales 

tax jurisdictions. The European Union has 27 jurisdictions for Value Added Tax 

(VAT) and India lets each state have a single tax rate, but we are the only country 

where sales tax is controlled at the local government level. 

Second, the SSTP has abandoned many of its original simplification requirements. 

For example, the SSTP no longer contains required compensation for all retailers 

and has all but eliminated the small seller exception. In an effort to attract states 

with origin sourcing, the SSTP abandoned one sourcing rule and now allows both 

origin and destination-based regimes—at the same time. To entice Massachusetts 

to join SSTP, the Governing Board voted to allow thresholds for certain clothing 

items, even though thresholds were one of the most complex elements it pledged to 

simplify. (Notwithstanding this allowance, Massachusetts has not yet joined SSTP.) 

Despite these concessions to attract member states, less than half of eligible 

states have joined SSTP (only 22 full member states in SSTP, out of 46 states that 

have sales tax). 

Why is SSTP losing momentum when states expect billions of dollars in 

new tax revenue? 

Some argue that SSTP lost momentum because non-member states are reluctant 

to let unelected tax administrators make decisions about tax rules and determine 

compliance. More likely however, SSTP lost momentum because states began to see 

the revenue estimates as wildly inflated. 

A simple calculation using government data shows that the maximum sales tax 

potential for consumer e-commerce is less than one percent of total state and local 

tax revenue: 


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7 U.S. Census Bureau E-Stats, http://www.census.gov/econ/estats/2010/2010reportfinal.pdf 8 U.S. Census Bureau E-Stats, http://www2.census.gov/govs/qtax/2011/q2t1.pdf 9 Eisenach & Litan, Uncollected Sales Taxes On Electronic Commerce: A Reality Check, 

Empiris LLC (Feb. 2010), available at http://bit.ly/EisenStudy. 

Start with the U.S. Department of Commerce’s 2010 Electronic Commerce Industry Assessment, which reported total retail e-commerce of $169 billion.7

Apply an average tax rate of 7 percent, giving total potential sales tax of $11.8 

billion. 

Divide that by total state and local tax revenue in 2010, reported as $1.3 trillion 

by the Commerce Department.8

The result is clear: the maximum potential sales tax on all e-commerce is less 

than one percent of state & local tax revenue—assuming that no sales taxes are collected by e-retailers. 

But under Quill, e-retailers already collect sales tax for states where they have 

physical presence, as seen in the table at right. NetChoice commissioned a study 

by economists Robert Litan and Jeffrey Eisenach to determine where e-retailers 

were already collecting sales tax for web sales. 

They concluded that uncollected sales tax on e-commerce in 2010 was $4.2 billion 

nationwide, or less than one-third of one percent of total state and local tax revenue.9

This relatively small incremental revenue does not justify a dramatic expansion of 

state taxing powers and new collection burdens on remote businesses. 

Isn’t there increased momentum to overturn Quill? 

Recently, despite flagging momentum and diminishing revenue estimates, members of this committee have surely noticed increased lobbying efforts to overturn 

Quill’s physical presence test and empower states to collect from remote retailers. 

Aside from the usual tax proponents in state government, the renewed push is coming from big-box retailers. 

Big-box retail chains are pushing hard for Federal legislation for a simple and 

predictable reason: it serves their interests. Even a little simplification helps a bigbox retailer who must already collect tax for most states, as seen in this list. BigVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00033 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE

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10See Order of Ct., The Direct Marketing Ass’n v. Huber (U.S. Dist. Ct. Colo. Mar. 30, 2012), 

and see 1 Colo. Code Regs. § 201–1:39–21–112.3.5 (2010). 11 By 2014, Amazon will collect and remit sales taxes in the following 14 states: California, 

Indiana, Kansas, Kentucky, Nevada, North Dakota, New Jersey, New York, Pennsylvania, Tennessee, Texas, Virginia, Vermont, and Washington. 

box retailers now have expansive web-stores of their own and give customers the 

convenience of doing pickups and returns at their local stores. These chains use 

plenty of local public services wherever they have stores, so they must collect sales 

tax in all their states—as required under Quill. The Eisenach study looked at sales 

collection practices for the top 500 e-retailers, and found that 17 of the top 20 already collect in at least 38 of the 46 sales tax states. 

Another way that overturning Quill would also help big-box retailers is that it 

would force tax collection costs on their biggest online competitor, Amazon. 

Why would Amazon.com support overturning Quill? 

Big-box retailers have aggressively gone after Amazon in the states, lobbying for 

new ‘‘Amazon Tax’’ laws declaring that Amazon already has physical presence by 

virtue of its advertising affiliates, distribution centers, or other subsidiaries in the 

state. The big-box retailers also lobbied for a new tax reporting law in Colorado, 

which was enjoined by a Federal court as a violation of the Commerce Clause.10 Despite the setback in Colorado and pending court challenges of the ‘‘Amazon Tax’’ in 

New York and Illinois, this aggressive and expensive state lobbying campaign has 

succeeded in creating well-publicized tax compliance problems for Amazon. Those 

problems have helped to drive Amazon to support Federal legislation to overturn 

Quill. 

But there’s another reason for Amazon’s about-face: the company is changing its 

business model by adding distribution centers in new states to enable faster delivery 

to customers. Amazon is also adding drop-boxes in convenience stores and marketing daily deals to local merchants. As a result, Amazon will have physical presence in 14 states by 2014 11—requiring Amazon to collect sales tax for more than 

half of all Americans. And as Amazon opens more distribution centers across the 

country they will continue to increase their tax collection requirements. 

Like the big-box stores, Amazon would reduce its tax compliance costs if states 

adopted even tiny steps toward simplification. Moreover, Amazon and big-box chains 

benefit if Congress allows states to impose new tax collection burdens on their 

smaller online-only competitors. 

To impose expensive collection burdens on small sellers would be grossly unfair, 

which brings us to the aspect of ‘‘fairness’’ in the debate over new Internet sales 

taxes. 

Is this debate really about ‘‘fairness’’ for small business? 

Yes, and ‘‘fairness’’ is what you get when everyone plays by the same rules. Today, 

with Quill in place, all online and offline businesses play by exactly the same rule: 

all retailers collect sales tax for every state where they choose to have a physical 

presence. 

Ironically, in many states the fairness argument cuts the other way. A retail store 

on Main Street collects sales tax for just the one jurisdiction where it’s located. But 

in most states, an online retailer operating right upstairs must collect and remit for 

each of the local towns and counties whenever it ships within the state. That means 

collecting for several hundred local tax jurisdictions, each with its own rates and 

rules. Yet when customers from surrounding towns walk in the door, the store collects and files only in the local jurisdiction. 

Again, all retailers collect sales tax for every state where they choose to have a 

physical presence. I say, ‘‘choose’’ because it is the business that chooses whether 

to be just an online retailer or to operate physically in multiple states. When a business chooses to open stores or send sales reps to another state, it accepts the obligation to collect that state’s sales tax, along with state-provided benefits of infrastructure, public safety, etc. 

There’s actually little evidence that retailers who do collect sales tax are losing significant sales to catalog and online retailers who collect sales tax only for their home 

state customers. That makes sense, since sales tax and shipping costs aren’t added 

until a consumer’s online shopping cart goes to checkout. So comparison shoppers 

are usually comparing prices before adding any tax and shipping charges. Moreover, 

online shoppers usually pay shipping and handling charges that offset any tax that’s 

not collected on most commodities. Most shoppers go online for the convenience and 

selection available, not to avoid taxes. While small and expensive electronics are an 

anecdotal exception, tax proponents have shown no data indicating that significant 

29 

12Tom Szkutak, CFO, in a transcript of Amazon’s Q2 2012 Earnings Call, http:// 

seekingalpha.com/article/754571-amazon-com-s-management-discusses-q2-2012-results-earningscall-transcript?part=single 13See Angus Liten, Sales-Tax Measures ’to Cost Us Big’, Wall. St. Jo. (Dec. 1, 2011). 14 Available at http://www.netchoice.org/wp-content/uploads/cost-of-collection-study-sstp.pdf. 

numbers of electronics shoppers deliberately choose out-of-state online retailers just 

so they can avoid paying sales tax. 

For example, Amazon begins collecting sales tax in California on September 15, 

2012 because it has physical presence there with its Kindle labs and new distribution centers. Even though customers in one of Amazon’s largest markets is facing 

the prospect of an 8 percent effective price increase, the company is not warning 

analysts about any impending drop in sales. In a conference call with equity analysts on July 26, 2012, Amazon executives fielded questions about the sales impact 

of collecting sales tax in more and more states. The company’s CFO said: 

‘‘We have also certainly added some new geographies or new jurisdictions that 

we clocked during that time period. But you see that we have seen very very 

strong growth even while collecting.’’ 12

This is more evidence that American consumers go online seeking better selection, 

convenience, and lower prices—they don’t shop online to avoid paying sales taxes. 

The argument that remote sellers have an unfair advantage just doesn’t hold up. 

Paying sales tax for thousands of jurisdictions in 46 states is far more expensive 

and complex than paying sales tax for a single jurisdiction on over-the-counter purchases. Moreover, state and local governments often provide incentives and benefits 

to in-state retailers, such as tax increment financing, transportation improvements, 

worker training subsidies, grants, tax credits, property and income tax incentives, 

etc. None of these benefits are available to out-of-state businesses. 

e-Commerce is the best hope for Main Street to compete with Big-Box 

Stores 

Those who make the fairness claim about online versus offline are missing the 

far greater fairness concern of smaller retailers competing against big-box chain 

stores. 

For decades, ‘‘Main Street’’ retailers have been getting battered by Walmart and 

other national chains. To survive, many Main Street retailers have gone online with 

their own web stores or with e-commerce platforms to serve repeat customers and 

to find new customers across the country. For example, the specialty retailer 

SilverGallery.com has a warehouse and store—located on Main Street—in Waynesboro, Virginia. SilverGallery, which was featured in a Wall Street Journal article 

last year, does some walk-in trade, but most sales come from their web store and 

other online channels.13 Online sales growth enabled SilverGallery to buy their 

building and increase employment, right there on Main Street. 

The last decade has seen another body blow delivered by big-box chains, who integrated their website operation with their stores in every city and town. Customers 

love the savings of doing in-store pickups to avoid shipping charges. And they love 

the convenience of returning online purchases to stores for exchange or credit—instead of packaging returns and standing in line at the post office. But small sellers 

like SilverGallery can’t afford to open stores in every state. It’s yet another advantage that big retailers have over small businesses with websites. The big chains also 

negotiate much lower rates for advertising, shipping costs, and health insurance, 

too. 

Next comes the knockout punch for small retailers. Overturning Quill may be 

good news for big-box retailers with websites, since they already have to collect in 

nearly all states. But overturning Quill will definitely raise costs and prices for 

small businesses that compete—and survive—via their web and catalog sales. 

There’s collateral damage of overturning Quill when it comes to artisans and specialty manufacturers in your state. Smaller suppliers have little hope of qualifying 

to be on the shelves at Walmart or Target. For artisans and small manufacturers, 

distribution comes through their own Internet web stores and specialty catalogs, 

which are in no position to absorb the extra costs of collecting for not just one state, 

but 45 additional states. Those costs are described in the next section. 

What is the impact on small businesses if they are required to pay sales tax 

to 46 states? 

What costs would a small business face if Congress forced them to pay sales tax 

to all 46 states? The SST’s own Cost of Collection 14 study found that a small business (under $1M in annual sales) spends 17 cents for every tax dollar it collects for 

states. And even if tax software works as promised, that only helps with 2 cents 

30 

15S. Res. 309, 112th Cong. (2011) (emphasis added). 

of the 17 cents in costs per dollar collected. That leaves small businesses with a 15 

percent cost burden on every dollar they collect, for things such as: 

• Paying computer consultants to integrate new tax software into their homegrown or customized systems for point-of-sale, web shopping cart, fulfillment, 

and accounting 

• Training customer support and back-office staff 

• Answering customer questions about taxability of items, or sales tax holidays 

• Handling audit questions from 46 states 

• Paying accountants and computer consultants to answer all these questions 

These collection burdens will be a big problem for small catalog and online businesses that collect only their home-state sales tax today. Ask any small business, 

on Main Street or online, and you’ll learn it’s hard enough to collect sales tax for 

one state, let alone all 46 states with sales tax laws of their own. 

One of the most significant costs and challenges for remote retailers is integrating 

tax rate lookup software into their in-house information systems. This point was 

demonstrated when the Silver Gallery explained to the Streamlined Sales Tax Governing Board how they would incur nearly $22,000 in costs for design, programming, integration, testing, and employee training. This cost estimate was developed 

for the task of integrating ‘‘free’’ software into Silver Gallery’s existing information 

systems, at each of the integration points shown in their diagram below. 

With that understanding of what small online businesses would face from overturning Quill, it’s easy to see why Senate Commerce Committee members Ayotte, 

Begich, and Heller co-sponsored a resolution to protect our Nation’s Internet entrepreneurs from new tax collection burdens. S. Res. 309 is titled ‘‘Supporting the Preservation of Internet Entrepreneurs and Small Businesses,’’ and its main point is 

this simple pledge: 

Congress should not enact any legislation that would grant State governments 

the authority to impose any new burdensome or unfair tax collecting requirements on small online businesses and entrepreneurs, which would ultimately 

hurt the economy of, and consumers in, the United States.15

The bottom line on ‘‘fairness’’ is that big-box retailers have wielded that term for 

their own benefit, to the detriment of any small retailers they haven’t already extinguished. 


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16http://www.azdor.gov/business/transactionprivilegetax.aspx 17http://www.boe.ca.gov/lawguides/business/current/btlg/vol1/ulsutl/7202.html 18Michigan Compiled Laws Of 1979, Chapter 205 Taxation, General Sales Tax Act, § 205.52] 19 Eisenach & Litan, Uncollected Sales Taxes On Electronic Commerce: A Reality Check, 

Empiris LLC (Feb. 2010), available at http://bit.ly/EisenStudy. 

Would S. 1832 create a new tax burden on businesses? 

State sales tax laws put obligations on both buyers and sellers in order to maximize tax revenue collection. States levy a sales tax on sellers within their jurisdiction, and it’s usually up to the seller whether to pass the tax along to buyers, 

whether at the cash register, online, or over the phone. But after an audit, a seller 

is liable for any sales tax they were obliged to collect but failed to collect, even when 

the seller can’t recover the tax from those previous customers. 

Moreover, several states impose their sales tax for the ‘‘privilege’’ of selling goods 

to state residents, even if shipped via common carriers: 

Arizona: ‘‘The Arizona transaction privilege tax is commonly referred to as a 

sales tax; however, the tax is on the privilege of doing business in Arizona and 

is not a true sales tax. Although the transaction privilege tax is usually passed 

on to the consumer, it is actually a tax on the vendor.’’ 16

California: ‘‘The sales tax portion of any sales and use tax ordinance adopted 

under this part shall be imposed for the privilege of selling tangible personal 

property at retail’’ 17

Michigan: ‘‘there shall be collected from all persons engaged in the business of 

making sales at retail, by which ownership of tangible personal property is 

transferred for consideration, an annual tax for the privilege of engaging in that 

business equal to 6 percent of the gross proceeds of the business, plus the penalty and interest if applicable. . .’’ 18

Today, only businesses that have presence in these states are required to pay a 

tax for the privilege of engaging in business there. S. 1832 would enable states to 

impose their ‘‘privilege’’ tax on businesses with no facilities, no vote, and no voice 

in those states. Sales and ‘‘privilege’’ taxes are the personal liability of the seller. 

The fact that the tax can be passed on to consumers does not make it any less a 

new tax burden for businesses all over the country. 

Clearly, sales tax is due from sellers whose activities or locations create enough 

of a physical presence for a state to impose collection obligations. But if Congress 

overturns the Quill standard, businesses would be forced to pay a new tax to states 

where they have no physical presence. Most of those businesses would pass the tax 

along to their customers, but make no mistake about it—the states will demand 

that businesses pay the new tax—whether or not their customers were charged. 

If Congress were to enact S. 1832, your state businesses will hear about these new 

tax obligations for the first time when they receive demand letters and audit notices 

from dozens of states. That may be the first time you hear from many businesses 

in your own state, when they complain about complex new burdens of collecting 

taxes for 45 additional states. 

S. 1832 is not an improvement on Quill’s physical presence standard. 

The actual simplification required in S. 1832 is not nearly sufficient to convince 

Congress that it should abandon its Constitutional role in protecting interstate commerce. Fortunately, Congress can afford to take the time to design legislation that requires real simplification and makes states accountable to these requirements. As 

noted above, the uncollected taxes are far lower than tax advocates have claimed: 

uncollected sales tax on consumer e-commerce is under one percent of all state and 

local taxes. And the uncollected amounts are not growing as fast as tax advocates 

have claimed, since the fastest growth in e-commerce is among multi-channel retailers who already collect for states where they have stores—17 of the top 20 e-retailers collect for at least 38 of the 46 sales tax states.19 And Amazon.com will collect 

for over half the U.S. population by 2014—under the Quill standard of physical 

presence. 

However, if Congress is determined to overturn Constitutional protections for 

interstate commerce, it must exempt small businesses, require states to adopt minimum simplification requirements, and create fair procedures to resolve sales tax 

disputes between states and taxpayers. Each of these points is covered below. 

S. 1832 does not include adequate protection for small businesses 

S. 1832 includes a small seller exception that is appropriately mandated by Congress, as opposed to other legislation that leaves it to state tax administrators to 

32 

20Top 500 e-Retailers and total e-commerce sales from Internet Retailer, Top 500 Guide, p. 

32 (2012 Edition). Top 500 e-retailer tax collection from Eisenach & Litan, Uncollected Sales 

Taxes On Electronic Commerce: A Reality Check, p.17, 25 (Feb. 2010), available at http://bit.ly/ 

EisenStudy 

set the exception level. But S. 1832 sets the exception threshold at just $500,000 

in annual remote sales, a number that is far too low for retailers, whose entire expense and payroll must be paid from the margin on sales: 

• $500,000 in gross sales times 25 percent average gross margin leaves just 

$125,000 to cover all other costs of running the entire business. 

• All other costs would include advertising, rent, supplies, insurance, shipping, 

computers and programming, website, accounting, communications, travel, etc. 

• If there’s anything left after paying those costs, this business might be able to 

pay the owner a modest salary. But there’s nothing left to pay other employees. 

Make no mistake about it—$500,000 in retail sales is still just a sole proprietor 

operation. The Small Business Administration says a ‘‘small’’ retailer is one with annual sales 40 to 60 times larger than the threshold in S. 1832. 

One way to set a more realistic small seller exception is to exempt all businesses 

that are out on the ‘‘long tail’’ in terms of e-retail sales. For example, Internet Retailer publishes a Top 500 Guide each year, ranking the Nation’s largest retailers 

on their U.S. e-commerce sales. For 2011, the #1 e-retailer was Amazon.com, at $48 

billion in e-retail sales. Number 500 had just $15 million in remote e-retail sales. 

In total, the Top 500 had $181 billion in e-retail sales. 

Economists Eisenach and Litan started with this Top 500 Guide when analyzing 

where each retailer already collected sales tax under Quill’s physical presence 

standard. Using their analysis, we estimated that the Top 500 were responsible for 

93 percent of the uncollected sales tax on U.S. e-commerce in 2011, as shown in the 

graph below 20 (netchoice.org/top500collect). 

Congress could set a small seller exception that adjusts with inflation and retail 

trends by exempting sellers below the Top 500 cutoff from the previous year. Under 

this method, the small seller exception for 2012 would have been $15 million in annual sales. That would leave exempted retailers with a more reasonable gross margin to cover expenses, while allowing states to recover over 90 percent of the uncollected sales tax on e-retail. 


801STEVE5.eps
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21http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/salesusetax-guide.html#apparel 

S. 1832 fails to require true tax simplification or reduce administrative 

burdens 

Congress should require robust minimum simplifications before overturning the 

Quill standard of physical presence for states to impose sales tax on remote businesses. Previous Congressional legislation to overturn Quill included as many as 16 

minimum simplification requirements that SSTP states would have to honor. But 

S. 1832 requires only 3 measures and they lack essential provisions: 

Minimum Simplification Requirements lacking in S. 1832: 

• Remote retailers should not be subject to audits from 46 separate state tax authorities. States should respect the outcome of a single audit by any state, on 

behalf of all states. 

• Remote retailers should be allowed to use a single sales tax rate for remote 

sales made into each state, which was the original goal of the SSTP. State lawmakers would, of course, be able to allocate sales tax proceeds among local jurisdictions. 

• States should be required to adopt a single set of definitions for taxable and 

exempt products across all states. S. 1832 allows each state to have its own 

unique definitions: 

‘‘(g) Provide a uniform sales and use tax base among the State and local taxing jurisdictions within the State.’’ 

• States should compensate all businesses for the fair and reasonable cost of collecting sales taxes, taking into account such elements as credit card fees and 

costs of software implementation and maintenance. Compensation was required 

in previous Federal legislation to overturn the Quill physical presence standard, 

but was dropped in recent versions. S. 1832 requires no compensation for either 

the integration costs or collection costs incurred by businesses in order to collect 

state taxes. 

• Remote businesses should not be required to file sales tax returns for all 46 

states. All states should accept a single sales tax return filed with a business’ 

home state. The home state revenue department would be responsible for distributing funds to remote states. 

• Remote retailers should not be required to honor, but may observe, thresholds 

for sales tax calculation. (an example of a threshold is Massachusetts, where the 

first $175 of any clothing item is exempt from sales tax.21) 

• Remote retailers should not be required to honor state-specific sales tax holidays. 

• States should be required to adopt a single rule for sourcing sales. The SSTP 

originally maintained destination sourcing for all sales tax transactions. But to 

accommodate origin-based states, SSTP’s Governing Board voted to allow origin 

sourcing for in-state sales while requiring destination sourcing for remote sales. 

Such ‘‘dual sourcing’’ should not be permitted as part of any Federal legislation 

overturning the physical presence standard. 

• States must provide certified software for collection, filing, and remittance of 

taxes. But S. 1832 requires only that states provide software ‘‘that identifies the 

applicable destination rate’’. That leaves remote businesses to bear the full cost 

of integrating the rate lookup into their in-house systems and processes. And 

the business would also have to pay for software to handle filing and remittance 

in 46 different states. 

These minimum simplifications should be required for any state that seeks collection authority outside of Quill’s physical presence standard. 

And if Congress were to grant states taxing powers over out-of-state businesses, 

it should explicitly prohibit states from otherwise attempting to stretch the definition of physical presence, such as many states have attempted through laws asserting that advertising alone creates nexus. 

S. 1832 fails to hold states accountable to simplification requirements 

If Congress grants states the authority to impose sales tax on remote sellers, 

there must be a mechanism to hold states accountable to the minimum simplification requirements above. S. 1832 does not designate Federal court jurisdiction, so 

disputes would be subject to the Tax Injunction Act (28 U.S.C. § 1341), where taxVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00039 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
34 

payers are forced to use state courts to litigate disputes with state tax collection authorities—even on questions of whether a state is following Federal law. It would 

be far better if Federal courts had sole jurisdiction over disputes arising between 

states and remote businesses regarding a state’s compliance with Federal law. 

Congress should consider a multi-state compact to preserve tax 

competition among the states 

Congress should retain the benefits of market discipline to restrain states from 

expanding the complexity of their sales tax systems and skirting the minimum simplification requirements. Fortunately, Congress has a simple way to enforce ‘‘tax 

competition’’ as part of any legislation that overturns the physical presence standard: Congress could authorize remote collections through a multi-state compact instead of a national mandate on all businesses. 

S. 1832 would impose collection burdens on businesses in all 50 states—including 

those in states that don’t even have a sales tax. Lawmakers in all 50 states would 

lose the sovereign right to protect their citizens and businesses from tax burdens 

imposed by other states. 

If these new collection burdens are hurting businesses in a state, their legislators 

won’t be able to rescue those businesses if Congress makes collection mandatory for 

all. This comes as a surprise to many lawmakers who are just beginning to understand the implications of legislation such as S. 1832. 

Contrast the national mandate in S. 1832 with a multi-state compact, where 

states could opt-in if they believed new tax revenues justified having their in-state 

business collect taxes for other states in the compact. By the same token, states 

could opt-out of the compact if remote state tax burdens were excessive. States opting-out would lose the power to force remote sellers to pay their sales tax, but at 

least states could protect their own businesses from unreasonable burdens on interstate commerce. 

Conclusion 

Quill’s physical presence standard remains a principled and practical way to limit 

states’ imposition of tax burdens on out-of-state businesses. Congress should not 

sweep Quill aside without first requiring that states truly simplify their tax systems 

in an accountable way, while providing adequately protection for America’s small 

businesses. 

The CHAIRMAN. Thank you very much. 

On our side, I’d like to yield my right to ask first questions to 

Senator Durbin, who is an author of this bill and has taken the 

time out of his busy schedule to be here. And after that, when the 

next Democrat comes up, it will be Senator Nelson. 

On the Republican side, that would be up to you, Mr. Ranking 

Member, and also Assistant Ranking Member Ayotte, if you would 

have Senator Alexander go ahead and ask the first question. 

All right. Senator Durbin. 

Senator DURBIN. Thank you, Mr. Chairman. It’s very kind of you. 

Mr. DelBianco, first, it’s the state’s option. The state has to decide whether they want to be part of this. It is not mandated on 

any state. Second, the notion that every retailer then has to go fix 

the sales tax software—that is not the purpose. In fact, just the opposite is true. We’re trying to establish a national access to software for every retailer, simplify it, make it direct, and put the burden on someone other than the small business to make sure that 

it’s timely. 

Third, Mr. Misener, you represent the largest Internet retailer in 

America today. In the recent past, Amazon has opposed measures 

taken by the states and others when it comes to sales tax collection. Mr. DelBianco is still trying to protect you, but you’ve come 

here to endorse this bill. So can you tell us why Amazon, the largest Internet retailer, would support a bill which Mr. DelBianco 

thinks is so deleterious to Internet commerce? 

35 

Mr. MISENER. Senator, we always have—I joined the company 

over 12 years ago, and one of the first choices we had to make as 

a policy decision was whether or not we were going to oppose sales 

tax collection or support it. At the time, as you may recall, the 

Internet Tax Freedom Moratorium was up for renewal, and there 

was talk about the Internet should be free of all taxes, including 

sales taxes. 

We had a choice. Do we simply ride the coattails of the Internet 

Tax Freedom Act and oppose all sales taxes as well, or do we work 

with the states? We chose the latter. When we work with the 

states, we work cooperatively. Mr. DelBianco mentioned that he’s 

also worked in Streamline. I think he worked in Streamline much 

like Napoleon visited Moscow. It was really—sorry. 

But we tried to be cooperative, and I think the Streamlined Sales 

Tax Project representatives would grant that. When we were going 

through the past decade of work in Streamline, it became clear 

that the large states weren’t going to join. And so the innovation 

in your bill now is allowing the large states also to participate in 

this in a way that makes it feasible nationwide. 

And so that’s why we’re so supportive of this legislation. We always have been, but now, in particular, your legislation takes care 

of a preexisting problem, which was that Streamline was the only 

way to go. Now, you’ve produced alternatives for the states. 

Senator DURBIN. Mr. DelBianco also suggests that keeping up 

with 9,600 taxing jurisdictions is beyond the grasp of many Internet retailers. Well, you’re the largest, and you would be affected 

more than anyone. So how do you deal with the fact that laws do 

change? 

Mr. MISENER. Well, we try to keep up, for sure. And we offer our 

sellers a service by which we will collect the sales tax for them. Mr. 

DelBianco’s point on fairness, I think, is that it’s harder for smaller 

businesses to do this. If smaller businesses were to do what we’ve 

done, which is to build a homegrown system, that would be enormously difficult for them. 

But they don’t have to do that anymore. That was the case six, 

7 years ago. But now there are a host of service providers who can 

do this for them without them having to reinvent the wheel. 

Senator DURBIN. So, Mr. Bercu, let’s go to the purchase that he 

made today—Mr. DelBianco made today—at your store and believes he should have been charged the Virginia sales tax and he 

was charged the Austin, Texas. 

Mr. BERCU. Well, evidently, there’s a mistake in the sales tax, 

assuming this is exactly what happened. But the bill, as I understand it, specifically protects small retailers by choosing certified 

data providers and certified back ends for our websites that would 

cover all of this. If there was a mistake made, obviously, as a retailer, I would certainly refund the extra money. But that’s not particularly a big issue. I actually did not know about this, and I will 

certainly check with our provider to find out what happened. I 

don’t know. 

Senator DURBIN. So the bill would actually simplify it? 

Mr. BERCU. The bill would make it much simpler, as I understand it. It would, number one, protect me as long as I’m using the 

certified data providers, as I said. And, also, it would give me a 

36 

place to go look for those certified data providers without even having to look for myself. 

Senator DURBIN. Thank you. 

Thank you, Mr. Chairman. I appreciate your kindness in allowing me to ask questions. 

The CHAIRMAN. Thank you, Senator Durbin. 

Senator Alexander. 

Senator ALEXANDER. Mr. Chairman, I’ve pretty well had my say, 

and I thank you for that. There are a lot of Republican members 

here. Let me just ask one question of Mr. Peterson, who has been 

involved a while. It’s about the Quill decision that Senator Ayotte 

certainly properly asked about. 

The way I read the Quill decision, it says the following. The Supreme Court decision said 20 years ago it was too complicated to 

allow states to require out-of-state sellers to do the same thing instate sellers do. But the Supreme Court said, quote, ‘‘This aspect 

of our decision is made easier by the fact that the underlying issue 

is not only one that Congress may be better qualified to resolve, 

but also one that Congress has the ultimate power to resolve. No 

matter how we evaluate the burdens that use taxes impose on 

interstate commerce, Congress remains free to disagree with our 

conclusions.’’ That’s the Supreme Court. 

Accordingly, Congress is now free to decide whether, when, and 

to what extent the states may burden interstate mail order concerns with a duty to collect use taxes. What’s different today? 

Mr. PETERSON. Thank you, Senator Alexander. There is a lot 

that’s different today, because, actually, in 1992, the Supreme 

Court based that decision on the 1967 decision they had made, and 

it was effectively a stare decisis decision where they said, ‘‘We’re 

not going to overturn the decision we made in 1967,’’ because there 

had been an industry that had developed around that decision. 

But the difference in 1992 was they said, ‘‘This is interstate commerce.’’ They eliminated the due process issue that they had raised 

in 1967. They said that this is just an interstate commerce issue, 

and Congress has the authority to regulate interstate commerce. 

And if Congress wanted to act, they would be able to do so, and 

they would be able to set the rules in which states became engaged 

in regulating interstate commerce. 

Senator ALEXANDER. Thank you, Mr. Chairman. 

STATEMENT OF HON. KAY BAILEY HUTCHISON, 

U.S. SENATOR FROM TEXAS 

Senator HUTCHISON [presiding]. The Chairman has stepped out. 

Let me say that I apologize for being so late, and I especially welcome Mr. Bercu from Texas. I’m just going to give my opening 

statement in the record so that you don’t have to listen to it. 

[The prepared statement of Senator Hutchison follows:] 

PREPARED STATEMENT OF HON. KAY BAILEY HUTCHISON, U.S. SENATOR FROM TEXAS

Thank you, Chairman Rockefeller, for holding this hearing, and I appreciate all 

of the witnesses for being here today to provide testimony. 

I would especially like to thank Mr. Bercu from BookPeople in Austin, Texas, for 

traveling here to testify before us today. 

In my state of Texas, which does not have an income tax, we rely heavily on revenue collected by sales taxes. 

37 

This is why during my tenure in the Senate I have worked so hard to ensure the 

permanent deduction of state and local sales taxes. Without this deduction, taxpayers in Texas would see their Federal tax bills increase by an average of $500 

for 2012. 

However, the issue that we are discussing today—uncollected sales taxes resulting 

from online purchases—is of concern to many brick-and-mortar businesses and 

needs to be explored. 

Bipartisan legislation introduced by my colleagues, Senators Enzi, Alexander, and 

Durbin, takes a first step in trying to address this issue. 

The Marketplace Fairness Act provides states two options if they choose to collect 

sales taxes from remote sellers: they can either join the Streamlined Sales Tax and 

Use Tax Agreement or they can adopt six minimum requirements to streamline 

their taxes. 

My home state of Texas has not joined the Agreement, and under the Marketplace 

Fairness Act, Texas would not be required to do anything. 

Instead, if Texas wanted to collect taxes from remote sellers, it would have the 

choice of whether and how to pass the minimum requirements set forth in the bill. 

I strongly support states’ rights, and I think they should have the power to decide 

for themselves if it is in their constituents’ best interests to change their respective 

state laws to collect sales taxes from remote sellers. 

I hope the focus of today’s hearing will be on how the Marketplace Fairness Act 

might affect states’ ability to collect sales tax and the impact—if any—the law might 

have on small businesses. 

Additionally, I would like to hear from the witnesses today about the cost implications that may be placed on states or businesses implementing the minimum 

streamlining requirements in this bill. 

I also look forward to hearing the perspective of Mr. Bercu, whose business, which 

has an online presence in addition to his brick-and-mortar store in Austin, is currently collecting sales taxes from remote sales. 

I believe the discussion today will provide an opportunity to explore these issues 

and whether further dialogue and steps are necessary to ensure that states’ rights 

are not constrained by this legislation. 

Thank you. 

Senator HUTCHISON. I was working on the cybersecurity bill and 

just couldn’t get away on time. We are working feverishly to get an 

agreement to move forward on cybersecurity. So I do apologize. 

But let me go ahead and call on the next person who was here, 

which would be Senator Ayotte. But let me ask after Senator 

Ayotte—Senator Klobuchar has to preside at 4, so I do want to 

allow her to get some questions in. So I’ll go ahead with Senator 

Ayotte, and then go to Senator Klobuchar. 

Senator AYOTTE. Thank you. 

Mr. Misener, can you tell me how many accountants work for 

Amazon? 

Mr. MISENER. Accountants—I presume you’re meaning with respect to tax. 

Senator AYOTTE. Well, just roughly. 

Mr. MISENER. So, globally, somewhere between 30 and 40. 

Senator AYOTTE. And how many work in your IT department? 

Mr. MISENER. Oh, gosh. Remember, we’re an IT company, so 

we’ve got thousands of—— 

Senator AYOTTE. A lot? Thousands? 

Mr. MISENER. Yes, ma’am. 

Senator AYOTTE. And, you know, how many actually probably 

work for you that—we talked about accounting. You probably have 

a pretty big even government affairs department. 

Mr. MISENER. Sadly, no. 

Senator AYOTTE. No? 

[Laughter.] 

38 

Senator AYOTTE. Well, there’s probably plenty that would love to 

step up there. But here’s the difference. Do you think that my company from New Hampshire, NobleSpirit, the company I mentioned, 

has a team of IT professionals and accountants? Because if this 

goes forward, many companies in a state like mine of New Hampshire and many businesses across this country are now going to 

have to not only comply with—to find a way for the software that 

you all described that’s so easy to administer—we’ve already seen 

some of the difficulties—but also then they are subject to filing tax 

returns in every single one of those jurisdictions. Isn’t that right? 

Mr. MISENER. Not necessarily, Senator. What I would point out 

to you is that NobleSpirit is an eBay power seller, which entitles 

them to eBay tax remittance services provided by—— 

Senator AYOTTE. OK. Well, let’s take another small business 

that’s not connected there. They don’t have to file taxes in those 

states? They’re not going to have to file tax returns? Did I miss 

something? 

Mr. MISENER. They need to file, but they don’t need to do it 

themselves. The service providers are enabled and doing it already 

for tens of thousands of sellers. 

Senator AYOTTE. And that doesn’t cost them something? 

Mr. MISENER. Oh, sure, it costs them something. 

Senator AYOTTE. Sure. And—— 

Mr. MISENER. Not 30 or 40 accountants globally, not compared 

to Amazon. They pay a lot less. 

Senator AYOTTE. But let’s just agree with me that your small 

business doesn’t have the team of IT or accountants. Correct? 

Mr. MISENER. They don’t need it for this purpose. 

Senator AYOTTE. But they also are going to have to file tax returns that they never had to file before in every jurisdiction that 

they sell something to if they fall outside the exemption. Correct? 

Mr. MISENER. They don’t. They need to have it done on behalf 

of them. 

Senator AYOTTE. On their behalf. They’ve got to pay someone to 

do it in some way. Correct? 

Mr. MISENER. Yes. 

Senator AYOTTE. And, in addition, if they are then audited in any 

of those jurisdictions, they have to then go and defend themselves 

against an audit in other states. Correct? 

Mr. MISENER. That’s correct. 

Senator AYOTTE. And that costs—lawyers. You might have a few 

lawyers that work for you as well. 

Mr. MISENER. Not any good ones. 

[Laughter.] 

Senator AYOTTE. OK. Well, let’s face it. That’s very costly for 

small businesses as well. So this is not really comparable to compare Amazon in terms of how you could treat those costs versus the 

burden on a small business. 

And I would like to ask Mr. DelBianco to comment on that. And, 

if you could, comment also on the fact that the small business exemption is so small compared to other exemptions, even those set 

by our Small Business Administration. 

Mr. DELBIANCO. Thank you, Senator. You asked about 

NobleSpirit. And think about it. NobleSpirit, more than likely, has 

39 

a cash register for walk-up sales. They have their own website. 

They may have a catalog. I don’t know if they take phone orders. 

And they may sell on places like eBay and Amazon, just like Silver 

Gallery that I described earlier on the chart that you have in front 

of you. 

When that happens, they have multiple information systems that 

handle the sale. It isn’t just one place. So each and every step of 

their fulfillment, from the cash register in the front to the back office, all have to be tied into this free software, and there’s where 

the tremendous expense is incurred. 

You asked about the small seller exception. Just think about this 

for a moment. The $500,000 small seller exception—think about 

it—$500,000 times 75 percent cost of sales at a 25 percent gross 

margin means they’re spending $375,000 for the cost of goods, then 

thousands more for marketing, advertising, traveling to trade 

shows, more for computers, programming and accountants, supplies and insurance, shipping, and a website. 

When you do that, you’re lucky in a good year if there is anything left at all to pay the owner. A $500,000 retail seller is no 

more than a sole proprietor. This small seller exception needs to be 

much higher. 

Senator AYOTTE. Mr. Peterson, states have to opt in to the 

Streamlined Sales Tax Governing Board. Is that right? 

Mr. PETERSON. Yes, ma’am. 

Senator AYOTTE. And why shouldn’t states like mine that don’t 

have a sales tax be able to opt out? 

Mr. PETERSON. There’s a misunderstanding of what it means to 

opt-in and opt-out. You opt-in to Streamline because you agree to 

change your laws so they look like your neighbor’s laws. New 

Hampshire wouldn’t have any laws to change. You’re comparing 

New Hampshire retailers with South Dakota, the state. South Dakota, the state, decided to join Streamline because they wanted 

their sales tax administrative practices to look like North Dakota’s 

and to look like Tennessee’s. 

The state of South Dakota doesn’t have any authority over the 

retailers in South Dakota. They can’t tell a retailer in South Dakota, ‘‘You have to collect somewhere else.’’ So there’s a difference 

between the two concepts. 

Senator AYOTTE. But one concern I have about this whole thing 

is that in a state like mine, like New Hampshire, where we don’t 

have a sales tax, essentially, what you’re going to have is a whole 

host of my businesses are going to now have to not only file all of 

the paperwork we talked about, to be the essential tax collector for 

other businesses, but then we’re now in a position where states 

who have actually chosen, like mine, to not have a sales tax—I 

think they should have the option of opting out of these collection 

requirements to be fair to those states. 

The CHAIRMAN [presiding]. Senator Ayotte, I don’t mean to be 

rude, but you’re over your time, and a lot of people have to ask 

questions. Will you excuse me? 

Senator AYOTTE. Yes. I’m sorry. 

The CHAIRMAN. Thank you. 

Senator Klobuchar. 

40 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Thank you very much, Mr. Chairman. 

Thank you to our witnesses. Today we’re here to discuss the Marketplace Fairness Act, and while I know that there are people that 

like to complicate this issue—and I understand that there are concerns from certain states—I really see it as something quite simple. 

We are here because of Quill v. North Dakota, my neighboring 

state of North Dakota. In that 1992 case, the Supreme Court made 

clear their decision need not be the final word. And they wrote, 

‘‘our decision is made easier by the fact that the underlying issue 

is not only one that Congress may be better qualified to resolve, 

but also one that Congress has the ultimate power to resolve.’’ And 

that’s what we need to do. 

I thought Senator Alexander’s testimony, when he talked about 

how it’s really two words—this is about states’ rights and the 

states’ abilities to do their work. And we have the fact that this 

isn’t a new tax. This is simply about collecting taxes. And I note 

that several Governors were noted as supporting this bill, including 

Governor McDonnell of Virginia and Governor Christie of New Jersey. I would also like to add Governor Dayton of Minnesota. 

And, Mr. Chairman, I would like to put this letter in the record. 

The CHAIRMAN. So ordered. 

[The letter follows:] 

STATE OF MINNESOTA

Saint Paul, MN, July 31, 2012 

Hon. AMY KLOBUCHAR, Senator, 

United States Senate, 

Washington, DC. 

Dear Senator Klobuchar: 

Thank you for your co-sponsorship of the bipartisan ‘‘Marketplace Fairness Act’’ 

(S. 1832). I am pleased to learn the Senate Commerce Committee will hold a hearing on ‘‘Marketplace Fairness’’ and strongly support your leadership to move this 

measure forward. 

Today, e-commerce constitutes a large and growing share of retail sales in the 

U.S. as well as an expanding tax enforcement problem, which states can ill afford 

during a period when their resources are already spread thin. More specifically: 

• E-commerce sales comprised 5.6 percent of all U.S. retail sales in the fourth 

quarter of 2012. 

• During the 2011 Holiday Season, U.S. consumers purchased 16 percent more 

over the Internet than during the 2010 season. 

• Minnesota lost about $394 million last year from e-commerce and remote sales 

upon which tax is legally due but not collected. This lost revenue comprised 

over 7 percent of Minnesota’s general sales tax liability in 2011. Not collecting 

those obligations translates into an increased burden on other taxpayers and reduced funding for public services and infrastructure. 

• The inability to collect the legally due tax on e-commerce provides a significant 

and unfair tax advantage for on-line retailers to the detriment of Minnesota’s 

Main Street businesses. In Minnesota, local brick-and-mortar retailers assess 

sales tax at a rate of 6.875 percent (the state sales tax rate, excluding local 

rates), while their on-line competitors typically assess no sales tax. 

• Customers buying the same item are taxed in different ways depending on 

where the purchase is made. This encourages tax avoidance and undermines 

revenue stability and tax fairness. 

Under the U.S. Supreme Court’s 1992 Quill Corp. v. North Dakota decision, only 

retailers who have physical presence in a state can be required to collect and remit 

sales tax from consumers. While a use tax is technically imposed and owed by the 

41 

consumer, very few comply with or are even aware of their tax obligation. It is important to note that e-commerce as we know it today did not exist in 1992. 

In Quill, the court explicitly held that Congress can resolve this unfairness once 

sales tax simplification occurs and there is no burden to interstate commerce under 

the Commerce Clause. This presents an important opportunity for Congress to resolve this inequity, as you well know. 

As you also know, Minnesota has already simplified its sales tax system through 

participation as a full member of the multi-state Streamline Sales and Use Tax 

Agreement (SSUTA). The 24 SSUTA states have adopted common practices, definitions, and processes, allowing remote sellers to comply at little cost to them, thus 

removing any ‘‘undue burden’’ on interstate commerce. 

Your support for S. 1832 allows SSUTA states like Minnesota-which have implemented the administrative reforms sought by the retail community-to collect the 

sales tax revenue to which they are already legally entitled. 

States should have the right to collect sales tax on sales in their state as long 

as they do so responsibly by not placing an ‘‘undue burden’’ on interstate commerce. 

I agree with Tennessee Governor Bill Haslam’s recent comments on behalf of the 

National Governors Association before the U.S. House Judiciary Committee when he 

stated, ‘‘This discussion isn ’t about raising taxes or adding new taxes. This is about 

states having the flexibility and authority to collect taxes that are already owed by 

their own in-state residents.’’ 

I have attached two charts. The first chart shows the magnitude of lost sales tax 

revenue from 2004 through 2011 in Minnesota, as well as the breakdown across 

three categories of lost sales tax revenue: 

a. Retail/consumer e-commerce sales tax gap—$149 million in 2011 

b. Mail order/consumer remote sales tax gap—$55 million in 2011 

c. Wholesale/business remote sales and use tax gap—$190 million in 2011 

The second chart shows the increasing trend of retail e-commerce sales as a percent of total U.S. retail sales from 2000 to 2012, now at 5.6 percent as noted above. 

Thank you for your leadership on the Marketplace Fairness issue and for being 

a true champion for equitable tax reforms, which will benefit not only Minnesota 

but the entire nation. 

Sincerely, 

MARK DAYTON, 

Governor. 

Attachments (2) 

cc: Chairman, Senator Jay Rockefeller 

Ranking Member, Senator Kay Bailey Hutchison 

Senator Al Franken 

Congressman Tim Walz 

Congressman John Kline 

Congressman Erik Paulsen 

Congresswoman Betty McCollum 

Congressman Keith Ellison 

Congressman Colin Peterson 

Congressman Chip Cravaack 

Congresswoman Michele Bachmann 

42 

ATTACHMENTS

Senator KLOBUCHAR. Very good. And then also on the record a 

list of 138 small businesses in Minnesota who recently wrote to me 

in favor of this bill. 

The CHAIRMAN. So ordered. 

[The information referred to follows:] 


801CHA1.eps 801REMOT1.eps
43 


801LOGO1.eps

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44 


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45 

Senator KLOBUCHAR. Thank you. And, by the way, included in 

that group is Mary’s Morsels and Catering, Big Guy’s Bar, Sleepy 

Eye Floral and Design, and the Chapel of Love. I mention that only 

because this isn’t only about big stores. It is also about small businesses who seem to believe that they will find a way to do this and 

do this right. 

And that actually is my first question of you, Mr. Bercu. In addition to your store in Austin, you also sell books on your website. 

Is that correct? 

Mr. BERCU. Yes. 

Senator KLOBUCHAR. And this means that, at a minimum, when 

you sell a book through your website to a customer in Texas, you’re 

already required to collect the sales tax. Is that right? 

Mr. BERCU. Yes. 

Senator KLOBUCHAR. But in reality, you already collect sales tax 

from every state with a sales tax that you sell books in, despite the 

fact that even if this legislation was signed into law, you would be 

exempt. But you already do that with other states? 

Mr. BERCU. Yes, I do. 

Senator KLOBUCHAR. OK. So I’m assuming you—— 

Mr. BERCU. Apparently with some errors. But I will state that 

I do collect the sales tax through a data provider that I will be 

speaking with. I do not do this in my store, and I do not have a 

gigantic store. I do not do this in my store with a data provider giving me the actual rate at an actual location. That’s being done at 

the back end, and that’s being provided to me. It is actually very 

simple for me, though incorrect, apparently, for Mr. DelBianco. And 

I will see what has happened with that by talking with that data 

provider. 

But, yes, I do that already, and it’s not complicated. And, actually, if I could simply respond to one other thing you said—— 

Senator KLOBUCHAR. That’s fine. Please do. 

Mr. BERCU —Senator, is that the idea that I shouldn’t be concerned about the other jurisdictions makes no sense to me. If my 

customer is in this other jurisdiction, I am somehow using public 


801LOGO3.eps
46 

services, roadways, et cetera, to get my product to that consumer. 

That’s who I’m collecting the tax from, and I’m not collecting it for 

me. I’m collecting it for their state. It’s not that hard. 

Senator KLOBUCHAR. And, Mr. Misener, one of the concerns that 

was raised by Senator Ayotte and others is that it’s a burden of 

complying with this myriad of tax laws. And while I think the testimony we’re hearing today is going a long way to showing why 

this isn’t the case, I think that argument also ignores the fact that 

in the absence of a Federal law, states are passing laws for dealing 

with the sales tax on a piecemeal basis, which is creating its own 

myriad of problems. Do you want to describe that to us? 

Mr. MISENER. Yes, Senator. Thank you. It certainly is the case 

that many states have attempted to enact and some have passed 

unconstitutional legislation to try to solve this state by state. We 

have opposed that vehemently, because it is unconstitutional. The 

right to resolve this issue is the right of Congress alone. 

I might also point out that the Supreme Court could easily take 

this case again next week and rule differently. And if the Supreme 

Court did that, there would be no small seller exception. There 

would be no simplification. And so right now, the benefit to small 

businesses of getting the legislation done without a Supreme Court 

decision is manifest. 

Senator KLOBUCHAR. Thank you very much. And I appreciate the 

chair and the ranking member allowing me to go out of order here 

because I have to preside. And I wanted to end with this. It’s just 

that not only is this an issue for businesses in our state, small and 

large, it’s also clearly an issue for our state governments and, as 

I read, with their ability to be able to collect taxes. It’s forecast that it’s something like $300 million and some a year 

in Minnesota. I note that we are today on the fifth year anniversary of the I–35W bridge collapse. Clearly, our states need money 

for infrastructure, and our businesses need to have an even playing 

field. 

Thank you very much to all of you. 

The CHAIRMAN. Thank you, Senator. 

Senator DeMint. 

STATEMENT OF HON. JIM DEMINT, 

U.S. SENATOR FROM SOUTH CAROLINA 

Senator DEMINT. Thank you, Mr. Chairman. We hear a lot from 

the group here today of the term, fairness, and that we need to be 

fair to different retailers, tax them the same. I’ve had a chance to 

work with a lot of retail businesses. I’ve been in the marketing 

business most of my life. 

And there are a lot of different business models with different 

cost structures. I think all of you know that. You can be a freestanding retailer, where you have to be a destination, much different from locating in a mall, where they help attract the people, 

but your cost of doing business is very different. 

You could locate downtown and pay city taxes, but you get some 

of the advantages of sanitation services and fire and others that 

you might not get in a county location. Or you could open a retail 

store in an outlet on an interstate highway, and you locate it across 

a state line in a low tax area, which is not fair to those states 

47 

around it, because people from many states come to that outlet to 

shop. And they pay the tax where they buy it, not where they’re 

going. 

We talk about fairness. But we don’t require bricks and mortar 

retailers to pay taxes based on where the consumer is from. We 

don’t check their ID. Let’s be clear about what this bill does. It 

mandates that online companies with no physical presence in a 

state collect sales taxes for any state that demands it. So this is 

a mandate on businesses. 

And we talk about this being owed by consumers, but if the tax 

is not collected, the consumer is not audited. The business is audited. If you don’t collect enough taxes that you’re supposed to, 

you’ll pay it. Your consumers won’t. 

I’ve been here a long time, and I’ve seen many businesses that 

used to be small. They grow, and then they use their political clout 

to come here to advantage themselves and to erect barriers to entry 

for smaller companies. 

Mr. Misener, you’ve laid it out very clearly. You’ve said that this 

is very difficult for small companies to comply with. But they can 

use companies like yours and eBay, which basically forces a lot of 

small companies that could otherwise be marketing on their own 

to go through these major companies. 

One of the great things about the Internet is the entrepreneurs 

that have been developed on the Internet and able to market direct 

to consumers. They don’t have to pay the cost of a mall. They don’t 

have to pay—but, see, it’s a different business model. 

We talk about the roads or whatever. Sales taxes are collected, 

and they pay for education and other things in that state. But 

we’ve never had a situation where we as a Federal Government require a business to be subject to every other state. Are we going 

to ask those businesses to comply with labor laws, to pay income 

taxes based on business that they’ve done? 

It’s not a new concept. We’ve had different business models for 

years. There have been corporations that primarily do business in 

South Carolina, but they incorporate in Delaware where the corporate taxes are lower. But we don’t have the right to charge them 

income taxes based on the business they do in South Carolina. 

They picked a business model and located somewhere else. 

And I think what we’re doing here is trying to suggest that all 

these business models are the same. Every retailer is different, 

whether they’re bricks and mortar or online. And if someone picks 

an online business model, just like Amazon was years ago—and, 

Mr. Misener, you know that when you had no physical presence in 

other states, you tended to support the status quo. 

But now that you’ve changed your business model to build a location so you can really leapfrog some of your competitors, not only 

are you an online business, but you can do same-day delivery by 

having a physical presence. Now that you’re going to have to pay 

taxes in all of these states where you have a physical presence, you 

want to come back and tax those other companies that don’t. 

The online companies don’t have police service and fire service 

and sanitation service and municipal parking and all of the things 

that come with that business model. We can’t make them the same. 

48 

And so fairness being that we tax them the same is inconsistent 

with everything else that we’re doing here. 

And, again, the more testimony I hear—oh, they’re only subject 

to one audit a year—from 50 states? Are they going to have to fill 

out a sales form and send to every state and be taxed? They won’t 

have any problem, I guess, if they’ve done that through one of 

these service companies. 

Mr. Misener, how much are you going to charge your marketers 

to collect this sales tax, percentage wise? 

Mr. MISENER. We already do, and it’s 2.9 percent of the tax collected, which is not a profit for us. So this is not a profitable business. This is part of the host of services that we provide to our 

third-party sellers, which number over 2 million. So we are an enabler of small businesses. Over 2 million small businesses sell 

through us. 

Senator DEMINT. Three percent, about half the whole sales tax 

in South Carolina just to collect it. 

Mr. MISENER. No, sir. It’s a percent of the sales tax. So on a $100 purchase in my home state of Virginia, that’s $5 in tax and that’s 

about 15 cents. 

Senator DEMINT. So they’ll have to bill that cost into the cost of 

their product. 

Mr. MISENER. Like small businesses offline do, of course. 

Senator DEMINT. Oh, sure. But isn’t that putting them at a disadvantage? They’re actually paying more tax now than brick and 

mortars. 

Mr. MISENER. I’m sorry. I don’t understand that. 

Senator DEMINT. Well, you’re adding 3 percent to the sales tax 

that they would pay in South Carolina. 

Mr. MISENER. No, Senator. That’s actually a misunderstanding, 

and I’m sorry I wasn’t clear. That 2.9 percent is covering our outof-pocket costs for the credit card processing fees. And so the brick 

and mortar retailer who swipes the card has the same fee structure. They’re paying credit card companies money out of their pockets for the—— 

Senator DEMINT. So you’re not charging them anything to collect 

the sales tax on their behalf? 

Mr. MISENER. We are not making a profit on it. 

Senator DEMINT. But you are charging them. 

Mr. MISENER. Yes, sir. Why would we pay Visa for that privilege? 

Senator DEMINT. Well, I would encourage my colleagues to look 

back at this. The Federal Government cannot make retail business 

models the same. Whether they’re bricks and mortar, online, or 

some combination, which we’re seeing all over the country, they 

pick a business model with different cost structures. We cannot 

make all those the same. A lot of businesses have decided to do 

business different ways. 

For us to come in and change the rules now to subject every online business to 50 states, I think would be an unprecedented action on our part. I certainly plan to oppose it, and I would encourage all of you to think. Is the next step—does an online business 

need a business license in South Carolina if they’re located in New 

Hampshire? Should they collect income tax if the people of New 

Hampshire are using—I mean, they’re making a profit. 

49 

What about tort laws? What’s the next step? I think we are setting—we’ve got a precedent that we’re establishing here that’s 

going to open a door that I think all of us are going to regret. 

Thank you, Mr. Chairman. 

The CHAIRMAN. You were two and a half minutes over. 

Senator DEMINT. Thank you for your courtesy. 

The CHAIRMAN. No, I’m just trying to keep some people happy 

here. 

Senator Begich left briefly. He should theoretically be the next 

one on our side, but he left, so he has to be punished. 

[Laughter.] 

The CHAIRMAN. So it’s going to Senator Pryor. And then let me 

say—— 

Senator BEGICH. I was taking care of a West Virginia constituent 

problem, but that’s OK. 

[Laughter.] 

The CHAIRMAN. So Senator Begich has to speak. Senator Thune 

is gone. Senator Blunt, Senator Boozman, and Senator Cantwell 

and Senator Pryor. And I’ll do it in proper order. 

STATEMENT OF HON. MARK PRYOR, 

U.S. SENATOR FROM ARKANSAS 

Senator PRYOR. Thank you, Mr. Chairman. And I would like to 

just start by making a comment on what Senator DeMint said. I 

do agree completely that there are different business models, and 

not every single business model should be treated the same way. 

But I do think in a retail setting, one thing we—another way to 

look at it, I guess, would be we could look at the point of sale. And 

in a traditional bricks and mortar transaction, when the customer 

walks in the store, that’s the point of sale—the customer and the 

store in the same place. 

In an online transaction, you could say—and I think the point of 

sale is actually at the person’s computer. He’s sitting in his home. 

To me, that’s the point of sale, and that’s why I’m OK—that’s one 

of the reasons why I’m OK with the local sales tax applying. 

Let me start with you, if I may, Mr. DelBianco. You said in your 

testimony a few moments ago that your clients, your members, 

don’t get any benefit from paying a local sales tax. Is that right? 

Mr. DELBIANCO. I said they will be forced to collect the tax and 

remit and file for states where they don’t enjoy any local services. 

After all, they ship things through common carrier, like a UPS or 

a post office. But they send no trucks or sales reps into those 

states. 

Senator PRYOR. Well, I disagree with you on that, because the 

product that you’re shipping is carried on a truck, a delivery vehicle like UPS or FedEx, and that UPS or FedEx truck is using the 

local streets that are paid for by local taxes. And if that package 

is dropped at someone’s door and it is stolen, it’s the local police 

that come and investigate. They don’t call you back in your home 

state. They go where that delivery is made. 

And, also, likewise, if you use FedEx or UPS and there’s a handling center there where they’re loading their trucks and doing all 

that, if there’s a fire, it’s the local fire department that shows up 

50 

there. I think you are getting benefit by the customer paying local 

sales tax there. 

Mr. DELBIANCO. Senator, FedEx and UPS in those cases are paying plenty of taxes—property taxes, payroll taxes, income taxes— 

in the states where they operate today. That’s the whole notion of 

common carrier. And, of course, Congress is free to say that we 

don’t agree with Quill, because Quill said—the case said that because the office products company used common carriers, they 

didn’t have sufficient physical presence. 

So Congress has the power to do so, but it also has the obligation, I think, to protect interstate commerce and require true simplification, not just token simplification. Senator Enzi and Senator 

Dorgan years ago had 16 significant minimum simplifications 

baked into the bills that would authorize Streamline. Well, they’re 

all gone now, because the states figure that that’s a little hard to 

do. We now have a bill with merely token simplifications, and we 

still permit all of these jurisdictions. 

Senator PRYOR. Well, I don’t necessarily agree with what you 

said, but I do want to move on to my next question. And that is, 

you know, we talked about just a moment ago your example of 

using Mr. Bercu’s website to purchase a book and getting the 

wrong sales tax. I’m not that familiar with the sales tax in Virginia 

and how that works in buying something online through his store. 

But, to me, that is another reason—I think you’ve made another 

point on why we should support this legislation, because this legislation would protect a retailer that has made a mistake, whether 

it’s inadvertent or—you know, however that works, it would protect 

the retailer so he doesn’t have the liability. 

Mr. Bercu, do you have any comment on that? 

Mr. BERCU. Well, yes. That’s exactly what the act provides. The 

other thing about this is I believe that, with the simplified procedures that the act contemplates, there are going to be a whole slew 

of people getting in the business of data provision. There will be 

other companies, and the costs will go down, just like every other 

thing that is suddenly available. Suddenly there will be a market, 

and suddenly there will be a value, and suddenly there will be people who decide they can beat Amazon’s 2.9 percent and do some 

other deal to sell that data or sell those services to individual retailers. 

So I don’t see this going forward as being a problem. And I guess 

the most salient factor is what one of the senators pointed out earlier, that $500,000 exempts 99 percent of the people doing online 

business in the first place. That’s a substantial number of people 

doing online business, and I believe that the 1 percent that are left 

probably already are taking steps to make this not be a problem. 

Senator PRYOR. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Pryor. 

Senator Boozman. 

STATEMENT OF HON. JOHN BOOZMAN, 

U.S. SENATOR FROM ARKANSAS 

Senator BOOZMAN. Thank you, Mr. Chairman. 

Mr. DelBianco, you were talking about a lot of pressure coming 

from the big box retailers in regard to getting this done. What do 

51 

you say, though, to Main Street Interiors in Van Buren, a town adjacent to where I grew up in Arkansas? They have the problem of 

starting out 8.5 percent behind. And so we’ve been talking about 

fairness and stuff. How do you compete in that situation? 

Mr. DELBIANCO. The big box retailers who already have to collect 

from their websites in every single state today would benefit from 

even a tiny bit of simplification. But this Interiors company—when 

they sell to customers in other states, other than Arkansas, they 

would be incurring brand new obligations to collect for all those 

other states when they’re taking advantage of the opportunity to 

ship things at a lower price to customers in other states. 

For them, there’s nothing remotely simple about having to collect 

and file for all those different jurisdictions. So most businesses on 

main street today use the Internet as a way of surviving and competing against the big box stores and by Amazon. 

Senator BOOZMAN. Why does the vast majority of small businesses in Arkansas and many of our other states disagree with 

that? I mean, they’re overwhelmingly—small business is overwhelmingly for this. 

Mr. DELBIANCO. Small business, small retail, has been really 

taking it in the shorts for decades from shopping malls, from the 

advent of big box stores, and certainly by giant retailers. Small 

business is under assault, and the small business retail environment has changed dramatically. It’s now very top heavy as opposed 

to being bottom heavy. 

So those businesses are under assault, and they might well believe that that price difference associated with the consumer who 

wants to save sales tax will be the answer to all their problems. 

But there’s no evidence, other than anecdotal, that consumers will 

go online to avoid sales tax. A few do, Senator, and I’m aware of 

that. A few do. 

But the vast majority of people who buy online—probably your 

family included—we buy online for convenience and selection, and 

we pay for the shipping. And often we pay sales tax for 17 of the 

top 20 e-retailers today. 

The CHAIRMAN. You haven’t answered his question. 

Senator BOOZMAN. Well, again, really what you’re saying is that 

the vast majority of retailers who are overwhelmingly supportive of 

this—they don’t really understand why they’re not doing as well as 

they would like. I’ll tell you why I think they’re not doing it. 

I’ve got three daughters. The youngest is 26. The oldest is probably 33 or 34. They go into a store. They get their iPad out, and 

they start doing the prices. And when they compare a price online, 

where they don’t have to pay 8.5 percent more compared to the 

price there, there’s definitely a differential, and that’s making a difference, in my way of thinking, and, again, to the vast majority of 

small businesses throughout America. 

And that’s why the compact states have been so successful in 

states like Arkansas and Texas in getting these things passed, in 

the sense that the states have voted to do this. 

Mr. DELBIANCO. Senator, Texas is not a member. Texas got Amazon to collect simply because Amazon has a distribution center in 

Texas. 

Senator BOOZMAN. Well, Arkansas is, and many other states are. 

52 

Can you comment on that, Mr. Peterson? 

Mr. PETERSON. Thank you, Senator. Your retailers are most certainly impacted by the price differential that comes from that sales 

tax. There’s no question whatsoever. Consumers expect the retailer 

to collect the sales tax. They don’t even think about the sales tax 

as an obligation of their own. That’s an obligation of the retailer. 

So they look at the bottom line. Is that price cheaper than what 

I can get somewhere else? And they’re certainly going to buy where 

there isn’t a—where there’s a price difference. They don’t think 

about that as they’re cheating the system. They just think, well, 

the price is cheaper. It’s 8.5 percent cheaper. Why wouldn’t I buy 

here? 

Getting to Senator Ayotte’s point a little while ago, the software 

companies that the Streamline states have certified do everything 

that she’s concerned her New Hampshire retailer is left to do on 

their own. It figures out what the sales tax rate is. It knows what’s 

taxable. It knows what’s exempt. It keeps track of sales tax holidays. It keeps track of whether or not shipping is taxable or shipping is exempt. It files the sales tax returns for that business and 

makes the sales tax payment for that business. 

And if that person is audited—and there isn’t a business in this 

country that gets audited by 50 states every year. No business in 

the country does. Wal-Mart doesn’t get audited by every state every 

year. These companies handle the audit defense. 

Senator BOOZMAN. How many states have gone through the process? 

Mr. PETERSON. Twenty-four states, sir. 

Senator BOOZMAN. Twenty-four states. OK. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Boozman, very much. 

And now the noble senator from Alaska. 

STATEMENT OF HON. MARK BEGICH, 

U.S. SENATOR FROM ALASKA 

Senator BEGICH. Thank you, Mr. Chairman. Thank you very 

much. Let me say a couple of things first. This is an issue, as a 

former mayor, I dealt with more than I wanted to in the Municipal 

League as well as the U.S. Council of Mayors, but also as someone—and I was listening to your commentary. I’m probably one of 

the few that can comment on this in this way. 

We own five retail shops, and they’re a variety of shops. My wife 

started them. She owns them and operates them. But we have five 

different retail shops, and so we’re a brick and mortar business, 

but I also have a brother that runs an online business, which is 

not in the ether, either. There is some location. 

So I come to this with kind of mixed views on it. But I think 

there is a basic fairness issue here of how do you ensure that if 

you’re a retailer—it doesn’t matter if you’re a brick and mortar 

that’s invested quite a bit in your community and you’re doing a 

lot of things in your community. You’re paying for the roads and 

everything else that goes along with it. And then you have to compete against an online, which avoids this issue and doesn’t have to 

deal with the sales tax. 

53 

So I hear your commentary. I’m not sure I buy it, just so you 

know. And I come from one of your people. I’m a retailer, and I’ve 

been in the retail business myself. My wife has, like I said, five different stores. So we’re not top heavy, as you described. I wish we 

were. It would make our life a lot easier. 

But we innovate all the time with the products and services we 

do, but when you then have to compete against someone online 

with the exact same product, and they can do things to undercut 

you, it does create a competitive edge that we do not have and can’t 

gain. So you can tell me all the research you want to do. I’m telling 

you from a life of 30 years in the retail business. So let me put that 

over there for a second. 

I guess my question is the small business operator—because this 

bill does—I’m not sure of the percent, but I’m just going to use the 

number, $500,000. The question I have to anyone who wants to answer it—is $500,000 the right number, knowing as time progresses, 

that number is stale, is stagnant? Does it have to be adjusted? Is 

it the right number? And is it the number that over time will clearly protect most of the small businesses that don’t have to deal with 

this issue? 

I guess everyone wants to answer. So I’m going to go quickly 

down the line. 

Mr. DELBIANCO. Senator, if you took a look at the top 500 retailers last year, they were responsible for over 90 percent of the uncollected sales tax. And that starts with Amazon at the top end at 

$50 billion and a small company called Summit Sports at $15 million at the bottom end of that. So businesses under $15 million 

could be protected and the states could still collect 90 percent of 

their sales tax. And that kind of a number would adjust over time 

if you wanted to target it on the top 500 collecting. Those are the 

businesses that can afford it. 

Senator BEGICH. That data—will you share that with me? 

Mr. DELBIANCO. It’s in my testimony, sir. 

Senator BEGICH. Great. And the reason I say this—when I was 

mayor, we changed the law, because we used to tax everybody’s inventory. And what we found is for 96 percent of the people we were 

taxing, it cost us more to collect it than what we were receiving. 

So we created an exemption—all but the top 4 percent and got a 

big chunk of our money, in essence. So your point is a good one. 

Next? 

Mr. PETERSON. Thank you, Senator. The half a million dollars 

that’s in the Marketplace Fairness Act was arrived at by looking 

at where it was cost effective for states and retailers to file sales 

tax returns. But it was looking at the world that exists today. Six 

months after this bill passes, a year after this bill passes, sales tax 

administration software will be ubiquitous. It will be everywhere. 

The cost of collecting will go down radically. 

Now, the people I represent aren’t advocating a different rate. 

But the reason it doesn’t exist today is because there is no law that 

requires it to exist. Once that law happens, this will be everywhere, and the cost of administration goes down radically. 

Senator BEGICH. It’s like my son just got—he’s 10. I forget what 

it’s called, but the little piece that you can hook up to your iPad 

54 

and Visa—he wanted to get it for my wife to help her do more 

charges. So I’ll leave it at that. 

Mr. BERCU. I agree with Mr. Peterson. And, frankly, when credit 

cards started, there was a charge, and there still is a charge, for 

credit card processing. Every one of us in retail pays that charge. 

It is a cost of our doing business. You know that if your wife has 

stores. 

Senator BEGICH. My wife tells me about it. 

Mr. BERCU. And we worry about it, but that is a cost of our businesses. And if we have to incur a slight cost to deal with sales tax 

remotely, because we’re selling something remotely, it strikes me 

as eminently fair and eminently fair for us to bear that cost. And 

so I don’t see it as a big problem. I definitely agree with Mr. Peterson that in the future, once this bill is enacted, we will see this 

software available all over the place, certified all over the place, 

and the cost will have gone down to be—yes, it will be a cost, but 

it will be a tiny one that no one will have any problem bearing. 

Senator BEGICH. Last person. 

Mr. MISENER. Senator, very conservatively assuming 5 million 

online sellers in this country through eBay, Amazon, through their 

own channels, only 1 percent of those sellers sell more than 

$150,000 a year. So we’re already talking about—— 

Senator BEGICH. Online. 

Mr. MISENER. Correct. Interstate. So we’re already talking about 

a fraction of 1 percent that would be affected with the $500,000 

carve-out. We would prefer one lower, but we’re willing to live with 

the $500,000. 

Senator BEGICH. Understood. Thank you all very much, and I appreciate it. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Begich. 

Now, Senator Blunt. 

STATEMENT OF HON. ROY BLUNT, 

U.S. SENATOR FROM MISSOURI 

Senator BLUNT. Thank you, Chairman. I have a statement for 

the record. 

[The prepared statement of Senator Blunt follows:] 

PREPARED STATEMENT OF HON. ROY BLUNT, U.S. SENATOR FROM MISSOURI

Thank you, Chairman Rockefeller and Ranking Member Hutchison, for holding today’s hearing on the Main Street Fairness Act. I also want to thank our colleagues 

Senators Durbin, Enzi and Alexander for taking the time to appear before this committee on behalf of this important legislation. 

The debate over online sales tax collection, something we’ve been talking about 

in Congress for more than ten years now, hinges solely on fairness and states’ 

rights. I strongly believe that states should have the right to decide to collect or not 

collect sales taxes for online transactions. This 10 page bill would simply give them 

that right—and keep up with changes in technology and the way consumers make 

purchases today. States lost this right 25 years ago due to a Supreme Court decision 

well before Internet sales took place or companies like Amazon, who is here with 

us today, existed. 

We all know very well that our current Federal and state tax systems are overly 

complex and burdensome. As we gear up for what I hope will be meaningful reform 

of our tax code, I believe this is the right moment to also consider allowing states 

to level the playing field for the $4.7 trillion retail industry and helping states access the $23 billion in uncollected sales tax that is owed. 

55 

When I talk to consumers in Missouri about this issue, most are shocked to hear 

that they actually are required by state law to pay taxes for their online purchases. 

As a matter of fact, a study conducted by The Winston Group found that 65 percent 

of people believe that ‘‘online retailers are required to collect sales taxes from customers just like brick-and-mortar retailers do.’’ These same voters, 72 percent of 

them, overwhelmingly view sales tax collection as the seller’s responsibility only. 

If a responsible taxpayer in Missouri wants to report and remit taxes for their 

everyday purchases on Amazon.com such as $65 worth of DVD movies, they would 

need to download a form, fill it out, and write a $3.12 check to the Missouri Department of Revenue. By the way, my staff was able to quickly determine the sales tax 

example I just gave by logging on to JCrew.com and putting a $65 item into the 

shopping cart feature, along with a Missouri zip code. It’s really that simple— 

thanks to Paypal, which is owned by Ebay, an opponent of this bill. 

I can’t understand why Ebay argues against this legislation, which would help 

both states and retailers alike access affordable software to calculate sales tax and 

increase their annual revenues. This bill is good for states that need to maintain 

their infrastructure and keep other tax rates competitive as they look to attract new 

businesses. The effects are equally positive for small retailers who wish to grow and 

hire more employees but need software to assist them in managing the checkout 

process. 

When I think about the issue of fairness, I recall a recent conversation I had with 

a reporter in St. Louis whose wife knows a local bridal shop owner. That brick-andmortar bridal shop loses thousands of dollars in dress sales each month as customers come into the store to find a dress they like but then leave to purchase that 

same dress online from a seller without ‘nexus’ to their state, thereby avoiding sales 

taxes. This same example is true for countless large ticket items and so many other 

purchases small and large. 

On the heels of the House Judiciary Committee hearing last week, I’m pleased 

that this committee is thoroughly discussing this topic and look forward to each of 

the witnesses’ testimony today. 

Senator BLUNT. I’m glad to be a co-sponsor of the bill. I think I’m 

going to add to that, in case somebody else hasn’t, a pretty good 

outline of conservatives, like the Chairman of the American Conservative Union; Governor Mitch Daniels; Chris Christie; Congressman candidate for Governor, Mike Pence, in Indiana; former Governor Haley Barbour, all making the point that if we don’t do this, 

the government is really just picking winners and losers. 

I remember when we first introduced this bill, I had a news conference in St. Louis, and the TV reporter who was interviewing me, 

immediately when we were done, said, ‘‘You know, my wife says 

she has a friend who has a bridal store, and people constantly come 

in, try on the dress, write down the number of the dress they want 

to order, and then clearly are ordering it somewhere else. And she’s 

convinced the only difference, more times than not, is the sales 

tax.’’ 

And as somebody else was suggesting, maybe Senator Pryor, a 

person came in, and in this case, in this store, parked on a public 

street, used the police protection that’s available in that community 

to come in, and, of course, used the store itself, but also used all 

the taxpayer things that they don’t share. And I think a lot of conservatives share that. 

Mr. Peterson, the Quill case has been mentioned a lot. In the Supreme Court ruling in 1992, they said—and I’ll put this with my 

statement, too. They said, quote, ‘‘This aspect of our decision is 

made easier by the fact that the underlying issue is not only one 

that Congress may be better qualified to resolve, but also one that 

Congress has the ultimate power to resolve.’’ Do you want to comment on that? 

56 

Mr. PETERSON. Thank you, Senator. The states were very heartened when the Supreme Court said in 1992 that their decision really rested on the interstate commerce case, because you do have the 

authority. And at that point in time, the states knew that this was 

going to be a negotiated settlement—what do they need to do to 

convince you that this is something that you should give to them— 

knowing full well that there would have to be obligations put on 

them, because you’re not going to pass something that just gives 

them carte blanche. And I think some of the statements made by 

the other senators give some effect to that. 

Quill was decided long before the Internet because it was stare 

decisis of 1967. When the Bellas Hess case was created in 1967, it 

was a catalog case, and I think it was reasonable for the Supreme 

Court in 1967 to say that perhaps the technology didn’t exist for 

a retailer to have a reasonable chance of complying. 

In 1992, it was getting much better. In 2012, the technology is 

immensely different than it was in 1992. It is immensely different 

today than it was when we started Streamline. We didn’t even 

imagine when we started Streamline in 2000 that the software that 

the certified service providers provide today would do as much as 

it does today, because we couldn’t even imagine that kind of technology existing in something as simple as this. 

This is a map of the United States with every sales tax rate on 

it. I can push any spot in this map, and it’ll tell me what the exact 

sales tax rate is for that jurisdiction. This is relatively simple stuff. 

Senator BLUNT. Did anybody on this panel submit the numbers 

to the Committee on the amount of e-commerce this year, estimated next year—I mean, huge growth. It’s up 16 percent last year 

from 2010. The estimate is it will be up another 15 percent this 

year from 2010 up to $224 billion. 

Mr. DelBianco, the one other thing I want to pursue—your 

thought is if we did go in this direction—I understand all of your 

arguments not to do that—that we could have a bigger exemption 

number. 

And then, Mr. Misener, I think you believe the number may be 

too big already. And if the two of you would, just talk about that 

a little bit. 

Mr. DELBIANCO. Senator, it’s not just that. There are three elements of this that have always been there in Streamline. The first 

was true simplifications. The conditions that were in place when 

we started Streamline have all disappeared. They’re now allowing 

thresholds, multiple sourcing rules, separate returns, separate audits for every state. There was an idea of one rate per state. That’s 

gone. There’s no requirement for vendor compensation. 

The first thing is put the true simplifications back in, and I put 

it in my testimony. The second is a strong small seller exception. 

And the third is enforcement mechanisms, because if this thing 

starts going awry, and Missouri-based businesses tell you, ‘‘Please 

get me out of this,’’ that business can’t try to hold the other 45 

states to the standards of simplification. There’s nothing in this bill 

to allow a business to sue for enforcement against the other states. 

Senator BLUNT. All right. And I think I’m out of time. And I’ll 

look at the comments you previously made on this, Mr. Misener. 

Thank you. 

57 

The CHAIRMAN. Senator Blunt, you were waving something 

around, talking about putting it in the record, and I want to put 

something in the record. Tell me what to put in the record. 

Senator BLUNT. In the record I’d like to put this statement, what 

conservatives are saying in support of the Marketplace Fairness 

Act, and then a specific part of the Supreme Court decision, where 

they say not only is Congress may be better qualified to resolve 

this, but has the ultimate power to resolve it. So I’ll add those two 

things to my statement. 

The CHAIRMAN. It is so ordered. 

[The information referred to follows:] 

WHAT CONSERVATIVES ARE SAYING IN SUPPORT OF S. 1832, 

THE MARKETPLACE FAIRNESS ACT

‘‘There is no more glaring example of misguided government power than when 

taxes or regulations affect two similar businesses completely differently.’’ Al 

Cardenas, Chairman of the American Conservative Union 

‘‘The only complete answer to this problem is a Federal solution that treats all 

retailers and all states the same.’’ Governor Mitch Daniels 

‘‘I too—along with governors like Governor Daniels and others—urge the Federal 

Government and the Congress in particular to get behind Senator Lamar Alexander’s legislation to allow states to be able to make theses choices for themselves 

. . .’’ Governor Chris Christie (NJ) 5/31/12 

‘‘Congress should not be in the business of picking winners and losers.’’ Congressman Mike Pence 

‘‘Since the Quill ruling, at least two facts have changed: (1) the proliferation of 

computers to calculate taxes due on sales—just as shipping costs are determined 

based on Zip Code—and (2) a state agreement on streamlining and simplifying sales 

taxes so that it is easier to collect and remit sales taxes wherever a company does 

business.’’ National Governors Association (11/28/2011) 

‘‘There is simply no longer a compelling reason for government to continue giving 

online retailers special treatment over small businesses.’’ Former Mississippi Governor Haley Barbour 

‘‘Current policy grives remote sellers a price advantage, allowing them to sell 

their goods and services without collecting the sales tax owed by the purchaser. This 

price difference functions like a subsidy.’’ Hanns Kuttner, Hudson Institute 

* * * 

The Supreme Court actually noted in their decision that this disparity in tax law 

should be clarified by Congress. They stated: 

‘‘This aspect of our decision is made easier by the fact that the underlying issue 

is not only one that Congress may be better qualified to resolve, but also one 

that Congress has the ultimate power to resolve. No matter how we evaluate 

the burdens that use taxes impose on interstate commerce, Congress remains 

free to disagree with our conclusions . . . Accordingly, Congress is now free to 

decide whether, when, and to what extent the States may burden interstate 

mail order concerns with a duty to collect use taxes.’’ 

The CHAIRMAN. Gentlemen, thank you very, very much. It’s very 

strange for me, because, in a way, it strikes me as such a simple 

matter, a fairness matter, a simple matter. The software has already solved most of it. Has all the software been coordinated? I 

know not. But I worry not. And it became intensely sort of mathematically, algorithmically difficult about halfway through, which I 

sort of couldn’t understand and didn’t worry about. 

So I want to thank you. This is a very important subject. People 

care very strongly about it, as you can tell. You’ve taken your time 

58 

to come and enlighten us and to be forthright with us, which you 

all have. You’ve been an excellent panel. I thank you, and this 

hearing is adjourned. 

[Whereupon, at 4:10 p.m., the hearing was adjourned.] 

(59) 

1 Abe Garver, Focus Investment Bankers as originally published on Seeking Alpha on 

October 9, 2011 and also found at http://www.focusbankers.com/publications/articles/Valuations/articles webonlyretailers.asp 

A P P E N D I X 

PREPARED STATEMENT OF HAMILTON DAVISON, PRESIDENT AND EXECUTIVE

DIRECTOR, AMERICAN CATALOG MAILERS ASSOCIATION

The American Catalog Mailers Association (ACMA) thanks Chairman Rockefeller, 

Ranking Member Hutchison, and the Senate Committee on Commerce, Science, and 

Transportation for this opportunity to present its views on the efforts of states to 

impose tax and tax collection obligations on retailers located outside of their states 

and who have no physical presence in those states, all per the Marketplace Fairness 

Act, S. 1832. The bill would give states the authority to require out-of-state businesses to collect sales or use taxes. Such efforts represent neither Federal nor state 

tax reform, but merely states seeking to impose a 1930s tax regime on 21st Century 

commerce rather than reforming their tax regimes and seeking Congressional help. 

Effectively, states are seeking to impose business activity taxes on companies with 

no physical presence, no employees, and no political voice in the state. Such a move 

is bad for the economy, hurtful to the affected companies, moves the marketplace 

toward less equity, and fails to solve acute revenue issues for states and municipalities. 

Founded in 2007, ACMA is the only industry association that advocates specifically for catalog marketers. As the primary voice of the Catalog Industry, ACMA 

represents its members on issues that directly concern their immediate and long 

term commercial interests such as tax issues, postal rates, regulations and technical 

matters; environmental issues; and regulatory and government relations 

ACMA is also a member of TruST, the coalition for True Simplification of Taxation, a recently-formed group whose association members are all filing written testimony that ACMA has read and concurs with. More information on TruST can be 

found at www.TrueSimplification.org. 

As part of this written testimony and our presence at the hearing, ACMA would 

like to respond to the charge ‘‘real companies do not care about this issue.’’ To illustrate how erroneous a claim this is, ACMA has gathered more than 120 letters from 

remote marketers—primarily companies that sell via catalogs—all of whom explain 

in specific detail the harm this bill would cause their companies, growth, and most 

notably their employment. It is notable that this quantity of letters was assembled 

in only a few business workdays between the notice of last week’s House Judiciary 

Committee hearing on H.R. 3179 and the deadline to submit that testimony. This 

underscores the veracity of opposition to that bill as well as S. 1832 and clearly addresses concerns that no real opposition to this change exists. 

1. Background 

ACMA would like to address the current movement rallying behind the so-called 

Marketplace Fairness Act. The bill is hardly fair and would do much harm to the 

marketplace. It presents a serious threat to catalog, online, and other direct marketers because it would require the collection of sales taxes in more than 9,600 state 

and local tax jurisdictions, with differing rates, taxable product categories, definitions, sales tax holidays, and reporting and audit requirements. If enacted, it would 

result in lost sales, confused customers, daunting administrative burdens, repetitive 

audits, and expensive assessments without impartial recourse. The market value of 

direct marketing businesses would be similarly affected.1

The argument that current nexus standards result in an ‘‘uneven playing field’’ 

is patently false. National retail chains receive many state and local tax benefits 

and other incentives to locate stores in particular areas. These include rebates of 

property and sales tax (TIFs), subsidies for utility lines, training allowances and tax 

deductions for new hires, etc. Employees of businesses located within a jurisdiction 

use education and public services. Remote sellers get none of these government benVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00065 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
60 

efits, yet would be burdened with collection of the tax to fund these subsidies. In 

fact, remote sellers are obliged to pay these taxes whether or not they collect them 

from customers, effectively making this a new tax on remote marketers. 

The U.S. Supreme Court in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), 

ruled that without specific authorization from Congress, states could not impose tax 

collection burdens upon remote sellers that have no ‘‘physical presence’’ as this 

would interfere with interstate commerce. Moreover, if allowed by Congress, the 

myriad of state tax jurisdictions with resulting variance in rates, definitions, and 

audits would create a complex and administratively costly nationwide sales tax collection system. The costs of that collection are a tax on the out-of-state business. 

2. Hardships on Businesses 

Consider the potential situation of several ACMA members: 

1. Dr. Leonard’s Healthcare Corp., based in Edison, NJ. This 40-year-old, privately-owned and operated company is very much the catalog mail order equivalent 

of a main street store. Dr. Leonard’s provides clothing, undergarments, general merchandise, healthcare related products and shoes tailored to meet the special needs 

of mature customers from across the country. A sizable number of Dr. Leonard’s 

customers are in their 70s, 80s and even their 90s. More than one-third of the company’s orders still come in an envelope with check enclosed. Many of their customers 

rely on mail order purchases of products from Dr. Leonard’s that are simply not 

available locally or are of a sensitive nature, and a large majority of their customers 

do not have access or are not comfortable using a computer or the Internet to order. 

Dr. Leonard’s operates out of a several states and on the order form of all Dr. 

Leonard’s catalogs is a note indicating ‘‘residents please add applicable sales tax for 

NJ, NY, NE, OH, there is no sales tax on clothing and shoes in NJ’’. (See Appendix 

I for a picture of a Dr. Leonard’s order form.) Many of Dr. Leonard’s customers get 

this wrong either by paying the wrong rate or not paying the tax at all. Imagine 

if the company’s catalog order form had to have a list with the tax rates from more 

than 9,600 taxing jurisdictions for customers to decipher. It would be impossible for 

Dr. Leonard’s to explain the tax instructions across all the different jurisdictions in 

the limited space available on a printed order form. And if the older consumers the 

company serves are confused on how to calculate the tax, or which rate should 

apply, there’s a very good chance they just won’t order at all. 

For the elderly consumer who is confused with what’s going on with sales tax, Dr. 

Leonard’s would end up absorbing the unpaid tax rather than chasing after customers for the unpaid or under-paid tax. The significant harm to its business in 

chasing after customers for unpaid or incorrectly remitted sales tax would be twofold: (i) the cost burden of collecting from their customers would be substantial and 

unsustainable, and (ii) the confusion, irritation and negative feelings its customers 

would have toward the company over their shipments being held up pending payment of sales taxes would cost the company many lost orders—and customers. 

As a small company, Dr. Leonard’s would also face the tremendous burdens of trying to figure out whether each transaction’s tax is correct or not, and remitting it 

to then being subject to sales tax audits from all those different taxing jurisdictions. 

2. Littleton Coin Company, based in Littleton, NH. This fairly small catalog company was founded in 1945 after its founder Maynard Sundman returned from World 

War II. Littleton Coin allows Americans across the country the opportunity to enjoy 

the hobby of coin collecting from the comfort of their homes. In addition to 

Littleton’s mailed catalogs, customers see can find its products in print advertisements in newspapers and magazines. They can also use Littleton’s ‘‘coins on approval’’ service where the company mails customers coins for them to review at their 

leisure at home and then decide whether to buy them or send them back to the company. 

Littleton’s customers have aged with the company. More than one-third of its customers are 65 or older. More than two-thirds of Littleton’s orders come through in 

the mail. And more than two-thirds of the mailed-in orders are paid by check. 

This would be impossible for Littleton Coin to properly explain the tax calculation 

in its print advertisements, for which space is at even more of a premium than on 

its catalog order forms. This is a critical part of Littleton’s business and any customer confusion in this area would severely damage its business, and its relationships with customers. 

3. National Wholesale, based in Lexington, N.C. This 60-year-old, family-owned 

and operated company that provides a full line of clothing, undergarments and 

shoes tailored to meet the special needs of mature female customers from across the 

country. A sizable number of National Wholesale’s customers are in their 70s, 80s 

and even their 90s. More than one-third of the company’s orders still come in an 

envelope with check enclosed. Many of its customers rely on mail order purchases 

61 

of products from National Wholesale that are simply not available locally, and a 

large majority of their customers do not have access or are not comfortable using 

a computer or the Internet to order. 

Like many catalog marketers that operate out of a single state, on the order form 

of all National Wholesale catalogs is a note indicating ‘‘North Carolina residents 

please add 6.75 percent sales tax.’’ (See Appendix I for a picture of a National 

Wholesale order form.) Despite this simple directive, many of National Wholesale’s 

customers still get this wrong either by paying the wrong rate or not paying the 

tax at all. Imagine if the company’s catalog order form had to have a list with the 

tax rates from more than 9,600 taxing jurisdictions for customers to decipher. It 

would be impossible for National Wholesale to explain the tax instructions across 

all the different jurisdictions in the limited space available on a printed order form. 

And if the older consumers the company serves are confused on how to calculate 

the tax, or which rate should apply, there’s a very good chance they just won’t order 

at all. 

For the elderly ladies who are confused with what’s going on with sales tax, National Wholesale would end up absorbing the unpaid tax rather than chasing after 

customers for the unpaid or under-paid tax. Like Dr. Leonard’s and Littleton Coin 

above, attempting to chase customers for the correct tax amount or delaying shipments while discrepancies are resolved is not feasible. Thus, collecting and remitting the complex tax schemes of over nine thousand jurisdictions will cause significant harm to their business and customer relationship. 

4. The Country Store, based in Chelmsford, MA. The Country Store catalog contains clothing, jewelry, and home goods all uniquely targeted at an older clientele 

with merchandise not available in stores. More than 66 percent of The Country 

Store’s customers are over 65 years of age, and 32 percent of its customers place 

mail orders with checks enclosed. Similarly, The Country Store also would have to 

either simply pay the sales taxes it would be unable to collect from its customers 

or risk confusing or losing its customers altogether. 

5. Miles Kimball Company, based in Oshkosh, WI. Nearly two-thirds of this company’s customers are 65 years of age or older; in fact, almost half its customers are 

70 or older. Among all its customers, one-third of them still make their catalog purchases by mailed-in orders using personal checks. Needless to say, Miles Kimball 

faces the same impossible task of having to explain the assorted taxing jurisdictions 

as National Wholesale does. 

3. Puts an Entire Market Sector At Risk of Failure 

Although a majority of catalog customers pay by credit card and a significant 

number of such customers order online, the education and conversion processes for 

collecting from so many taxing jurisdictions around the country are almost as difficult as the ACMA members referenced here. 

Some seeking to overturn the Quill precedent legislatively claim that this matter 

can be handled quickly and efficiently with free look up software, or that concerns 

of complexity and cost are overstated. This simply is not the case. Each remote marketer has invested substantial resources to build enterprise software systems that 

run their businesses. Everything that touches or relates to the order flow or the revenue flow of the business is affected including those modules that track inventory, 

take orders and maintain order history, and bill customers to collect revenues. All 

company legacy systems need to be modified to account for this change, imposing 

a significant conversion burden on remote marketers. Also required are ongoing 

maintenance costs to keep descriptions and tax requirements up to date, ongoing 

training of customer service personnel, and additional financial reporting and compliance. 

If the benefit were significant for the states and municipalities involved, then perhaps this extra cost might be justifiable. The reality is that forcing remote marketers to collect and remit sales and use taxes will add less than 1 percent to the total 

current tax collections for states and municipalities nationwide. 

S. 1832 puts tens of thousands of remote marketing companies at risk of failure. 

A perusal of the letters ACMA has assembled bears this out as owners and executives document the specific harm the collection of sales and use taxes represents to 

their businesses. 

Remote marketing also supports a large supply chain of ‘‘mom & pop’’ businesses, 

inventors, artists and artisans, manufacturers, distributors and importers who often 

lack the scale necessary to distribute via large national retail chains. Moreover, remote marketers necessarily draw on a large variety of vendors and supply chain 

partners in the creating of catalogs, design of websites, and operation of businesses 

that would also be adversely affected by S. 1832. 

62 

Should S. 1832 be put into law, many smaller catalogers will find it almost impossible to compete as already thin profit margins erode further. Putting an entire sector of the economy and the many jobs they represent at risk for such a small change 

in tax collections simply is not cost justifiable. 

4. Hardship on Consumers 

In addition to their positive impact on the national economy, it should be noted 

that remote marketers play an important role in meeting distinct consumer needs 

and requirements, needs that are not generally met by large, sophisticated retail 

chains. 

Catalog and Internet sales allow consumers to efficiently select goods that may 

not be readily available in their local market. They allow convenient shopping for 

single parent households or dual income families where the adults have precious little free time during typical store hours. They bring a variety of hard to get or 

unique products to the market that do not have large enough demand to be carried 

in traditional ‘‘brick and mortar’’ retail store locations. They provide privacy to purchase merchandise that is embarrassing or uncomfortable to purchase in a retail 

shopping environment. Remote sellers cater to the needs of rural Americans, disabled consumers and older shoppers who may have difficulty driving or walking. 

In fact, remote marketing and catalogs specifically bring a wide variety of social, 

cultural and economic benefits to Americans that are not otherwise available. See 

ACMA’s white paper ‘‘The American Catalog Experience: Catalog Marketing’s Social 

Importance to American Consumers & Culture,’’ attached herein as Appendix II. We 

ask that this be incorporated into the hearing record. 

5. Conclusion 

The physical presence requirement from the Quill law must remain for the collection of sales and use taxes. If that law is to be changed, it must not be done so 

without significant simplification reform of state sales tax regimes and the establishment of a fair and impartial dispute resolution mechanism. Our national economy is in no position to afford such a burden absent statutorily-mandated simplification and dispute resolution provisions also being included in the law. 

ACMA urges Congress to uphold both the current status quo of the twice-tested 

Quill precedent as, in fact, fair and equitable, or to take the time to investigate the 

implications on all remote marketers prior to making any change to the existing 

laws. 

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APPENDIX II: THE AMERICAN CATALOG EXPERIENCE: CATALOG MARKETING’S SOCIAL

IMPORTANCE TO AMERICAN CONSUMERS & CULTURE

Catalogs Bring A Variety of Good to Americans 

Overview 

The catalog industry has a wide-sweeping impact on American culture, well beyond the economic benefits of employing millions of people, paying millions in federal, state and local taxes, and conserving energy and natural resources. The American catalog experience has significant and important social benefits to American 

culture and consumers. 

Catalogs are Good for American Consumers and Our Quality of Life 

• Catalog shopping is convenient and available 24/7/365 from one location 

accessed by mail, telephone or online. Oil consumption, traffic congestion, and 

parking are not factors. 

• Catalog shopping is unconstrained by geography, thus eliminating physical and 

distance boundaries. Catalogs put a world of products in the hands of Americans. 

• Catalogs allow instant service whenever and wherever people wish to shop. 

They are accessed anywhere, home or business. 

• Catalogs define ‘‘universal access’’ for merchandise and commerce. 

• Catalog shoppers consistently report it is easier to get detailed product knowledge and excellent customer service over the phone than elsewhere (or even to 

find a sales associate). There is usually no or little waiting time to get help. 

• Catalogs fight the homogenization of products driven by retail consolidation 

(‘‘the Wal-Martization of America’’). Retail economics force aggressive rationalization of merchandise assortment. If retailers do not sell a high number of 

pieces per individual store, they cannot exist. If catalogers, who usually offer 

a much broader assortment, do not sell a high number of pieces nationwide, 

they cannot exist. Retail and catalog are different business models and both are 

important for the growth of the American economy. 

• Catalogs create an easy way to comparison shop without necessitating multiple 

trips to different stores. 

• Catalogs make sending a birthday, holiday or special occasion present to anyone, anywhere a convenient pleasure, helping Americans stay connected in an 

increasingly mobile society. 

• Catalogs allow people to shop for potentially embarrassing products in the privacy of their own home without worrying about being out in public—for instance, a cancer patient buying a wig, or consumers buying unusual or plussized clothing in the privacy of their home rather than in public at stores. Personal hygiene, medical and disability-related products are frequently purchased 

from catalogs for enhanced privacy. 

• Some of the specialty products sold by catalogs includes diabetes-related products, organic products, business productivity tools, pharmaceuticals, and other 

specialized goods for which a ready retail market might not otherwise exist. 

• Catalogs contribute to the quality of life by providing a convenient, fun, compelling leisure time experience. Recreational shopping is an important pastime for 

many Americans. 

• Catalogs remain part of a shared experience in America that remains relevant, 

human and enjoyable in the increasingly impersonal age of ecommerce and electronic media. 

• Catalogs form part of our collective experience. Who doesn’t remember the 

childhood pleasure of paging through the often-remembered Sears Wishbook 

catalog? 

Catalogs are Good for the Environment 

• Catalogs may be America’s biggest carpool. 

• Catalogs have a low carbon footprint and are becoming more environmentally 

friendly every year. Yes, catalogs use paper, but the modern advances in forestry management have made trees a sustainable crop. In fact, there are more 

trees in North America today than there were at the time of Columbus’s voyage. 

Plus, advances in the recycling of paper continue to develop and it takes 60 percent less water and energy to make recycled paper than to break lignin into virVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00071 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
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gin fiber. Please see www.catalogmailers.org for more information on Catalogs 

and the Environment. 

• Catalogs make the phone ring, a nearly environmentally neutral communications method in a society increasingly aware about ways to cut our carbon footprint. 

• With very few exceptions, catalog companies demonstrate responsible mailing 

practices, honoring consumer demands concerning mailing frequency, contact 

methods, and individual consumer needs and wishes. Catalogers are, by the 

precise and stringent economics of cataloging, self-regulating, and cannot afford 

to do otherwise. 

Catalogs are Good for the Economy 

• Catalogs stimulate consumer demand, both for direct and retail, fuelling the 

largest engine of economic activity we have. 

• Catalogs are highly targeted and merchandised to meet specific consumer interests and needs, thus representing an effective and efficient marketing channel 

to maintain and strengthen American competitiveness. 

• Catalog brands have a long-term relationship with Americans that is part of the 

shared American experience. The ability to come back to trusted brands and 

companies for the things we need, knowing the consistency and helpfulness we 

will find as consumers can be relied upon again and again. This is a high ideal 

of American commerce. 

• The robust American catalog shopping experience allows for a shift in power 

from the retailer to the consumer. 

• Catalogs are mailed predominately to willing customers who may have a preexisting relationship with retailers, or to those consumers who have requested 

a catalog from a company they are interested in shopping with, or to other 

‘‘opted-in’’ consumers who have expressed interest in receiving marketing information or specific offers. 

• Catalogs help small businesses succeed. 

Catalogs Encourage Small Business 

• Catalogs allow many small businesses to quickly and efficiently access specialized products that keep them competitive despite their niche focus, small scale 

or remote location. 

• Catalogs efficiently and effectively serve niche avocations and vocations, serving 

Americans and allowing these businesses to be productive at a lower cost of operations. They help ‘‘level the playing field’’ with larger companies that have 

more extensive sourcing operations. 

• Catalogs provide an important distribution option for small-and medium-sized 

manufacturers, importers, wholesalers, inventors and designers, all of whom do 

not have the scale, sophistication or capital to sell their products to the ‘‘Big 

Box’’ retail giants, which demand prices that are impossible to meet. 

• Catalogs provide a national market test for new products and the discovery of 

small niche market opportunities that would otherwise require large budgets 

and sophisticated deployment. This creates greater innovation and broader consumer solutions than would be possible otherwise. For example, the electronic 

thermometer, which is now a standard for families with newborns, was developed in exactly this manner. 

• Catalogs provide a national audience for small companies and start-up operations, helping keep small business as the largest creator of jobs in our economy. 

Catalogs are Good for Disadvantaged and Rural Americans 

• Catalogs can be the only alternative for shut-ins, infirmed, handicapped, elderly 

or those with limited mobility. 

• Catalogs provide viable shopping venues for rural citizens who live too far from 

stores. 

• Catalogs provide the older population with well-being benefits. The regular contact with letter carriers and delivery service providers who deliver packages to 

the home reduce the sense of isolation and provide beneficial human contact 

and a ‘‘safety-net,’’ helping seniors stay connected to the community and creating a sense of normalcy so critical to well-being and mental health. 

• Catalogs enable people to lend a helping hand to those they do not know, including the poor, destitute or imperiled throughout the world (consider, for exVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00072 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
67 

ample, Heifer International, CARE, NWF or other nonprofits that have catalog 

businesses). 

• Catalog companies do not have to be located in urban centers and can instead 

create quality jobs for rural America. High-employment catalog companies are 

found in locations such as Freeport, Maine; Dodgeville, Wisconsin; Dyersville, 

Iowa; and many other remote locations. 

Catalogs, Their History, and Their Role in American Commerce 

• Interstate commerce developed because of catalogs. 

• Rural free delivery was spurred on by catalogs. 

• Parcel Post developed the required scale due to catalog shipments. 

• Early catalog brands were among the first to have a national identity. 

• More than half of America shops via catalogs. 

• Catalogs allow marketers to have a national footprint without being a mass 

merchant, having helped develop the idea that we can have national brands 

without the requirement to open stores in every state. 

• Baby Boomers buy more from catalogs—per capita—than any other generation. 

• Catalog use increases with the age of the consumer, particularly pertinent in 

‘‘the graying of America.’’ 

• Catalogs provide important content to keep mail relevant and welcome in the 

household. 

• Cataloging did $270 billion in sales in 2006 and supported more than 20,000 

different firms, as well as thousands of supplier companies and service vendors. 

• Cataloging economics fundamentally changed in 2007 and have spurred industry-wide experimentation to reduce mail volumes, down 35 percent two short 

years later. That’s a figure that will likely continue to grow once catalogers perfect non-mail marketing techniques. 

Catalogs and the Internet 

• As a whole, catalogers were pioneers in the use of the Internet for the sale of 

products and services to consumers and businesses. 

• By in large, catalogers receive about half their orders online depending on the 

product category and demographic they serve—yet the paper catalog is responsible for generating more than half a company’s online sales (some companies 

report it is upwards of 90 percent). The symbiotic relationship between the 

paper catalog and online technology yields greater convenience for everyone 

from single, working moms to full families, to the elderly, to the physically 

handicapped, further driving social and environmental benefits, time and efficiency. 

• Catalogs are also drivers of retail traffic, promoting commerce, jobs, and convenience for brick and mortar retailers. 

• With rare exception, every cataloger has sophisticated e-commerce deployment, 

making full use of all established and most emerging, technologies. 

• Catalogers largely do not distinguish between mail and Internet as business objectives. They see it as being about communicating with people in the way they 

want to be reached via media consumers already use. It is also about using the 

most efficient and desirable means possible to stay in touch with customers. 

The combination of the catalog plus the Internet creates a very powerful marketing and distribution system that impacts and improves lives. 

• Catalogs establish brands then extend those brands’ reach to the Internet, offering Americans hard-to-find products at value-based pricing. 

• Catalogs help consumers feel confident about online purchases. Catalog merchants have a long and protected tradition of honoring their commitments as 

responsible, customer-oriented, integrity-driven businesses. 

• Catalogs prompt people to tell others through social media (i.e., blogs, Twitter 

and Facebook) about the products that inspire. This ‘‘viral’’ effect of community 

and commerce has multiplicative financial and emotional benefits. It also increases consumer satisfaction and marketer responsiveness by providing a 

ready forum for customer comments, reviews and feedback. 

• Catalogs provide an alternative transactional method for those Americans concerned about online privacy or transactional safety. 

• Catalogs still have the highest order response of any vehicle available to direct 

marketing. Consumers ‘‘vote with their feet.’’ This indicates that a great deal 

68 

of value is put on the receipt of a catalog that creates a residual benefit for both 

online commerce and the American economy. 

Conclusion 

Since the mid-1990s, many experts have predicted the extinction of the printed 

catalog. However, until the double-whammy of the huge postage increase of 2007 

and the Great Recession of 2008–2009, catalogs in America continued to thrive, 

aided and enhanced by the maturation of Internet marketing. As both the general 

economy and postal rates settle down, it will be proven that ‘‘rumors of catalogs’ demise’’ continue to be over-stated. 

With catalogers’ continuously responsive use of recycled paper and tree replanting, as well as their close attention to self-regulation, this responsible industry is 

primed for greater growth going forward. 

PREPARED STATEMENT OF JERRY CERASALE, SENIOR VICE PRESIDENT, GOVERNMENT

AFFAIRS, DIRECT MARKETING ASSOCIATION, INC. 

I. Introduction 

The Direct Marketing Association (DMA) thanks Senators Rockefeller and Hutchinson and the Members of the Committee for this opportunity to present its views 

on the Marketplace Fairness Act (S. 1832) and the authority of states to require remote sellers to become their tax collectors. There are several bills in Congress that 

would allow states to conscript non-citizen remote sellers that have no physical presence in the state to become its tax collectors. These efforts are not Federal tax reform—they are not state tax reform. These efforts represent a request from states 

that Congress impose a 1930s tax regime on 21st Century commerce rather than 

reforming their tax regimes. 

DMA is the leading global trade association of businesses and nonprofit organizations using and supporting direct marketing via channels including mail, telephone, 

direct TV, radio and the Internet. Founded in 1917, the DMA currently has over 

2,000 member companies across the United States and 53 foreign countries. 

DMA would like to discuss the history of state efforts to require remote (out-ofstate) sellers to become unpaid tax collectors for states, including the Streamlined 

Sales and Use Tax Agreement (SSUTA). 

II. History: Streamlined Sales and Use Tax Agreement (SSUTA) 

The U.S. Supreme Court in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), 

ruled that without specific authorization from Congress, states could not impose tax 

collection burdens upon remote sellers that have no ‘‘physical presence’’ as this 

would interfere with interstate commerce. Moreover, if allowed by Congress, the 

myriad of state tax jurisdictions with resulting variance in rates, definitions, and 

audits would create a complex and administratively costly nationwide sales tax collection system. The costs of that collection are a tax on the out-of-state business. 

It is significant that these remote sellers’ businesses do not receive police or fire protection from those states—they are not present in them. Their employees and their 

families do not receive educational or social services from those states—the businesses have no employees located in those states. 

Governments, as well as businesses, face challenging financial decisions in these 

economic times. State legislatures have very difficult budget determinations and are 

looking at both cutting costs and increasing revenues. However, proponents of the 

SSUTA have cited grossly exaggerated revenue estimates of uncollected sales and 

use taxes due to remote sales. In particular, proponents have cited a 2000 University of Tennessee study that includes unbelievable estimates as to the amount of 

the uncollected sales tax. A revised Tennessee study lowered its initial estimate 

from $45 billion to $24 billion—even the revised estimates will not be realized. 

It is important to note that the Tennessee study rests on a number of faulty assumptions and is not based on U.S. Government data. Further, the study’s implication that states are ‘‘losing’’ a substantial portion of their sales tax revenues to electronic commerce is simply false. The vast majority of e-commerce transactions are 

not with consumers, but rather with businesses, and such business transactions almost always are subject to tax collection or direct payment of use taxes by the purchaser. Moreover, the marketplace is demanding more rapid delivery of purchased 

goods. To keep those sales, marketers are establishing more and more distribution 

centers throughout the country establishing nexus under Quill in more and more 

states. The ‘‘lost’’ tax revenue is shrinking—not growing—due to market demand. 

In contrast to the Tennessee study, the independent firm, Forrester Research, has 

estimated that the loss of tax revenue due to state residents not paying use taxes 

69 

for remote sales is $3 billion nationwide—a fraction of the $24 billion estimated in 

the revised Tennessee study. A 2007 DMA-commissioned study, based on U.S. Commerce Department data, estimates that in 2006 uncollected sales tax nationally totaled $4.2 billion. A 2010 study by Eisenach-Litan found that uncollected taxes in 

2008 totaled $3.9 billion. There is no $24 billion pot of gold. 

In light of the Quill decision, the states began a project to simplify the sales tax 

regimes that a remote seller would face if required to become the foreign state’s tax 

collector. The SSUTA goal was to remove that complexity and create a 21st century, 

Internet-friendly tax regime to encourage economic growth throughout the national 

marketplace. However, the SSUTA has failed to either remove complexity or create 

that 21st century tax policy standard. To be blunt, the SSUTA is a document drafted by tax administrators, and, as might be expected, it has resulted in little in the 

way of tax simplification. 

Specifically, the SSUTA: 

• Has not reduced the number of sales tax jurisdictions in the Nation, which currently number over 9,600; 

• Has not reduced the number of state and local sales tax rates; 

• Has not reduced the number of audits to which an interstate seller would be 

subject (each state revenue department would still conduct its own independent 

audit); 

• Has not established a long-promised uniform vendor compensation to cover the 

substantial cost of tax collection; and 

• Has not established a single remittance procedure. 

Moreover, the Governing Board of SSUTA has granted exceptions to its feeble 

simplification initiatives to win approval of the states. Recently, the Board granted 

an exception from the SSUTA-defined rule for Massachusetts when calculating the 

sales tax on articles of clothing over $175. SSUTA will continue to grant exceptions 

that will increase the complexity of sales tax collection. States are enacting sales 

tax holidays—some for all purchases under a capped price; others for specific products (such as hurricane preparedness) on a specific date. Those actions, while important for the state and its citizens, further complicate a nationwide sales tax collection regime. 

As you can see, tax collection has not been simplified since the inception of 

SSUTA. In fact, SSUTA is ‘‘streamlined’’ in name only. 

To better appreciate the failings of the SSUTA, it is instructive to consider its history. The Streamlined Sales Tax Project was launched in 2000 on the heels of two 

earlier joint government/industry initiatives: the National Tax Association (NTA) 

Communications and Electronic Commerce Tax Project, and the Congressionally-established Advisory Commission on Electronic Commerce. Both projects had concluded that the existing state sales tax system was one of daunting complexity, and 

that true simplification would require sweeping reforms. 

Perhaps most emblematic of the SSUTA’s failure to achieve genuine sales tax reform was the early demise of the single-most important step toward simplification: 

the adoption of a single sales tax rate per state for all commerce (both over-thecounter sales and interstate sales). Had the SSUTA adopted this so-called ‘‘one rate 

per state’’ proposal, this single act could have eliminated the problem of merchant 

compliance with thousands of local tax jurisdictions with different tax rates. 

To put this ‘‘one rate per state’’ issue in perspective, the United States is the only 

economically developed country in the world with a system of sub-state transaction 

taxes, not only for counties and municipalities, but also for school districts, transportation districts, sanitation districts, sports arena districts, and other local jurisdictions. In light of this wildly complex system, the adoption of the ‘‘one rate per 

state’’ standard was the unanimous recommendation of the NTA’s E-Commerce 

Project (which included delegates of the National Conference of State Legislatures, 

National Governors Association, and U.S. Conference of Mayors) and was in the majority report recommendation of the Congressional Advisory Commission. 

Those failings increase the burden on out-of-state sellers. Being subject to 45 separate state audits requires a tax department. Those businesses would be required 

to have multiple state registrations and multiple remittance procedures. The cost 

stemming from tax collection would be passed to consumers, constituting an antistimulus at a time when our Nation is working to stimulate the economy. Moreover, 

remote sellers with locations only in states that do not impose sales taxes, and that, 

in turn, have no process in place to collect any sales taxes, would be required to 

create an entirely new tax department within their company and establish entirely 

new accounting and ordering protocols. Those remote sellers would face even greater 

burdens. 

70 

Any discussion of tax reform concerning non-citizen companies becoming tax collectors for states, should require tax reform in terms of simplification of state sales 

tax regimes. Only after that reform should Congress consider granting additional 

interstate taxing authority to the states with the proviso that the tax regime simplification must remain in place. 

III. The Marketplace Equity Act; The Marketplace Fairness Act; The Main 

Street Fairness Act 

The bills attempt to mitigate the significant burden forced sales and use tax collection places upon non-citizens of a state. Sadly, they fail to reduce the tax burden 

placed upon remote sellers. 

The Marketplace Equity Act grants states three ‘‘simplified’’ alternatives: 

• Require collection of a single blended sales tax rate for use in remote commerce; 

or 

• Require collection of the highest sales tax rate in the state exclusive of local 

tax rates; or 

• Require collection of the applicable state and local sales taxes with the state 

making available adequate computer software to the remote seller and exempting a seller using the software from state liability for incorrect collection. 

Experience with the Streamline Sales Tax Agreement indicates that states will 

choose the latter alternative. States have failed for the past 10 years to reach agreement on single tax rates within a state. With the alternative to require collection 

for 9,600 tax jurisdictions on the table, that will be the option of choice. 

The Main Street Fairness Act grants authority to states that join the SSUTA. It 

corrects none of the problems with SSUTA discussed above. The bill would grant 

carte blanche authority to a governing board of tax administrators, and as explained 

above, the governing board has shown no restraint amending its system to become 

more complicated. 

The Marketplace Fairness Act combines elements of the Marketplace Equity and 

Main Street Fairness Acts. It also would grant carte blanch authority to a tax administrator governing board and would grant states not joining the SSUTA authority to conscript non-citizen businesses by simply providing software to the remote 

vendors. 

Even the SSUTA calls for states to provide collection software to remote sellers. 

This represents a cavalier conclusion that providing software is the answer to the 

tax burden imposed when states conscript non-citizen remote sellers to become their 

tax collectors (unpaid collectors under the bills). Tax collection software is not a simple plug-in. Many remote sellers use specialized software for order, fulfillment, billing and inventory control. That software must be up and running 24/7. Adding additional tax collection software cannot cause any down-time for the seller. This adds 

significant cost to implement any software. Moreover, the tax collection software 

must be continually updated as states consistently throughout the year tweak their 

sales tax laws. One Internet based company has testified that the cost to implement 

sales tax collection in one state cost over $1 million, including work hours. Marketers cannot afford that cost. Thus, the requirement that states make available adequate software does not significantly reduce the burden on interstate commerce notwithstanding what proponents of S. 1832 claim. In addition, each state could make 

available different software—a true administrative nightmare. 

Moreover, the Tax Foundation testified before the House Judiciary Committee on 

July 24, 2012 that it had purchased tax collection software that was expensive, difficult to use, and found the applicable tax rate but failed to determine what was 

and was not taxable in the jurisdiction. In addition, the software failed to include 

tax holidays in its calculations. In essence the software does less than half the job. 

Technology may well be the solution to this issue, but it is not ready for prime time 

at the moment. 

The bills fail to address the burden of 46 potential audits (45 states and the District of Columbia). Remote sellers would be required to have a tax audit department 

and legal counsel at the ready for auditors representing 9,600 taxing jurisdictions. 

Unlike citizen companies, non-citizen remote sellers would be required to go to 

courts in states where they have no political voice to resolve any disagreements with 

state auditors over their tax collection. Any bill overturning the physical presence 

requirement of Quill should, at least, repeal the Tax Injunction Act as it applies to 

disputes on tax collection with non-citizen remote sellers. 

The bills fail to address other administrative burdens for non-citizen conscripted 

tax collectors: 

71 

• There is no provision concerning tax holidays that many states have for specific 

items, such as back-to-school and hurricane preparedness. 

• There is no single, uniform rule for sourcing all transactions in a state. 

• There is no mechanism to prevent caps and thresholds on taxable items. 

The bills should relieve remote sellers from liability of state claims if the seller 

uses the state ‘‘available’’ software (when that software is perfected and ready for 

prime time). In addition, remote sellers should be shielded from liability for consumer claims (some coming as class action claims) for errors in sales tax collection 

when using the state provided software. S. 1832 provides no shield from those 

claims for remote sellers even when using state ‘‘available’’ software. 

The first two alternatives in the Marketplace Equity Act, although DMA believes 

states will not choose them, create for the first time a different legal sales tax rate 

for remote sales vis-a`-vis retail sales. Although today non-citizen remote sellers are 

not required to collect sales tax, the consumer is liable for that tax—the same tax 

that is applied to retail sales in the consumer’s jurisdiction. This bill would create 

a different tax rate—some higher than the retail tax rate and some lower. To DMA’s 

knowledge, this is a first—with its own legal considerations. 

All three bills assume that the seller calculates the tax for the consumer and includes the tax in the amount charged. DMA has many members whose customers 

still pay by check and calculate the shipping and would calculate the sales tax 

themselves. In practice it is impossible for a remote seller to provide the check payer 

(who likely orders via the U.S. Mail) with the tax rates for 9,600 jurisdictions. Moreover, when faced with an incorrectly calculated tax on a check order, the seller faced 

with an overpayment must either provide a refund or credit and contact the customer with that information and choice which is very costly. With an underpayment 

of tax the seller is faced with an even more difficult and costly choice. The seller 

may hold the order and request further payment from the customer or may simple 

pay the additional tax itself (a new tax burden). DMA knows of a company located 

in a state with numerous local sales tax rates that simply asks consumers paying 

by check to remit the state sales tax and it pays the local sales tax to avoid customer confusion. Administrative burden is not washed away by computer software. 

None of the bills provide for any compensation for non-citizen remote sellers. The 

House Judiciary Committee heard from the SSUTA witness that the Agreement 

does provide for vendor compensation. It does and has for 10 years. However, the 

governing board of SSUTA has failed for the past 10 years to establish that vendor 

compensation. Vendor compensation in the SSUTA has become an hollow promise— 

one in which businesses have no confidence. We have heard the statements made 

at the July 24th Judiciary Committee before—they are empty and not believable. 

Passage of any Act, without specific compensation in statute, would eliminate any 

further discussion on compensation. It is important to remember that these sellers 

are noncitizens of the state and are being conscripted to become tax collectors for 

that state. Compensation would be one facet of equity and fairness. 

IV. Conclusion 

The bright-line physical presence test in Quill should remain for collection of sales 

and use taxes without significant simplification reform of state sales tax regimes. 

The burden of each on interstate commerce is large, and this is a time when our 

economy can ill afford such a burden. 

DMA urges Congress both to uphold the physical nexus standard of Quill rather 

than extending taxing authority of states to include the collection of sales and use 

tax beyond their borders without significant simplification reform by the states. 

PREPARED STATEMENT OF BILL MCCLELLAN, VICE PRESIDENT, GOVERNMENT

AFFAIRS, ELECTRONIC RETAILING ASSOCIATION

Introduction 

Chairman Rockefeller, Ranking Member Hutchinson and members of the Committee, the Electronic Retailing Association (‘‘ERA’’) thanks you for the opportunity 

to submit this written testimony on the impact of remote sales tax policies for electronic retailers. We believe that the Marketplace Fairness Act, S. 1832, would significantly harm American businesses, their employees and the customers who rely 

on a healthy and vibrant marketplace. Forcing remote sellers to collect and remit 

sales tax in jurisdictions in which they do not have physical presence or ‘‘nexus’’ will 

create a new tax burden resulting in considerable economic harm. It is our view that 

new and misguided remote tax schemes will materially affect electronic retailers 

working to survive in these harsh economic times. Massive cost increases and new 

72 

regulatory burdens will result damaging consumers and the marketplace on which 

they rely. ERA urges you to protect electronic retailers, both large and small, from 

this new tax burden and continue supporting entrepreneurial efforts that create jobs 

and help stabilize the economy. 

The Electronic Retailing Association is the trade association in the U.S. and internationally that represents leaders of the direct-to-consumer marketplace, which includes members that utilize electronic retailing on television and online to engage 

with consumers. Today, ERA proudly represents more than 450 companies in 45 

countries including many of the industry’s most prominent retail merchants. ERA’s 

membership consists of a diverse ecosystem of businesses and entrepreneurs operating at the cutting edge of innovation who have adapted to the rapidly evolving 

challenges found in the current retail landscape. 

Background 

For decades state governments have wrestled with the challenges of collecting 

sales and use tax on purchases for out-of-state retailers. What began with mailorder catalogs and telephone orders has increasingly moved online and now state 

collectors are blaming online commerce for uncollected sales taxes and the decline 

of Main Street businesses. But the tax loss numbers do not add-up. Main Street retailers use remote selling techniques to compete with mass ‘‘brick and mortar’’ retailers, and upon second glance proposals to simplify tax systems is not so simple 

and create a new tax burden for affected remote sellers. 

The Streamlined Sales Tax Project (SSTP) began in response to the 1992 U.S. Supreme Court decision Quill Corp. v. North Dakota, 504 U.S. 298 for a catalog business that sold office supplies—long before the modern era of online commerce. This 

ruling affirmed a 1967 Supreme Court decision National Bellas Hess v. Department 

of Revenue, 386 U.S. 753 that state sales tax systems are so complex that no retailer—whether storefront, catalog, or online—should have to collect sales tax for 

states where they have no physical presence or ‘‘nexus’’. The new tax burden of compliance would be too high. That left the states with two options—radically simplify 

sales tax systems and come back to the Courts for another look, or persuade Congress to force remote retailers to collect sales taxes, whether the systems are simple 

or not. States pleading for more taxing authority as the first dot-com bubble expanded, and then cried louder as the U.S. economy slowed and spending by states 

outpaced revenues. State tax officials blamed online commerce for their fiscal problems based on forecasts of growth in e-commerce. A short time later state sales tax 

revenue had recovered. Despite minimal progress in simplifying sales tax systems 

again Congress finds itself petitioned to impose new tax burdens on remote sellers 

as state tax coffers run low. 

The Numbers 

States, ‘‘brick and mortar’’ retailers and other advocates of the Streamlined Sales 

Tax Project (SSTP) continue to use estimates that just don’t add up. They cite a 

University of Tennessee study that blames online commerce for $23 billion in lost 

sales tax revenue a drastic reduction from the study’s prior estimate of $45 billion 

in 2000. An independent review from Forrester Research estimates that unrealized 

revenue from uncollected sales tax equates to $3 billion nationwide. Similarly, the 

Direct Marketing Association (DMA) conducted a study in 2006 based upon U.S. 

Commerce Department data that supports this level finding that the total amount 

of uncollected sales tax nationwide totaled $4.2 billion. Even if none of that sales 

tax were collected, the loss would be significantly less than the Tennessee estimates. 

Despite these findings proponents of SSTP continue to cite questionable estimates 

from the University of Tennessee study. As Congress debates this issue, it is clearly 

in the public interest that an accurate portrayal of estimates are provided as members conduct their cost benefit analysis and weigh imposing a new tax burden upon 

remote sellers. 

The Facts 

Remote Retailers Collect Sales Tax Today. All online sales already are subject to 

tax. All retailers whether ‘‘brick and mortar’’ or remote retailer are required to collect sales tax on goods delivered in any state where the retailer has a physical presence or ‘‘nexus’’. Consumers are obligated to pay a ‘‘use tax’’ on all purchases even 

if the seller is not required to collect the sales tax. States have done little to educate 

consumers about their use tax obligation or to provide them with any easy way to 

comply. 

New Tax Burdens would harm American Business. Tax collection under this new 

taxing scheme would cause thousands of American businesses to be confronted with 

entirely new tax obligations of collecting and remitting taxes for over 9,600 taxing 

jurisdictions throughout the country. This new tax burden would include school disVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00078 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
73 

tricts, transportation districts, sanitation districts and sports arena districts among 

others. This will dramatically increases the complexity of remote commerce as a viable medium for business activity. State tax collectors have failed in their original 

mission to reduce the number of tax jurisdictions. Similarly, State tax collectors 

have failed to reach its goal of uniform definitions for taxable products. Instead, 

each state is allowed to create its own ‘‘gray area’’ with respect to every term defined in the Agreement. Individual states only have to use ‘‘substantially the same 

language’’ a recipe for confusion and litigation from businesses forced to comply with 

this new tax burden. For consumers, the confusion and complexity are even more 

problematic. Shoppers who pay by check for catalog purchases (a common form of 

payment among the elderly and low income wage earners) must self-compute the 

applicable state and local sales tax for each jurisdiction to which a mail order purchase is sent. Again, these are major new tax burdens—not simplification. 

The inability of ‘‘brick and mortar’’ big box retailers to compete is overstated. Often 

‘‘brick and mortar’’ retailers imply that e-commerce is hurting their business and 

they cannot compete. Nothing could be further from reality. Despite collecting sales 

tax for online purchases ‘‘brick and mortar’’ retailers dominate the Internet Retailer 

Top 500 List of the most successful online retail businesses. The reality is for decades small retailers (online and off) have lost sales to big-box stores. In recent years, 

the Internet has offered the best hope for success of Main Street retailers to compete. 

Efforts to enact online sales tax collection by ‘‘big box’’ retailers represent an attempt to alter the playing field in their favor by unfairly discriminating against remote sellers. Online, burdens are 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. Remote retailers are also responsible for 

the difference if a customer fails to remit the correct tax when paying by check— 

a problem that traditional retailers do not confront. Delivery charges usually exceed 

the amount of sales tax on those same goods—leaving remote sellers with no price 

advantage over their ‘‘brick and mortar’’ peers. Competitive claims aside, the evidence clearly show that ‘‘brick and mortar’’ big box retailers enjoy an overwhelming 

advantage both online and off for the foreseeable future. 

Conclusion 

The Electronic Retailing Association strongly contests efforts to force a new tax 

burden upon electronic retailers called for by the Marketplace Fairness Act (S. 

1832). Previous Congressional legislation has had significantly more simplification 

requirements that SSTP states would have to meet. Industry experience with the 

Streamlined Sales Tax Agreement, dictate that states have not met the minimum 

standards of true tax simplification or reduce the associated administrative burdens 

of this new tax burden for remote retailers. At minimum Congress should require 

robust simplification that ensures a single sales tax rate for each state, requires 

states to adopt a set of single definitions for taxable and exempt products, reasonably compensates those asked to collect, and provide for adequate liability protection 

both from state tax collectors as well as from class action lawsuits. 

It is also of great concern that software solutions are being championed as a solution to this problem without adequate computer software solutions available in the 

marketplace. These systems do not currently exist in the marketplace today. Nor 

can software been seen as a simple fix as all electronic retailers use specialized software for order, fulfillment, billing and inventory control. The chilling effects of software as a ‘‘magic’’ solution cannot be overstated. One Internet based company recently testified that integrating its systems cost $1 million for one state alone. This 

new tax burden alone would force many members of the Electronic Retailing Association out of business. 

Therefore we believe that S. 1832 will devastate electronic retailers working to 

survive in these harsh economic times. A growing number of industry participants 

tell us that in recent years they have seen a decrease of up to 40 percent in their 

sales and that the worst affected are ‘‘hanging by a thread.’’ Participants also report 

being grateful that they have survived the recent economic downturn. Enactment 

of S. 1832 would call into question their survival with new regulatory requirements 

and new tax burdens. We urge you to support Electronic Retailers as the industry 

recovers and resist the urge to hamper budding entrepreneurial efforts to create 

good jobs that help stabilize the economy. 

74 

PREPARED STATEMENT OF ANDREW MOYLAN, VICE PRESIDENT, GOVERNMENT

AFFAIRS, NATIONAL TAXPAYERS UNION

Introduction 

Chairman Rockefeller, Ranking Member Hutchison, and distinguished Members 

of the Committee, thank you for the opportunity to submit testimony on behalf of 

the American Taxpayer regarding the issue of ‘‘marketplace fairness’’ in state sales 

tax collection. My name is Andrew Moylan and I am Vice President of Government 

Affairs for the National Taxpayers Union (NTU), a non-partisan citizen group founded in 1969 to work for lower taxes and smaller government at all levels. NTU is 

America’s oldest non-profit grassroots taxpayer organization, with 362,000 members 

nationwide. 

Few citizen groups in Washington can match NTU’s 43-year history of principled 

advocacy on behalf of taxpayers, which is why I hope you will find these comments 

expressing our serious concerns with S. 1832 (the ‘‘Marketplace Fairness Act’’) and 

other similar bills helpful in the Committee’s vital work. You can also find further 

research into these topics on our website at www.ntu.org. 

In short, we believe that such legislation would be profoundly detrimental for taxpayers and remote retailers both large and small because it would dismantle a vital 

safeguard in the tax policymaking process, create a decidedly ‘‘unlevel’’ playing field, 

impose enormous compliance burdens on businesses, and harm beneficial economic 

competition among states by reducing incentives to simplify sales taxes. 

Current Law and the Marketplace Fairness Act 

Current law prevents tax authorities from forcing a retailer of any type to collect 

and remit its sales tax unless it has a tangible physical presence in the state. This 

is a result of the 1992 Supreme Court case, Quill v. North Dakota, where a Delaware-incorporated office supplier with no presence in North Dakota was found to not 

be obligated to collect and remit on the latter state’s behalf. The Court held that 

extraordinary sales tax complexity rendered the interstate commerce burden of 

mandatory collection on out-of-state businesses too great to be constitutionally permissible. 

Though states cannot compel non-resident businesses to collect and remit their 

sales tax, customers are still required to pay ‘‘use tax’’ in lieu of conventional sales 

tax on an item. The use tax regime, however, is largely ineffectual because it requires self-reporting of which most taxpayers are simply unaware and is difficult 

to enforce. As a result, states (and competitors to remote retailers) have been clamoring for the Federal Government to override established protections by ordaining 

a dramatic expansion of their tax authority. 

S. 1832 would change current law by allowing states to enforce tax collection and 

remittance obligations on businesses regardless of physical presence. This would 

give states licenses to effectively substitute new sales tax requirements on businesses in the place of their current use tax systems. The end result would be more 

sweeping tax powers, huge new compliance burdens for businesses, and millions (or 

billions) of new dollars flowing out of the pockets of taxpayers and into the hands 

of state and local governments, many of which have failed to control their spendthrift proclivities. 

S. 1832 Dismantles Vital Taxpayer Safeguard 

Contrary to the claims of many Marketplace Fairness Act proponents, current law 

is not a ‘‘loophole’’ that was implemented as some sort of deliberate attempt to advantage Internet retailers in the World Wide Web’s infancy. Instead, the Court’s decision drew on and emphasized a bedrock foundational principle of tax policy: the 

physical presence standard. Simply stated, this standard generally prevents tax entities from extending their authority beyond their physical borders. As a result, 

businesses and taxpayers alike are shielded from predatory tax administration ploys 

that might seek to target non-residents for revenue. 

The physical presence standard is a strong protection from overzealous tax collection tactics and a fundamental safeguard in American tax policy that is broadly applied as the appropriate boundary which states must observe when asserting tax 

prerogatives. Physical presence is a constraint on tax collectors that exists in many 

other areas of tax policy, including business earnings and individual income taxes. 

As but one example of the wide-ranging relevance and respect given to the physical presence standard, in May of this year the House unanimously passed H.R 

1864, the ‘‘Mobile Workforce State Income Tax Simplification Act.’’ This critical legislation, which NTU strongly supported, prevents states from requiring income tax 

filing or withholding from workers unless they reside in the state or work there for 

more than 30 days in a calendar year. This common sense criterion will prohibit 

75 

unfair income tax filing requirements on non-residents and it has at its core the 

wise counsel of the physical presence standard. 

What the Marketplace Fairness Act would do is erase the physical presence standard for the purposes of remote retail sales (but of course maintain it for brick-andmortar sales). The result, as outlined further in this testimony, would be an abandonment of the limits on taxing powers that have served our Federal system so well 

for decades—even centuries—on end. 

In fact, S. 1832’s language makes very clear the slippery slope to extinction on 

which it would place the physical presence standard. Section 5(b) of the bill reads 

like an admission that the legislation could have grave implications for taxpayers: 

‘‘No obligation imposed by virtue of the authority granted by this Act shall be considered in determining whether a seller or any other person has a nexus with any 

State for any tax purpose other than sales and use taxes.’’ In other words, the bill’s 

authors are attempting to promise that its language strips away the physical presence protection only for sales taxes and not with individual or business income levies, for example. 

This is about as comforting to taxpayers as the claims from its inception that the 

income tax would apply single-digit rates to only the wealthiest of filers. True, the 

Sixteenth Amendment and subsequent Revenue Act of 1913 didn’t expand the tax 

to its current levels right away, but it blew the levee protecting ordinary taxpayers 

wide open and subjected them to a century of ever-creeping taxation. The Marketplace Fairness Act would similarly dismantle one of the few strong taxpayer protections left: the physical presence standard. 

Marketplace Fairness Act Would Yield Distinctly ‘‘Unlevel’’ Playing Field 

Proponents of S. 1832 argue that their bill is intended to ‘‘level the playing field’’ 

between brick-and-mortar and remote retailers, but in reality it would do the exact 

opposite. While the legislation would require remote sellers to collect sales tax on 

every item, it would force them to do so by a completely different and unequivocally 

harsher set of rules than exist for brick-and-mortar sales. 

If the Marketplace Fairness Act were to pass, states could strong-arm remote sellers into complying with more than 9,600 separate sales tax jurisdictions across the 

country, each of which can issue its own unique set of edicts and definitions. The 

reason is that S. 1832 would concoct a ‘‘destination-based’’ sourcing regime which 

compels a business to collect sales tax based not on its own physical location, but 

on the location of its customer. An online business would, in turn, have no choice 

but to quiz each and every customer on their residence, look up the appropriate rate 

for their locality, and then remit what is collected to a distant tax agency. 

Meanwhile, when a brick-and-mortar retailer makes a sale in one of its stores, 

it doesn’t have to jump through any of those hoops. When a customer checks out 

at a register, they are not interrogated about their residence and then charged the 

prevailing rate in that locality. This is because brick-and-mortar retailers effectively 

operate on an ‘‘origin-based’’ sourcing rule, one that collects tax based upon the actual location of the business rather than the consumer. Even states that technically 

operate their tax regimes under destination-based sourcing rules for traditional retail sales tend to short-circuit them: they attempt to mimic origin-based sourcing by 

simply assuming that the ‘‘point of delivery’’ of an item is not where its customer 

lives but where it gets handed back to the customer at the cash register. 

This clever bit of maneuvering allows brick-and-mortar retailers across the country to operate on a system whose compliance, at least as far as tax laws are concerned, can be relatively straightforward. Each business determines the prevailing 

sales tax where it is located and charges that to all of its customers, regardless of 

their eventual destinations. The Marketplace Fairness Act would deny that administrative convenience to remote retailers by pressing them into a cross-examination 

process for each and every customer—in the end, decreeing submission to thousands 

of different sales tax codes. 

S. 1832 Imposes Tremendous Compliance and Interstate Commerce 

Burdens 

Because they would now answer to 9,600 tax jurisdictions across the country, remote retailers would have to shoulder heavy overhead costs just to meet their new 

tax collection liabilities. In fact, the Marketplace Fairness Act essentially acknowledges its imposition of major expenses and complexity by including an exemption 

for businesses that have remote sales of $500,000 or less per year. The very existence of this provision makes it clear that even sponsors and supporters feel compliance would exact an unbearable toll upon small sellers. 

Unfortunately, S. 1832’s paltry exemption level (the Small Business Administration threshold for defining a small business is $30 million in sales, while the MarVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00081 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
76 

ketplace Fairness Act’s exemption is only $500,000) would do little to ease the suffering of smaller businesses, which would be afflicted with even greater competitive 

disadvantages compared to larger ones as a result of the bill’s passage. A 2006 

PricewaterhouseCoopers study provides some instructive, eye-opening guidance in 

this regard. Based on their findings, businesses with between $1 million and $10 

million in sales would face compliance costs nearly 2.5 times those endured by larger firms (above $10 million in sales). The smaller the business, the bigger a share 

of its sales siphoned off just to navigate the maze of our extremely complicated sales 

taxes. 

Some businesses would collapse under the weight of these compliance loads, and 

others would have to raise their prices substantially in order to make ends meet. 

As a result, the Marketplace Fairness Act would raise serious impediments to interstate commerce due to its misguided approach toward this issue. Congress has the 

duty and authority to prevent states from enacting policies that significantly harm 

interstate commerce, and yet paradoxically S. 1832 would encourage such damage 

at an especially fragile time for our economy. 

Tax Simplification Efforts Have Largely Failed 

Much of the movement behind the Marketplace Fairness Act is justified by notions of simplifying sales tax codes across the country. While the Streamlined Sales 

Tax Project (SSTP) and other efforts have expended much energy on this worthy 

task, the sad fact is that state sales taxes today are more complex than ever. The 

number of tax jurisdictions has steadily risen in the 12 years since SSTP’s inception 

and our Nation is nowhere close to the sort of uniformity and ease of administration 

the project sought to create. 

For a glimpse into the reality of sales tax complexity, consider the dilemma of determining when ice cream is a baked good for Wisconsin’s tax purposes. Forbes.com 

writer Josh Barro recently discussed a bulletin from the Wisconsin Department of 

Revenue seeking to clarify the tax treatment of ice cream cake. 

‘‘The memo goes through ten different examples of cake sales, of which seven 

are taxable and three are not. Here’s an excerpt: 

Example 4—Same as Example 1, except that Restaurant A does not make 

the ice cream cake. However, after purchasing the ice cream cake from its 

supplier, Restaurant A decorates the ice cream cake according to instructions received from its customer. It adds designs and words made from 

frosting and edible gels. Since the retailer mixed or combined two or more 

foods or food ingredients (i.e., the ice cream cake and the frosting and edible 

gels) for sale as a single item, the ice cream cake sold by the retailer is ‘prepared food’ and subject to Wisconsin sales or use tax. 

The key issue here is that ‘‘prepared foods’’ are taxable, but foods that are simply bought and resold are generally not prepared foods, and baked goods are 

not ‘‘prepared’’ even if you bake them yourself, though they may be prepared 

if you don’t bake them but do decorate them. 

If I understand the memo correctly, the rules are as follows. Ice cream cake is 

a taxable prepared food if you make it yourself, but not if you’re just reselling 

the cake. However, if the cake contains real cake layers, it’s a non-taxable 

baked good no matter who made it, so long as the amount of cake exceeds the 

amount of ice cream. (No, really: Example 9 is a cake with two cake layers and 

one ice cream layer, which is tax exempt; Example 10 is a cake with one cake 

layer and two ice cream layers, which is taxable because it doesn’t contain 

enough cake.) If you buy a cake from someone and then decorate it yourself, 

it’s taxable no matter how much flour it contains. And if you slice any cake and 

serve it in individual servings, or if the cake consists of fewer than four 

servings, or if the customer is going to eat the cake on the premises at your 

business, or if you give the customer utensils with his cake, it’s a taxable prepared food, though you may be exempt from that last one if the sale of prepared 

foods is incidental to your business.’’ 

This is a vivid illustration of the true challenge of tax complexity: how a given 

item is defined. For instance, is a granola bar candy or food? Different states have 

different answers, each of which may yield different tax obligations. Marketplace 

Fairness Act proponents claim that there are modern software solutions to address 

the difficulties of compliance, but that is like saying that TurboTax has solved our 

mind-numbingly complex Federal income tax code. The computing power to do the 

basic math involved has existed for decades, but software alone simply cannot solve 

the ice cream cake conundrum. 

77 

Conclusion 

The debate over S. 1832 and similar forms of legislation boils down to differences 

in business models and how governments ought to respond to them. When big-box 

retail began to threaten true ‘‘Main Street,’’ ‘‘Mom and Pop’’ businesses, neither Federal nor state officials took substantial action to ‘‘level the playing field’’ between 

the two beyond treating them fairly before the law. Nobody suggested legislation to 

grant Main Street businesses the same deals with suppliers that higher-volume bigbox stores could negotiate. No one insisted on a law evening out potential price differences because ultimately competition is beneficial for consumers. 

Now Internet retail is beginning to provide a counterweight to brick-and-mortar 

retail of all types. Even still, only about $7 of every $100 in retail spending occurs 

online. The Internet will undoubtedly continue to grow, but it has a long way to 

go before truly threatening the dominance of local retail. Indeed, for all the supposed dangers that the ‘‘e-fairness’’ lobby conjures up in support of its position, there 

are benefits that have flowed to ‘‘Main Street’’ retailers from the advent of the Internet, including online consulting services, streamlined inventory management, and 

the ease of ‘‘B2B’’ transactions at the wholesale level. Ultimately, however, the online model of utilizing a smaller physical footprint and relying on technology to 

reach customers is much like any other throughout the history of commerce: it has 

advantages and disadvantages that are judged in the marketplace—which is precisely why brick-and-mortar retailers aren’t rushing to close down their physical 

storefront infrastructure. 

This competition between business strategies will likewise benefit consumers in 

the long run. Instead of attempting to equalize outcomes by imposing upon remote 

sales (and not brick-and-mortar sales) an onerous tax-compliance structure, governments should endeavor to protect taxpayers and treat all businesses fairly by maintaining the physical presence standard of taxation. 

S. 1832, the Marketplace Fairness Act, is detrimental to the interests of taxpayers, businesses, and sound tax policy. There are other ways, like uniform originbased sourcing, to address this matter without trampling on vital pro-taxpayer 

checks and balances, and without foisting unworkable schemes on remote sellers as 

well as interstate commerce. Simply treating remote sales in the same way that we 

already treat brick-and-mortar sales today and devoting any additional revenue to 

tax rate reductions could level the playing field in an honest way without burying 

taxpayers in the process. 

Over the past year NTU has extensively examined the origin-based sourcing concept and would look forward to constructive discussions with Committee staff to explore further legislative options. In the meantime, NTU urges you to oppose this bill 

and any other variants that rely on the same destructive destination-based sourcing 

approach. Thank you for the opportunity to submit this testimony to the Committee 

today and we would be honored to work with you on this highly consequential issue 

in the future. 

STATE OF WASHINGTON—OFFICE OF THE GOVERNOR

Olympia, WA, October 26, 2011 

Hon. PATTY MURRAY, Co-Chair, 

Joint Select Committee on Deficit Reduction, 

Washington, DC. 

Dear Senator Murray, 

As you and I have discussed, with the ongoing uncertainties of the national and 

global economies and with consumer confidence as low as it is, Washington State 

faces severe reductions in our sales tax collections, resulting in the special session 

that I called for beginning on November 28. 

The task before the Legislature and me is to find $2 billion, out of $8.7B, in reductions in the remaining 18 months of the 2011–2013 operating budget that, unfortunately, will disproportionately hit the very people and programs you and I have 

fought so hard for in our public careers. The $2 billion in cuts can only be taken 

out of a total of $8.7B because two-thirds of our remaining budget is protected by 

state and Federal constitutional and statutory requirements. The impacts to children, veterans, the working poor, and others who most need a hand, and to our educational system, will be far reaching. To the degree that the Joint Select Committee 

on Deficit Reduction takes up tax issues, I urge you to focus on those issues that 

help states—not hurt them—and to that end, I offer some recommendations below, 

and include more specific information on the recommendations (see enclosure). 

78 

One key tax matter that would be of tremendous benefit to the state is adopting 

language to address Quill v. North Dakota and give states remote collection authority for sales tax from sellers that are not physically present in a state. In July, Senator Durbin introduced the Main Street Fairness Act to give states this authority; 

and since then, he has continued working with Senators Alexander and Enzi on 

similar, compromise legislation to gamer the support of a majority of Congress. 

There is bipartisan gubernatorial support for the Durbin bill through the National 

Governors Association, and given drafts of the Alexander-Enzi-Durbin proposal that 

have been shared with states, there will continue to be bipartisan gubernatorial 

support. Based on the Main Street Fairness Act, Washington State could see tax collections in 2011–2013 estimated at $170.3 million and of $483 million for the 2013– 

2015 biennium—a tremendous help in the current biennium and in the out years. 

The state Department of Revenue is working on estimates based on the AlexanderEnzi-Durbin draft. 

While the Main Street Fairness Act would be positive for the State of Washington, 

there are other tax issues that I ask you and your Committee members to strongly 

resist—issues that would severely limit or eliminate state taxing authorities. Specifically, these issues include the Business Activity Tax Simplification Act (BATSA) 

and the Digital Goods and Services Tax Fairness Act. The state Department of Revenue estimates state and local revenue losses from BATSA would be $302 million 

for the 2011–2013 biennium and $1.3 billion for the 2013–2015 biennium. Given the 

economic climate we find ourselves, preemption of state laws that would result in 

such losses of revenue is unthinkable. 

Thanks again for your consideration of these tax issues in your work on the Joint 

Select Committee. If you have any questions or concerns, please let me know. And, 

as always, Mark Rupp in my Washington, DC office is also available to help and 

reachable at (202) 624–3691. 

Sincerely, 

CHRISTINE O. GREGOIRE, 

Governor. 

Enclosure 

Recommend enactment the Federal Main Street Fairness Act (MSFA) or the alternative measure being developed by Senators Alexander, Enzi and Durbin: 

Currently, state sales taxing authority is limited by the Supreme Court holding in 

Quill v. North Dakota. This holding prohibits states from imposing sales or use tax 

on a seller unless that seller has a physical presence in the taxing state. The MSFA 

would eliminate this physical presence limitation for those states that have significantly reduced the burden on interstate commerce by simplifying their sales taxes 

consistent with the Streamlined Sales and Use Tax Agreement (SSUTA). The Quill 

decision noted, ‘‘Congress is now free to decide whether, when, and to what extent 

the States may burden interstate [commerce] . . . [.]’’ Quill Corp. v. North Dakota, 

504 U.S. 298 (1992). This is Congress’s opportunity to accept the Court’s invitation. 

The MSFA embodies sound tax policy, and the Committee should consider and recommend enactment of this bill. The bill: 

• Requires no Federal spending and no tax increase. The MSFA is a win-win proposition from a fiscal perspective. It would provide state and local governments 

tax revenue in a time of declining Federal assistance and yet require no actual 

Federal spending. Moreover, this bill creates no new tax, but rather closes a 

loophole limiting collection of sales tax from certain sellers. 

• Provides needed tax revenues to the states. After adjusting for compliance factors 

and the small seller exception, and vendor compensation pieces of the MSFA, 

Washington estimates the bill would generate state and local tax revenues of: 

$170.3 million for the 2011–2013 biennium; 

$483. million for the 2013–2015 biennium; and 

$640.9 million for the 2015–2017 biennium. 

The Department of Revenue is working on revenue estimates for the 

AlexanderEnzi-Durbin compromise bill. 

• Strikes a fair compromise. The MSFA strikes a fair compromise, providing concessions to minimize the burdens on commerce in exchange for state sales tax 

collection authority. First, the states must reduce the burden on commerce by 

simplifying their sales taxes through uniform definitions, sourcing provisions, 

and administrative practices. Second, the bill excludes small sellers, for whom 

tax collection may be unreasonable or impractical. Third, retailers must receive 

compensation under the bill in exchange for the new state taxing authority. 

79 

• Promotes local job creation. Currently, retailers physically present in a state 

must collect sales tax, while retailers without physical presence need not. This 

places in-state retailers at a competitive disadvantage and fails to distribute tax 

burdens evenly among all the sellers that consume state services. The MSFA 

addresses these inequities, which would help in-state retailers to continue to 

thrive and serve as an engine for job creation in communities across the country. 

• Is broadly supported. The MSFA enjoys broad support, including the National 

Conference of State Legislators, the National Governors Association, the Federation of Tax Administrators, and over twenty SSUTA member states. The 

MSFA is also supported by representatives from the business community. 

Decline consideration of Federal preemptions that impair states’ ability to govern 

effectively: Proponents may ask the Committee to consider Federal preemptions of 

state taxing authority as a deregulatory stimulus. The Committee should not consider any preemption that significantly impairs the states’ ability to raise the revenue needed to govern effectively. Two proposed preemption bills stand out in this 

regard as outlined below. Some proponents argue that these items should be combined with the MSFA in some manner. The states uniformly oppose such combinations as they will outweigh the benefits to be gained through the MSFA and are 

unwarranted preemptions of state authority. 

• The Business Activity Tax Simplification Act (BATSA). This bill purports to create a standard for determining when a seller can be required to pay income and 

other business activities taxes to a state. The bill would impose a broader physical presence (‘‘nexus’’) standard than that which currently exists for sales taxes 

and one that businesses could use as a shield to avoid state taxes that they currently pay. Washington estimates state and local revenue losses from the 

BATSA would be: 

$302 million for the 2011–2013 biennium; 

$1.3 billion for the 2013–2015 biennium; and 

$2.25 billion for the 2015–2017 biennium. 

Losses of this magnitude would simply devastate state and local governments 

and impair their ability to govern effectively. If there is a need for a Federal 

nexus solution, there are other options with fewer negative impacts available. 

• The Digital Goods and Services Tax Fairness Act (‘‘DGSTFA’’). The DGSTFA is 

a bill purporting to promote neutrality, simplicity, and fairness in the taxation 

of digital goods and services. The DGSTFA suffers from many deficiencies that 

would contribute to tax avoidance. Without significant amendment and absent 

a grant of collection authority over sellers that receive the benefits of the 

DGSTFA, this bill would be a vehicle for tax avoidance and hurt the states’ ability to effectively raise tax revenue now and in the years to come. The bill would 

also give the Federal Government unprecedented authority over the administration of state taxes through concurrent Federal jurisdiction and its related costs. 

Washington preliminarily estimates state revenue losses from the DGSTFA to 

be $140 million per biennium. This figure is likely to rise significantly as the 

economy advances into the digital age and more transactions are covered. 

80 

BILL HASLAM

Nashville, TN, November 8, 2011 

Senator LAMAR ALEXANDER, 

United States Senate, 

Washington, DC. 

Dear Senator Alexander, 

I am writing to thank you for your leadership in helping to advance a Federal 

solution to a problem states need Congress to address: the preservation of their own 

right to enforce their own tax laws and returning fairness to the marketplace. 

The Marketplace Fairness Act will bring much needed and long overdue relief to 

the State of Tennessee. Tennessee and other states are currently unable to compel 

out-of-state businesses to collect sales taxes the same way local businesses do. It is 

important for states to determine their own tax policy and have the ability to collect 

the revenues they are already owed. This is why your legislation is so important. 

The Internet has changed the way we do business and provides small businesses 

the opportunity to grow, but we need our laws to adapt to this new marketplace. 

Our state relies on sales taxes for the majority of its revenue, and each year we 

are losing hundreds of millions of dollars that could be used to benefit Tennessee. 

What cannot happen is for Congress to do nothing, which will prevent states from 

enforcing their own laws. 

Your legislation gives states the flexibility to determine what works best for them, 

and I am grateful that you are putting states’ rights first and closing this online 

sales-tax loophole. The Marketplace Fairness Act strikes the right balance for Tennessee, and I fully support your efforts. 

Warmest regards, 

BILL HASLAM. 

STATE OF MARYLAND—OFFICE OF THE GOVERNOR

Annapolis, MD, December 21, 2011 

Hon. BARBARA MIKULSKI

Hon. BENJAMIN L. CARDIN

Hon. ANDY HARRIS

Hon. C. A. ‘‘DUTCH’’ RUPPERSBERGER

Hon. JOHN SARBANES

Hon. DONNA EDWARDS

Hon. STENY H. HOYER

Hon. ROSCOE G. BARTLETT

Hon. ELIJAH E. CUMMINGS

Hon. CHRIS VAN HOLLEN

Dear Members of the Maryland Congressional Delegation: 

I strongly urge your support for the Marketplace Fairness Act, and similar proposals that provide a mechanism for states to simplify their sales tax systems and 

instill parity for in-state businesses—whether they conduct their transactions in 

person or online. This important legislation, that has bipartisan support among 

Governors and members of Congress alike, could help ease the burden on state 

budgets while imposing no new taxes. 

As you are well aware, Maryland loses millions of dollars every year in uncollected revenues on purchases made online by Maryland consumers. Additionally, the 

current situation puts our instate businesses, which make valuable investments in 

Maryland through jobs and economic activity, at a competitive disadvantage with 

their remote and online competitors. 

In fact, a recent study indicates that the lack of Federal action on this issue will 

result in Maryland losing $173 million in sales and use revenues this year, a figure 

that continues to grow as more and more transactions are conducted over the internet. Recouping this lost revenue will help us make investments that continue moving Maryland forward and address the priorities of our people. 

Thank you for your consideration and continued hard work on behalf of Maryland 

families and businesses. Please call on us if we can be of any assistance. 

Sincerely, 

MARTIN O’MALLEY, 

Governor. 

81 

STATE OF INDIANA—OFFICE OF THE GOVERNOR

Indianapolis, IN, March 7, 2012 

Hon. DAN COATS, 

Washington, DC. 

Dear Senator Coats: 

Please consider joining those who are supporting legislation enabling states to enforce full collection of their sales taxes by remote vendors, generally Internet and 

catalogue retailers. These taxes are already owed but, in most cases, are being unknowingly evaded by the citizens who should be paying them. 

In Indiana’s case, the best independent analyses place the uncollected revenue at 

$70–120 million per year. While this is less than one per cent of total revenue, it 

is still a material amount in a difficult economy facing uncertain growth prospects. 

Moreover, there is a serious fairness issue involved, as those retailers now collecting 

the sales tax are placed at a competitive disadvantage. 

I hope you will cosponsor and advocate for S. 1832, The Marketplace Fairness Act, 

in the interest of both marketplace equity and the continued fiscal soundness of our 

state. 

Sincerely, 

MITCHELL E. DANIELS, JR., 

Governor. 

STATE OF MAINE—OFFICE OF THE GOVERNOR

Augusta, ME, 12 March 2012 

Hon. OLYMPIA SNOWE, 

United States Senate, 

Washington, DC. 

Hon. SUSAN COLLINS, 

United States Senate, 

Washington, DC. 

Dear Senator Snowe and Senator Collins: 

I would like to respectfully call on you both to lend your strong support to the 

Marketplace Fairness Act. 

Maine’s economy is in transition. Although we still want to attract large manufacturers, we also need to recognize that our economy is increasingly reliant on small 

businesses and start-ups. That includes a healthy concentration of retail businesses. 

They are the backbone of our economy and our communities. That is why I believe 

this piece of legislation has particular merit for the people of Maine. 

From my experience in the retail world, I can assure you that Maine retailers love 

competition. They know competition sharpens their services and products, and keeps 

customers coming back. But the rules need to be fair and applied equally. Give 

Maine people a chance to compete on a level playing field and they will shine. 

Unfortunately, a damaging inequity exists in the retail marketplace because some 

online retailers are not required to collect Maine sales tax, but Maine retailers are. 

Not only does this hurt Maine businesses, it hurts the State. If the handcuffs on 

these small retailers were removed, they could compete on equal terms. They would 

generate more sales, pay more sales tax to the state treasury, hire more local retailers, and pump more money into local economies throughout Maine. 

As you know, the Marketplace Fairness Act does not raise taxes. It simply provides for the collection of sales tax already due. State budget deliberations are well 

under way, and it would be quite helpful to have certainty about our future revenue 

streams. I have pledged to lower Maine income taxes and stop wasteful government 

spending. One powerful tool in achieving these goals would be to have the ability 

to collect taxes that are due. 

There’s no denying that passing the bill would give thousands of small Maine 

businesses a real boost. Through no fault of their own, Federal policy now gives 

some out-of-state corporations an unfair advantage over other Maine retailers. Our 

citizens have been patient as Congress tended to the needs of Wall Street. Having 

studied this bill, I feel that it is now time for Congress to tend to the needs of Main 

Street. I urge you to vote in favor of the Marketplace Fairness Act. 

Sincerely, 

PAUL R. LEPAGE, 

Governor. 

82 

STATE OF ALABAMA—OFFICE OF THE GOVERNOR

Montgomery, AL, April 19, 2012 

Hon. RICHARD C. SHELBY

Hon. JEFF SESSIONS

Hon. JO BONNER

Hon. MARTHA ROBY

Hon. MIKE D. ROGERS

Hon. ROBERT B. ADERHOLT

Hon. MO BROOKS

Hon. SPENCER BACHUS

Hon. TERRI SEWELL

Dear Members of the Alabama Congressional Delegation: 

As we discussed during our visit in Washington a few weeks ago, an important 

issue is before the U.S. Congress relating to the collection of online sales taxes and 

leveling the playing field for our Main Street Alabama merchants. Senators Mike 

Enzi, Lamar Alexander, and Richard Durbin have introduced S. 1832, the Marketplace Fairness Act, and Representatives Steve Womack and Jackie Speier have introduced H.R. 3179, the Marketplace Equity Act. I commend the members of the 

Alabama Delegation who have already expressed your support for these bills, and 

I urge the rest of the Alabama Delegation to cosponsor the legislation or support 

it when it comes up for a vote. 

As you know, I promised to oppose any tax increase on Alabama families, and my 

support of these bills is consistent with that promise. The bills will not create a new 

tax, nor will they require states to raise taxes. Rather, the bills will give Alabama 

the authority to collect sales taxes—as we currently do from local brick-and-mortar 

retailers—that are already owed from online retailers. The bills will make it easier 

for businesses to comply with the law and will provide a special exemption for small 

businesses. Allowing us to effectively close this sales tax loophole would help both 

our state’s finances and our state’s small businesses. 

Passage of the Marketplace Fairness Act and the Marketplace Equity Act would 

allow states to bring equity to our sales tax laws. Whether they operate online or 

in a local retail establishment, any business that sells to a resident of our state 

should collect and remit Alabama’s sales tax. Doing so relieves the consumer of the 

burden of having to calculate and remit the owed tax, and levels the playing field 

for all retailers. Current law, which only applies to retailers with a physical presence in the state, gives Internet stores a significant competitive advantage, taking 

away business from our local retailers and reducing state tax revenue. As more commerce shifts online, our sales tax base is further eroded, which is unsustainable over 

the long term. 

When local retailers lose business, jobs are threatened, communities that depend 

on the businesses suffer, and our state’s economy pays the price. The time has come 

for Congress to close this loophole by providing Alabama with the necessary tools 

to update our laws to conform to the reality of today’s marketplace. 

Given the state’s tough fiscal situation, there has never been a better time to 

enact the Marketplace Fairness Act and the Marketplace Equity Act. E-fairness legislation has been endorsed by the National Governors Association, the U.S. Conference of Mayors, the Alabama Retail Association, and many other groups and individuals throughout the country. I hope we will have your support for this muchneeded legislation. 

Sincerely, 

ROBERT J. BENTLEY, 

Governor. 

STATE OF MICHIGAN—EXECUTIVE OFFICE

Lansing, MI, May 9, 2012 

Hon. HARRY REID, 

Office of Senate Majority Leader, 

United States Senate, 

Washington, DC. 

Hon. MITCH MCCONNELL, 

Office of Senate Minority Leader, 

United States Senate, 

Washington, DC. 

Dear Majority Leader Reid and Minority Leader McConnell: 

I am writing in support of S. 1832, the Marketplace Fairness Act and to express 

my hope for its passage in 2012. As I continue to look for fair and responsible solutions that support economic growth in Michigan, I encourage the Senate to level the 

playing field for all retailers by establishing a simple, streamlined Federal approach 

for states to consistently enforce sales and use tax laws. 

I support the Marketplace Fairness Act because it would enable states to collect 

sales taxes evenly and fairly across the retail spectrum. ‘‘Brick-and-mortar’’ retailers 

83 

throughout the state are currently required to collect sales taxes at the point of sale. 

By enabling remote sellers to ignore the collection of sales and use taxes, it provides 

them an unfair competitive advantage and threatens the viability of retailers 

throughout our communities, many of which are locally-owned small businesses that 

reflect the unique character and culture of the Great Lakes State. 

Technology currently exists to quickly and effectively calculate taxes due on sales 

and can easily be integrated into online retailers’ operations. It is time for Congress 

to grant states the authority to enforce sales tax and use laws on all retailers doing 

business in their state. 

In fact, the Michigan Department of Treasury estimates that total revenue lost 

to e-commerce and mail order purchases will amount to $872 million during Fiscal 

Years 2012 and 2013. As we continue to work to improve the quality and efficiency 

of services throughout the state, it is crucial that the state has the tools to fairly 

collect the revenue that it is owed. The Marketplace Fairness Act would provide 

states with the authority to do just that. 

Once again, I encourage the Senate to implement a fair and reasonable solution 

to address this issue. I look forward to working with you as we continue to strive 

for policies that support fiscal responsibility and fair competition in the marketplace. 

Sincerely, 

RICK SNYDER, 

Governor. 

CC: Senator Michael Enzi 

Senator Lamar Alexander 

Senator Roy Blunt 

Senator Dick Durbin 

Senator Tim Johnson 

Senator Mark Pryor 

Senator Jack Reed 

Senator Sheldon Whitehouse 

Senator Carl Levin 

Senator Debbie Stabenow 

STATE OF IOWA—OFFICE OF THE GOVERNOR

Des Moines, IA, June 7, 2012 

Hon. CHARLES GRASSLEY, 

U.S. Senator, 

Washington, DC. 

Hon. TOM HARKIN, 

U.S. Senator, 

Washington, DC. 

Dear Senator Grassley and Senator Harkin: 

I am writing to encourage passage of S. 1832, the Marketplace Fairness Act. I understand that the coalition supporting this legislation is now very broad which gives 

me hope that, under your leadership, this legislation can be passed yet this year. 

S. 1832 provides an opportunity for Federal leaders to enact an equitable solution 

that allows for a predictable, simple, and streamlined approach for Iowa and other 

states to consistently enforce sales tax laws. I join governors of both parties and a 

bipartisan group of U.S. Senators in support of this legislation. Simply put, S. 1832 

allows for Main Street Iowa businesses to be treated more fairly, recognizes the 

states’ rights to enforce their own tax laws and provides a solution to a long-standing issue and tax loophole. 

The Marketplace Fairness Act would level the playing field and fairly apply sales 

tax laws across every type of retailer. There has been an inconsistent application 

of sales tax laws since the Quill v. North Dakota case in 1992. Since then, the distortion of the marketplace has only compounded with the growth of Internet sales. 

The Internet is now a robust, mature, and dynamic marketplace that does not warrant special protections. The application of sales taxes only to ‘‘brick-and-mortar’’ retailers, many of which are small businesses, puts those very entities at a competitive disadvantage. 

When this issue first arose in the 1990s, there were legitimate concerns about 

technological capabilities to calculate sales taxes for online retailers, but through 

technological advancements, those concerns are no longer applicable. Quite simply, 

technology exists to enforce sales tax laws without over-burdening online retailers 

with significant sales. The legislation also includes an important exemption for businesses that do not exceed $500,000 in remote sales. In addition, Amazon, which initially opposed solutions like S. 1832, now supports this legislative fix, because it 

84 

would allow for a predictable path forward that reflects the realities of the current 

marketplace. 

I know that you welcome opportunities to embrace solutions that enact equitable 

policies and attract a broad and bipartisan coalition of supporters. The Marketplace 

Fairness Act is one such opportunity and I hope the U.S. Congress seizes it in 2012. 

Since returning to the Governor’s Office, I have proposed property tax relief for 

all classes of property and a reduction to our highest in the Nation corporate income 

tax rate. Both of those proposals are part of a comprehensive and long-term approach to equitable tax policy that supports job creation and increasing family incomes. I believe passage of S. 1832 will level the playing field for Iowa businesses 

and lessens the tax compliance burden for all citizens. Passage of S. 1832 will be 

a positive step by the Federal Government recognizing states’ rights to control their 

own fiscal destinies and restoring fairness for Main Street businesses. 

Thank you for your time and consideration. 

Sincerely, 

TERRY E. BRANSTAD, 

Governor of Iowa. 

cc: U.S. Senate Majority Leader Harry Reid 

U.S. Senate Minority Leader Mitch McConnell 

Iowa Members of the U.S. House 

STATE OF SOUTH DAKOTA

Pierre, SD, June 26, 2012 

Hon. MIKE ENZI, 

United State Senate, 

Washington, DC. 

Hon. LAMAR ALEXANDER, 

United States Senate, 

Washington, DC. 

Dear Senator Enzi and Senator Alexander: 

I am writing to thank you for the introduction of S. 1832, the Market Place Fairness Act and offer my support for its timely passage. South Dakota has been a longtime leader in the Streamlined Sales Tax project and has worked diligently to make 

our laws simplified and uniform in order to seek Congressional Authority to require 

remote sellers to collect tax in South Dakota and other states. 

The passage of this bill by Congress will remove a competitive disadvantage faced 

by main street businesses which are now required to collect tax and help enable 

South Dakota to continue to provide the services our citizens need and require. 

In 2011, e-commerce in the United States totaled $194.3 billion, up 16.1 percent 

from 2010, according to an estimate released by the United States Commerce Department (source Internet Retailer 2/16/2012). It is very clear that e-commerce will 

continue to take a bigger portion of overall U.S. retail sales. In fact, South Dakota 

estimates that total revenue lost to e-commerce this past year was $58 million. That 

may seem like a small amount compared to other states, but it has a large impact 

on our budget. 

In the early days of online sales, technology did not exist to allow for easy collection of taxes in every part of the country. But today technology has been developed 

to quickly and effectively calculate taxes due on sales and can easily be integrated 

into online retailer’s operations. 

With your help, we can make great strides to ensure equitable collection and payment of sales taxes. This legislation is crucial for allowing South Dakota’s main 

street businesses to remain viable and competitive in difficult economic times. 

I encourage the Senate to implement a fair and reasonable solution to address 

this issue by passing the Market Place Fairness Act. I look forward to working with 

you to support fiscal responsibility and fair competition in the marketplace. 

Sincerely, 

DENNIS DAUGAARD, 

Governor. 

cc: Senator Tim Johnson 

Senator John Thune 

Representative Kristi Noem 

85 

COMMONWEALTH OF KENTUCKY—OFFICE OF THE GOVERNOR

Frankfort, KY, July 19, 2012 

Hon. MITCH MCCONNELL, 

United States Senate, 

Washington, DC. 

Dear Senator McConnell: 

Since I took office over four years ago, 11 budget reductions totaling over $1.3 billion have been enacted to handle the national recession. Although we are seeing 

some modest growth in General Fund revenues, Kentucky, like many other states, 

continues to face difficult budget decisions. 

Our most recent budget includes a focus on improving collection of existing taxes 

through implementation of a tax amnesty program in Fiscal Year 2013. In addition, 

our plan calls for increased collection efforts after the amnesty period to improve 

taxpayer fairness by ensuring that all taxpayers are held to the same standard of 

compliance. 

We strongly believe in tax fairness, and your assistance is needed to resolve the 

inequity. Because of a 1992 U.S. Supreme court decision (Quill v. North Dakota), 

states are prohibited from requiring remote sellers, those retail businesses that do 

not have a physical presence within the state, to collect the sales tax on goods they 

sell to customers within the state. The Court cited the variation and complexity of 

sales tax laws and regulations in the various states in its ruling but specifically 

noted that Congress has the authority to enact Federal legislation authorizing mandatory collection of sales taxes by all retailers. 

I write you to request your support for Federal legislation that will give Kentucky 

and other states the authority to close the sales tax loophole on online and catalog 

sales. Three bills to fix the problem have been introduced in Congress—the Main 

Street Fairness Act, the Marketplace Fairness Act and the Marketplace Equity Act. 

While each takes a slightly different approach, they all would allow Kentucky to require sales tax collection by remote sellers just as we require of our Main Street 

retailers. 

Currently, remote sellers have a significant advantage when they compete with 

retailers with stores in Kentucky. They are not required to either collect state sales 

taxes on the goods they sell to Kentuckians or to incur the expense of collection that 

Kentucky businesses must bear. The playing field must be leveled if we want businesses located in Kentucky to stay in business, These are the businesses that pay 

property taxes; that provide jobs for our citizens and that are part of our communities throughout the Commonwealth. To put them in the position of serving as a 

showroom for out-of-state retailers who use the six percent-plus advantage they 

enjoy by not collecting Kentucky’s sales tax to market their products Is simply not 

fair. 

Beyond that, sales tax revenue Is a key component of Kentucky’s General Fund 

receipts. In FY 2011, sales and use tax receipts totaled almost $2.9 billion of Kentucky’s nearly $8.8 billion total General Fund revenues. Requiring collection of the 

sales tax by all retailers would enhance collection of the taxes due and Is estimated 

to increase Kentucky’s sales and use tax revenues by approximately $200 million 

each year. That amount would certainly help to provide the resources we need to 

move Kentucky forward so I hope you will support Federal legislation to resolve the 

problems created by the Quill decision. 

Please contact my office if you have further questions. 

Sincerely, 

STEVEN L. BESHEAR, 

Governor. 

PREPARED STATEMENT OF DAVID FRENCH, SENIOR VICE PRESIDENT, GOVERNMENT

RELATIONS, NATIONAL RETAIL FEDERATION

As the world’s largest retail trade association and the voice of retail worldwide, 

NRF represents retailers of all types and sizes, including chain restaurants and industry partners, from the United States and more than 45 countries abroad. Retailers operate more than 3.6 million U.S. establishments that support one in four U.S. 

jobs—42 million working Americans. Contributing $2.5 trillion to annual GDP, retail is a daily barometer for the Nation’s economy. NRF’s Retail Means Jobs campaign emphasizes the economic importance of retail and encourages policymakers to 

support a Jobs, Innovation and Consumer Value Agenda aimed at boosting economic 

growth and job creation. www.nrf.com 

86 

1State sales and use taxes are a form of consumption tax and are imposed on the sale or use 

of goods and some services that are subject to tax. It is a tax on the consumer and is imposed 

where the consumption takes place. So if a state imposes sales and use taxes on certain goods 

or services all sales or use of those types of goods or services in that state are subject to the 

tax, regardless of whether the purchase is made in a store in the state or in the home of a resident of the state through their computer or telephone. States require that retailers collect and 

remit the sales tax on purchases made in states where they have a physical presence, but the 

consumer is required to remit the use tax on remote purchases that he makes. There is widespread lack of compliance with use tax laws. 2The national average annual state and local retail compliance cost in 2003 was 3 percent 

of sales tax collected for all retailers: 13.47 percent for small retailers, 5.20 percent for medium 

retailers, and 2.17 percent for large retailers. PricewaterhouseCoopers LLP, Retail Sales Tax 

Compliance Costs: A National Estimate Volume One: Main Report, April 2006. That study defined ‘‘small retailers’’ as having less than $1 million in annual retail sales. 3Donald Bruce, William F. Fox, and LeAnn Luna, State and Local Government Sales Tax Revenue Losses from Electronic Commerce, University of Tennessee, April 2009, available at http:// 

cber.utk.edu/ecomm/ecom0409.pdf. 

Summary of Comments 

Members of the National Retail Federation believe that Congress must resolve the 

issues presented by the Quill decision in order to allow for a level playing field 

among retail competitors. As retailing evolves and Internet sales become a more 

prominent portion of total retail sales, it is critical that Congress eliminate the sales 

tax collection discrimination that exists between brick-and-mortar and remote retailers and allow the free market to operate so all retailers can compete on a level 

playing field. 

Brick-and-mortar retailers compete vigorously with each other and with remote 

retailers for market share. Different retailers have different strategies for going to 

market, but one feature is beyond a retailer’s control: only some competitors are required to collect sales taxes.1 This disadvantage is not created by the marketplace, 

but rather it is imposed by the current state of the law following the Quill decision, 

stifling retailers across the country. 

In addition to the pricing disadvantage caused by sales tax being included in the 

cost of the purchase from the brick-and-mortar store, local stores also bear a significant compliance burden for collecting the tax. Compliance costs for small retailers 

are extremely high, placing them at more of a competitive disadvantage.2

Brick-and-mortar retailers are major contributors to the health of local communities and should not be placed at a disadvantage compared to remote sellers that 

have no local presence. Brick-and-mortar sellers employ people in the community, 

pay state and local income taxes, as well as property taxes. They sponsor local 

causes like the Little League, soccer, and Booster Clubs. 

Simplification is a key component for reform of the sales tax collection system for 

both brick-and-mortar sellers and remote sellers who voluntarily collect sales tax. 

Many members of the NRF voluntarily collect sales tax on remote sales into states 

where they do not have a physical presence. In many instances, the retailers that 

voluntarily collect sales tax do so only from states that have adopted the Streamlined Sales and Use Tax Agreement (‘‘SSUTA’’) because of the Agreement’s simplified collection requirements. 

Granting states the authority to collect sales tax from remote sellers will add significant resources to state budgets to support essential local services including 

teachers, police officers, firefighters and ambulance crews. Remote sales include ecommerce, mail order sales, telephone orders, and deliveries made across state lines. 

By 2012, total e-commerce sales are estimated to reach $4 trillion dollars.3

If a state chooses to raise revenue through the imposition of a tax on goods that 

are consumed in that state, then there must be a means to apply the tax to all such 

goods without substantial evasion. If there is no way to do that, then the tax burden 

will rise to unfair levels on consumers that comply with the law. The Marketplace 

Fairness Act (S. 1832) resolves this issue, providing fairness to both consumers and 

retailers, and maintaining the sales tax base for the 45 states that rely on a sales 

tax system. 

NRF is encouraged by this Committee’s interest in this issue as well as the several legislative proposals that have been introduced this Congress to address sales 

tax fairness, especially the Marketplace Fairness Act, introduced by Senator Enzi, 

Senator Durbin, Senator Alexander, and Senator Johnson. NRF supports Congress 

granting states remote collection authority with simplifications that ensure retailers 

are not unduly burdened by collecting and remitting sales taxes. Congress needs to 

pass S. 1832 this year. 

87 

4 Id. 

5 Id. 

6Lucy Dadayan and Robert B. Ward, State Revenue Report, The Nelson A. Rockefeller Institute of Government, Oct. 2011, No. 85, available at http://www.rockinst.org/pdf/governmentlfinance/statelrevenuelreport/2011-10-26-SRRl85.pdf. 

Background 

In 1992, the U.S. Supreme Court ruled in Quill v. North Dakota that ‘‘remote sellers’’—a category that includes mail-order, telephone and Internet merchants—cannot be required to collect sales tax from customers in states where the merchant 

does not have a physical presence or ‘‘nexus.’’ The court reasoned that the sales tax 

system was too complex for a merchant to know what sales tax to charge an outof-state customer—45 states and 7,600 local jurisdictions collect sales tax, each with 

its own rates, lists of taxable items and definitions of taxable items. But the justices 

suggested that sales tax collection could be required if the system were simplified 

and Congress authorized the collection authority because remote sellers are ‘‘purposely availing’’ themselves to a jurisdiction’s authority by engaging in commerce. 

In late 1999, in response to the Supreme Court ruling, states and the business 

community, including NRF, began the Streamlined Sales Tax Project, with an aim 

toward significant simplification of state sales tax systems. Since then, a baseline 

multi-state agreement, the SSUTA, which includes common definitions, uniform 

processes and procedures, and significantly simplified administrative features has 

been passed by 24 states (21 full member states and 3 associate member states), 

establishing the necessary groundwork for action by Congress. The 21 full member 

states with voting rights include: Arkansas, Iowa, Indiana, Georgia, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North 

Dakota, Oklahoma, Rhode Island, South Dakota, Vermont, Washington, West Virginia, Wisconsin and Wyoming. Three associate member states with negotiating authority but delayed voting rights are Ohio, Tennessee and Utah. Delegates from the 

24 states administer the SSUTA through the Streamlined Sales Tax Governing 

Board. 

As electronic commerce continues to grow, so will the losses to state and local revenues.4 In Fiscal Year 2012, it is conservatively estimated that state and local governments stand to lose at least $23.2 billion in uncollected sales and use taxes from 

remote transactions, with over $11.4 billion uncollected from e-commerce transactions.5 General sales taxes make up roughly one third of state tax revenue.6

The Effect of Simplification on Retailers 

Through adoption of the SSUTA, 24 states have already implemented significant 

simplification of their sales tax laws. This simplification has incentivized collection 

of sales tax by many remote sellers that currently are not required to collect sales 

taxes. Many remote sellers recognize that collecting sales taxes may be a more efficient approach to dealing with the realities of their constantly evolving business 

model. Nonetheless, their good faith effort to collect sales tax would be undermined 

by collection authority that did not include significant simplification steps. 

While NRF believes that a modest small seller exemption for remote sales is appropriate, raising the level too high will only exacerbate the potential for inequity 

between a small remote retailer that does not have to collect any taxes and a local 

small retail competitor who must collect sales taxes on the first dollar of sales. Congress should resist the temptation to envision that a small seller exemption is the 

easy answer to meaningful small business regulatory relief. 

Current Sales Tax Fairness Legislation before Congress 

The two leading bills introduced this Congress to address the issue of sales tax 

fairness are the Marketplace Fairness Act and the Marketplace Equity Act. 

(1) Marketplace Fairness Act of 2011, S.1832, sponsored by Senators Enzi, Durbin, Alexander and Tim Johnson provides a path for states to collect sales tax 

that incorporates a combination of either nine simplification steps or adoption 

of the SSUTA. The Marketplace Fairness Act exempts remote sellers with less 

than $500,000 in remote U.S. sales, requires a single audit by states and localities within a state, requires a single state tax rate based on the destination 

of the sale, states must establish certification procedures for software and 

service providers (to calculate rates), and gives remote sellers liability protection for relying on incorrect information supplied by service providers. 

(2) Marketplace Equity Act of 2011, H.R. 3179, sponsored by Representatives 

Womack and Speier allows states to collect sales taxes from remote sellers if 

they meet three minimum simplification requirements. These three simplificaVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00093 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
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tion requirements may be met in an interstate agreement, presumably including the SSUTA. Sellers with less than $1 million in remote U.S. sales or 

$100,000 in remote sales into a particular state are exempted. The three simplification steps are: (1) a single revenue authority within a state for submission of a return; (2) a single tax base set by the state; and (3) the state must 

choose a single tax rate from three choices: a blended rate of state and locality 

rates, the maximum state rate, or the destination rate. 

Each bill grants states the authority to require remote sellers to collect sales tax 

on transactions into their respective state if simplification steps are adopted. The 

varying simplification requirements include tax base, tax rate, and collection software requirements. We generally prefer the ‘‘hybrid’’ structure of the Marketplace 

Fairness Act, which will allow states to choose between a state-based solution like 

the SSUTA or a set of federally mandated minimum simplification steps before gaining collection authority on remote sales. 

Conclusion 

The National Retail Federation has long supported sales tax fairness legislation, 

and we are encouraged by the momentum that is building toward a solution. We 

look forward to working with the Committee on legislation to ensure effective and 

fair sales tax collection while relieving burdens placed on a growing sector of the 

economy. 

PREPARED STATEMENT OF HAROLD A. SCHAITBERGER, GENERAL PRESIDENT, INTERNATIONAL ASSOCIATION OF FIRE FIGHTERS

Chairman Rockefeller, Ranking Member Hutchison, and all the distinguished Senators on this committee, I would like to thank you for holding this important hearing on how certain online retailers are exempt from state sales tax law. As the General President of the International Association of Fire Fighters (IAFF), I speak 

today on behalf of the nearly 300,000 men and women who risk their lives to provide fire, rescue and emergency medical services protection to over 85 percent of our 

nation’s population. 

Although IAFF members are committed first and foremost to protecting their communities, they are not immune to the fiscal challenges posed by these difficult economic times. As employees of state and local governments, their livelihoods and 

their ability to respond effectively to the next house fire or the next heart attack 

is linked to the budget shortfalls facing far too many governmental jurisdictions. 

The stark reality is that the Great Recession has decimated state and local government budgets. According to the Center on Budget and Policy Priorities, state and 

local governments have closed shortfalls amounting to over $530 billion over the last 

four years. Despite an improving economic outlook, budget shortfalls still persist. 

Thirty states have either projected shortfalls or have accounted for shortfalls that 

total $49 billion for FY 2013. Without additional revenue to balance their budgets, 

state and local governments will be forced to cut back on essential services, possibly 

leading to layoffs, station closings and brownouts for the fire service. Additional cuts 

to the fire service will only exacerbate the dire jobs picture for state and local governments. Since 2009, 611,000 public sector jobs have been lost as a result of the 

Great Recession. 

That is why today’s hearing is so important. One factor contributing to budget 

shortfalls both at the state and local level is the dramatic increase of online sales. 

Many e-retailers are not required to charge sales and use taxes because they do not 

have a physical presence in the state where the purchase is made. This special tax 

preference gives e-retailers an unfair competitive advantage over traditional ‘‘brick 

and mortar’’ businesses, which must charge sales taxes on almost every item sold, 

from a pack of gum to a new car. 

As more consumers have chosen to buy goods and services online, total sales tax 

receipts for state and local governments have plummeted. A recent University of 

Tennessee study found that state and local governments are losing $23 billion each 

year due to e-commerce. In addition, property tax receipts, which help fund municipal fire departments and school districts, have also been affected as more brick and 

mortar stores go out of business due to the unfair competition from out-of-state eretailers. 

To address this problem, Congress should pass S. 1832, the ‘‘Marketplace Fairness 

Act.’’ This bipartisan legislation would allow local main street retailers to compete 

more effectively against out-of-state e-retailers, give states the ability to enforce 

their own sales and use tax laws, relieve consumers of the legal burden to report 

to state tax departments the sales and use taxes they owe for online purchases, and 

89 

help governors and mayors collect taxes already owed, reducing the need to raise 

new taxes. 

Importantly, this bill does not create new taxes or increase existing taxes. Under 

current law, consumers living in states with a sales tax are required to remit use 

taxes for online purchases. Compliance with the law is poor, because most consumers are unaware of their tax obligations. The ‘‘Marketplace Fairness Act’’ simply 

gives states a way to enforce existing sales and use tax laws while eliminating the 

competitive advantage currently enjoyed by remote retailers at the expense of local 

businesses. For states without a sales tax, nothing would change. The ‘‘Marketplace 

Fairness Act’’ does not require a state to adopt a sales tax. That decision will still 

rest with the citizens of each state. 

In addition to bipartisan support in Congress, a large coalition of organizations 

has formed to urge passage of the ‘‘Marketplace Fairness Act.’’ Government representatives such as the National Governors Association and the U.S. Conference 

of Mayors, business groups such as the National Retail Federation and the International Council of Shopping Centers, Fortune 500 companies such as Amazon and 

Best Buy, and labor unions all support this important legislation. At a time when 

business and labor are often at odds, I hope that this committee will take special 

note of this unique coalition. 

In closing, I would like to again thank the distinguished chairman and ranking 

member for holding this important hearing, and respectfully request that you keep 

in mind the views of the IAFF. Our members’ ability to respond swiftly to any and 

all threats to our great country hinges on the most fundamental compact between 

the individual and society; that is, the ability to raise revenue to fund essential government services. In this regard, I urge you to pass S. 1832, the ‘‘Marketplace Fairness Act,’’ so states can have the means, if they so choose, to collect unpaid sales 

taxes on online and remote purchases. 

PREPARED STATEMENT OF THE NATIONAL GOVERNORS ASSOCIATION

The nation’s governors call on Congress to help states modernize sales tax systems and encourage greater marketplace competition by taking up and passing legislation like S. 1832, the ‘‘Marketplace Fairness Act.’’ 

The Marketplace Fairness Act, along with similar bills such as the ‘‘Marketplace 

Equity Act’’ (H.R. 3179) and the ‘‘Main Street Fairness Act’’, (S. 1542 and 

H.R. 2071), would remove the barrier preventing states from collecting sales taxes 

in exchange for states simplifying their sales tax laws. For states, this represents 

the opportunity to collect more than $23 billion in foregone sales taxes incurred by 

consumers each year, but cannot be collected. 

This collection gap was created by decades-old U.S. Supreme Court rulings in National Bellas Hess v. Illinois, 386 U.S. 753 (1967) and Quill Corp. v. North Dakota, 

504 U.S. 298 (1992), where the Court held that, absent Congressional authorization, 

no state may require a seller to collect tax on sales into the state if the seller lacks 

a physical presence in the state. As a result of that barrier, local brick-and-mortar 

stores required to collect the tax operate at a competitive disadvantage with remote 

sellers that do not. Local stores find themselves serving as showrooms for the same 

products sold by Internet and catalog sellers. Prospective customers examine the 

merchandise locally then buy the product online or through a catalog to avoid paying sales tax. 

To address this problem, the National Governors Association (NGA) and the National Conference of State Legislatures initiated the Streamlined Sales and Use Tax 

Project (Project) in the fall of 1999. The Project, in turn, generated the Streamlined 

Sales and Use Tax Agreement (SSUTA), a cooperative effort by the business community, states and local governments to simplify sales and use tax collection and administration. The SSUTA reduces costs and administrative burdens on retailers operating in multiple states. In return, those retailers voluntarily collect tax on sales 

to customers living in states that comply with the SSUTA. 

To date, more than 1,700 retailers have volunteered to collect sales tax in Streamlined states and have remitted more than $900 million in sales taxes that would 

previously have gone uncollected. This amount, however, pales in comparison to 

what could be collected under a nationwide system authorized by Congress through 

Federal legislation. 

NGA supports congressional efforts to remove the current barrier to the collection 

of sales tax, help small businesses expand and assist consumers through fair competition. 

For states, the legislation would help reverse the erosion of states’ sales tax base 

due to increasing Internet sales. States closed budget gaps of $325 billion from FisVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00095 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
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cal Years 2009 through 2012 and will continue to face gaps for Fiscal Year 2013. 

Rather than asking for one-time relief, which the Federal Government cannot afford 

and states do not seek, S. 1832 provides a common-sense structural solution that 

will strengthen states’ fiscal condition without adding to the Federal debt. 

For business, it means that the corner store is on the same footing with the online 

retailer. In other words, the local sporting goods store that employs our neighbors 

and sponsors the little league team has the same requirement to collect sales taxes 

as the online merchant. It also means that corner store can grow its business more 

easily. Simplified tax requirements and the availability of easy to use technology 

make doing business easier by reducing risk and creating opportunity. 

The legislation also helps consumers. Fair competition means more choice. The 

success of electronic commerce should not mean the death of Main Street. Instead, 

our laws should set the stage for all businesses to compete and succeed. 

Federal Legislation 

NGA calls on Congress to take up the proposals pending before it and move ahead 

with legislation that will modernize the state sales tax system and bring it into the 

21st century. Specifically, NGA recommends that several core elements be part of 

any bill. 

First, Federal legislation must clearly authorize states to require the collection of 

sales and use taxes on sales of taxable products and services into their jurisdictions 

by remote sellers. More important, since authorization is tied to meeting certain 

simplifications, the legislation should recognize the efforts of states that are compliant with the SSUTA by granting them the authority to collect immediately. If an 

alternate path is offered for non-SSUTA states, the requirements must be clear to 

avoid litigation when a state makes changes to gain collection authority. 

Second, the legislation should include a de minimis or small business exception 

that exempts qualifying businesses from the collection requirements. While governors have never specified a level for the small business exception, the size of the 

exception should be sufficient to relieve the smallest businesses from collection responsibility, but small enough to ensure the exception does not swallow the rule. 

Any exception will preserve a portion of the tax collection gap states are working 

to close. NGA encourages Congress to set a low small business exception while allowing states to increase the exception as appropriate. 

Third, the legislation should not dictate rates or mandate the imposition or elimination of sales taxes. Our Federal system depends on states retaining the responsibility and authority to manage their taxing policies to meet fiscal requirements. Unless states retain flexibility in conforming to any simplification requirements, they 

cannot properly ensure the efficiency and administration of the resulting tax system. 

Fourth, governors strongly oppose any suggestion that sales tax collection authority be combined with limits or restrictions on state taxing authority in other areas. 

For example, bills such as the Business Activity Tax Simplification Act (H.R. 1439) 

are antithetical to efforts by states to modernize their tax systems because they seek 

to revert back to a ‘‘physical presence’’ standard from which state sales taxes are 

trying to evolve. Federal legislative proposals like H.R. 1439, which would effectively reduce state taxes through Federal legislation, should not be combined with 

Marketplace Fairness as the ‘‘cost-of-doing-business’’ for modernizing state sales tax 

systems. 

Conclusion 

The time has come for Congress to join with states to improve our laws and ensure government is not picking winners and losers in interstate commerce. S. 1832 

represents thoughtful structural change that will help bridge the gap between the 

physical economy of the 20th century and the digital economy of the 21st century. 

We encourage the Committee to support efforts to pass legislation this year to promote competition and level the playing field for all retailers. 

91 

1 National Bellas Hess, Inc. v. Illinois Dep’t of Revenue, 386 U.S. 753 (1967) and Quill Corp. 

v. North Dakota, 504 U.S. 298 (1992). 

July 24, 2012 

Hon. JOHN BOEHNER, 

Hon. NANCY PELOSI, 

Hon. HARRY REID, 

Hon. MITCH MCCONNELL, 

United States Congress, 

Washington, DC. 

Dear Speaker Boehner, Representative Pelosi, Senators Reid and McConnell: 

We are writing to request your support for enactment of S. 1832 this summer. 

S. 1832 is the Marketplace Fairness Act, sponsored by Senators Enzi, Durbin, Alexander, and others. 

This legislation will protect the rights of our states to determine state fiscal policies and establish a level playing field for all retailers, both on Main Street and online. This bill will not create a new tax. Nor will it require our states to raise taxes. 

Rather, it will permit states to require the largest one percent of out of-state sellers 

to collect an existing tax on sales to in-state buyers. Although buyers already owe 

this state tax, they rarely even know about it. The Supreme Court has explicitly 

held that Congress has the authority to grant the states this permission. 

The bill will not apply to the smallest 99 percent of sellers online. Only the largest one percent of sellers—those with interstate sales over $500,000 per year—will 

be affected. These sellers easily can use already-available computing technology and 

services to comply. If any sellers, even larger sellers, were exempted, fairness to all 

retailers would diminish. So we ask that you support the exemption in S. 1832. 

We believe that the time to act is now and, respectfully, request your support for 

enactment of S. 1832 as soon as possible,hopefully by August. Please let us know 

if you need additional information. 

Sincerely, 

Robert Bentley 

Governor of Alabama 

Dennis Daugaard 

Governor of South Dakota 

Paul LePage 

Governor of Maine 

Tom Corbett 

Governor of Pennsylvania 

Mitch Daniels 

Governor of Indiana 

Bill Haslam 

Governor of Tennessee 

Rick Snyder 

Governor of Michigan 

PREPARED STATEMENT OF THE FEDERATION OF TAX ADMINISTRATORS

Introduction 

The Federation of Tax Administrators (FTA) is an association of the tax agencies 

in the 50 states, District of Columbia and New York City. FTA has long supported 

legislation to require remote sellers to collect sales taxes. Granting states the authority to require all sellers to collect sales taxes from all customers will level the 

playing field for competing businesses, improve compliance with taxes that are already owed, and remove artificial restrictions that inhibit business investment. 

Leveling the Playing Field for Sellers 

FTA supports the objectives of S. 1832, The Marketplace Fairness Act. The establishment and explosion of the Internet as a marketplace has redefined the world of 

commerce forever. At one time considered principally an enforcement problem for 

the states, the disparate tax treatment between remote and local sales, which has 

existed for many decades, now poses challenges for local ‘‘bricks and mortar’’ and 

Internet businesses alike. This legislation should not be delayed or encumbered by 

special preemption legislation. 

The Marketplace Fairness Act and related bills respond to the U.S. Supreme 

Court’s decisions in National Bellas Hess and Quill.1 These decisions are widely 

read to exempt sellers from collecting sales tax from customers who are in a state 

where a seller has no physical presence. These taxes are owed but frequently go unVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00097 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
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paid, giving the seller in that case an unfair competitive advantage over traditional 

local retailers. 

We have provided technical comments on elements in any legislation that would 

assure the maximum participation of the states under the Act. The most important 

of these elements are: 

• Authority granted to states that are either members of the Streamlined Sales 

and Use Tax Agreement (SSUTA) or that choose to conform their laws to Federal statutory standards. 

• Ability for states to designate the specific taxes covered by the generic phrase 

‘‘sales and use taxes.’’ 

• Flexibility to recognize exceptions from uniform rate and base requirements 

that have already been agreed to between states and industry groups under 

SSUTA. 

• Authority for states to continue to impose origin sourcing for intrastate sales 

or sales by non-remote sellers. 

• Recognition that states may have additional ways of lowering burdens on remote sellers and the retention of authority for states to use these approaches 

as well. 

• Preservation of state authority to require sellers to maintain necessary records. 

• Exclusion of any mandatory vendor compensation provision, as this requirement 

would significantly reduce state participation. 

FTA believes that legislation that does not have a demonstrable need or share the 

joint support of businesses and states should not be considered when enacting remote seller sales tax collection legislation. The clearest example of the type of legislation that should not encumber the sales tax legislation is the Digital Goods and 

Services Tax Fairness Act of 2011 (S. 971). There is no discernible, let alone pressing, need for the legislation because states do not widely subject digital goods or 

services to taxation (with the long-standing exception of software). Furthermore, discriminating against digital goods and services is already illegal under the Internet 

Tax Freedom Act (ITFA), which specifically prohibits multiple or discriminatory 

taxes on electronic commerce. In addition, the states that have closely examined S. 

971 believe they would suffer significant revenue losses. 

Finally, states have identified numerous technical deficiencies with S. 971, which 

will create uncertainty, unnecessarily disrupt tax administration, and lead to years 

of litigation. Until businesses and states can reach a consensus on how to address 

these technical deficiencies, the Digital goods and Services Tax Fairness Act or any 

other preemptive legislation like it should not be considered when enacting remote 

seller sales tax collection legislation. 

Again, we thank the Committee for the opportunity to present our views on the 

important topic of remote seller sales tax collection legislation. We urge Congress 

to enact legislation like S. 971 this year. 

NATIONAL LEAGUE OF CITIES

Washington, DC, July 31, 2012 

Hon. JOHN D. ROCKEFELLER IV, 

Chairman, 

Commerce, Science, and Transportation 

Committee, 

United States Senate, 

Washington, DC. 

Hon. KAY BAILEY HUTCHISON, 

Ranking Member, 

Commerce, Science, and Transportation 

Committee, 

United States Senate, 

Washington, DC. 

Dear Chairman Rockefeller and Senator Hutchison: 

On behalf of the 19,000 cities and towns represented by the National League of 

Cities (NLC), I write to applaud you for holding a hearing on the sales tax fairness 

issue. Legislation such as the Market Place Fairness Act (S. 1832) will assure a simpler system of taxation and help our members recover tax revenues that are due 

from purchases made by remote means. Importantly, the Market Place Fairness Act 

does not impose a new tax, but would provide states and localities with a mechanism to require the collection of existing sales and use taxes on Internet and mailorder sales. As you know, this is legislation NLC has long supported. 

In 1992, the United States Supreme Court ruled in Quill Corp. v. North Dakota, 

504 U.S. 298, that states cannot require retailers to collect sales taxes from purchasers who are not located in the same state as the seller. As a consequence, local 

93 

retailers who compete with online companies are at a 6 to 10 percent price disadvantage, and state and local governments are deprived of billions of dollars in revenue. It is significant to note that consumers are already required to pay taxes 

when they make online purchases, just like when they make purchases in a store; 

however, most taxpayers are not aware of this responsibility, and states and localities cannot enforce payment. 

In its decision, the Court explicitly stated that Congress, with its clear constitutional authority to regulate interstate commerce, can grant states and local governments the option to require sellers who do not have a physical presence in their jurisdiction to charge and collect sales taxes from their customers. The Market Place 

Fairness Act simply provides such authority. This year alone, states and local governments stand to lose an estimated $23.3 billion, according to a University of Tennessee study. 

Again, thank you for recognizing the importance of the Market Place Fairness Act. 

As local governments continue to face the fifth straight year of declines in local revenues with further declines projected in 2013 and continuing cutbacks in Federal 

aid, we ask for passage of this legislation as soon as possible. Our ability to preserve 

needed infrastructure investments and essential services in our communities rests 

on it. 

Sincerely, 

DONALD J. BORUT, 

Executive Director. 

RETAIL INDUSTRY LEADERS ASSOCIATION

Arington, VA, July 31, 2012 

Hon. JOHN D. ROCKEFELLER IV, 

Chairman, 

Hon. KAY BAILEY HUTCHISON, 

Ranking Member, 

U.S. Senate Committee on Commerce, Science, and Transportation, 

Dear Chairman Rockefeller and Ranking Member Hutchison: 

On behalf of the Retail Industry Leaders Association (RILA), we commend the 

Senate Commerce, Science, and Transportation Committee for holding an informational hearing this week on the issue of e-fairness and S. 1832, the Marketplace 

Fairness Act, legislation introduced by Senators Mike Enzi, Dick Durbin and Lamar 

Alexander. The bipartisan Marketplace Fairness Act corrects a critical flaw in our 

state taxation policies that today puts brick and mortar stores at a competitive disadvantage to online-only companies that aren’t required to collect state sales taxes. 

RILA thanks the Committee for brining greater attention to this issue and urges 

Congress to enact the Marketplace Equity Act this year. 

By way of background, RILA is the trade association of the world’s largest and 

most innovative retail companies. RILA promotes consumer choice and economic 

freedom through public policy and industry operational excellence. Its members include more than 200 retailers, product manufacturers, and service suppliers, which 

together account for more than $1.5 trillion in annual sales, millions of American 

jobs and operate more than 100,000 stores, manufacturing facilities and distribution 

centers domestically and abroad. 

At issue is a decades-old loophole that requires that brick and mortar retailers 

collect sales taxes if they have a physical presence in a state, while online-only companies aren’t held to the same standard. This policy has the effect of putting local 

brick and mortar stores, who take the time to build a store, hire locally, contribute 

to the community, and pay property taxes, at a 5–10 percent competitive disadvantage on price. Tax policy that treats two competitors differently is inherently unfair, 

and the Marketplace Fairness Act pending before Congress takes a reasonable approach toward leveling the playing field while providing protection for small businesses and requiring states to simplify their collection requirements on remote sellers. To be clear, this is not a new tax or a tax on remote sellers; it is simply a question of whether all types of business will collect, on behalf of the consumer, a tax 

that is already owed. 

In closing, RILA appreciates that the Committee is giving the issue of e-fairness 

and the Marketplace Fairness Act the appropriate attention it deserves. The growing bipartisan support for e-fairness legislation over the past few months has become evident, with governors, editorial boards and businesses all calling on Congress to take action this year. RILA urges Congress to take action on the Marketplace Fairness Act this year so that the government gets out of the business of pickVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00099 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
94 

ing winners and losers in the marketplace, and so that our members can get back 

to the business of serving our customers and helping to grow the economy. 

Sincerely, 

BILL HUGHES, 

Senior Vice President, 

Government Affairs. 

Cc: Members of the Senate Commerce, Science, and Transportation Committee 

Hon. JOHN D, ROCKEFELLER IV, 

Chairman, 

Committee on Commerce, Science, and Transportation, 

United States Senate, 

Washington, DC. 

Dear Chairman Rockefeller: 

Thank you for holding a hearing on the critical issue of the disparity in sales tax 

collection between brick-and-mortar retailers and online sellers. 

As Chairman of the West Virginia Retailers Association and owner of two local 

jewelry stores in South Charleston and Hurricane, I know firsthand how the inequity in our current sales tax collection structure can affect retailers. 

I am proud to make a contribution to the economy of our state. My business provides employment for sixteen West Virginians, does business with local suppliers 

and vendors wherever possible, and pays taxes that support local government services, Those expenditures ripple throughout the local economy, and we are enthusiastic supporters of community activities in non-economic ways as well. 

But Main Street stores like mine that support local jobs are under attack. The 

reason: big, out-of-state sellers on the Internet don’t have to collect sales tax on 

most of their sales, giving them a significant pricing advantage on top of the benefits of working with high volume, law overhead and outsourced customer ‘‘service.’’ 

For me in West Virginia, that means an out-of-state ‘‘e-tailer’’ can automatically undercut my best price just by virtue of not having to collect our state’s six percent 

sales tax. 

This disparity has forced me to cut margins on the merchandise and services I 

sell just in order to compete with Internet sellers who are able to offer jewelry with 

no sales tax. I have no problem with competing for customers and business; in fact, 

I welcome it. I want to compete with other businesses to give consumers the best 

experience they can get. But I should be competing among all the factors that define 

healthy competition—customer service, product offerings, and even price—not sales 

tax. It’s an unfair and unequal system that forces me to compete on our current 

sales tax collection system, which favors an Internet seller over a local retailer. 

With this current system, it’s not only my local stores that suffer. Lost sales or 

lost margin d disparity on sales tax collection means less money for employee 

wages, less money for inves into my store and my community, and fewer taxes that 

support local government services. online sales tax collection is about more than just 

fairness among retailers. West Virginia is o many states losing out on more than 

$23 billion a year nationwide in uncollected sales tax re Those tax dollars are badly 

needed to pay the salaries of essential government workers like officers, firefighters, 

ambulance crews and schoolteachers. 

Federal legislation like the Marketplace Fairness Act law would finally level the 

sales tax play allowing all merchants to play under the same rules regardless of 

whether they sell their me online, through the mail or in a traditional bricks-andmortar store. l strongly urge you and the Committee to work towards a level playing 

field for all merchants—local and online. 

Sincerely, 

DAVID BROYLES, 

Chairman, 

West Virginia Retailers Association. 

Owner, 

Calvin Broyles Jewelers. 

95 

PREPARED STATEMENT OF JOSEPH HENCHMAN, VICE PRESIDENT, LEGAL & STATE

PROJECTS, TAX FOUNDATION

THE PROPER ROLE OF CONGRESS IN STATE TAXATION: ENSURING THE INTERSTATE

REACH OF STATE TAXES DOES NOT HARM THE NATIONAL ECONOMY

Mr. Chairman, Mr. Ranking Member, and members of the Committee: 

I appreciate the opportunity to submit this statement on Congress’s role in the 

debate over state sales taxation of online purchases. In the 75 years since our founding in 1937, the Tax Foundation has monitored tax policy trends at the Federal and 

state levels, and our data and research is heavily relied upon by policymakers, the 

media, and the general public. Our analysis is guided by the idea that taxes should 

be as simple, neutral, transparent, and stable as possible, and as a 501(c)(3) nonprofit, non-partisan organization, we take no position on any pending legislation. 

We hope that the material we provide will be helpful in the Committee’s consideration of the issue. 

Executive Summary 

• After the bitter experience of the Articles of Confederation, the Constitution empowered Congress with the responsibility to rein in state tax overreaching when 

it threatened to do harm to the national economy. 

• Consequently, states were not permitted to tax items in interstate commerce at 

all, from the Founding until approximately the 1950s. 

• Since then, as formally adopted by the U.S. Supreme Court in the Complete 

Auto decision (1977), states may tax interstate commerce so long as the tax is 

non-discriminatory, fairly apportioned, related to services, and applies only to 

businesses with substantial presence (nexus). 

• In a series of decisions, most recently the Quill decision of 1992, the U.S. Supreme Court explained that ‘‘substantial nexus’’ for sales/use tax purposes 

means physical presence of property or employees. The Court ruled that it exceeds to state powers for them to be able to demand use tax collection from companies that are not physically present in the state. 

• States have sought to overrule the Quill decision, either legislatively (‘‘Streamlined’’) or through defiance (‘‘Amazon’’ tax statutes). The defiance approach in 

particular has caused significant disruption and uncertainty to the economy. 

• Every state with a sales tax also imposes a use tax, levied on taxable items 

upon which no sales tax has been paid. In other words, use taxes seek to thwart 

competitive pressure from other states with lower tax rates. Taxpayer compliance with these protectionist use taxes is minimal. (Use tax, with a few exceptions, is imposed on the consumer and not the seller.) 

• Congress has passed a number of statutes limiting the scope of state tax authority on interstate activities (‘‘preemption’’), carefully balancing (1) the ability 

of states to set tax policies in line with their interests and that allow interstate 

competition for citizens over baskets of taxes and services and (2) limiting state 

tax power to export tax burdens to non-residents or out-of-state companies, or 

policies that would excessively harm the free-flow of commerce in the national 

economy. 

• When a resident of a state purchases from a brick-and-mortar retailer, they 

generally must pay sales tax. When the same resident in the same state purchases the same product from an online retailer, they often do not pay sales tax. 

• Many large Internet retailers are expanding the number of states in which they 

have physical presence, to enable next-day delivery, but that is not the case for 

many smaller sellers that remain in just one location and use common carriers 

to deliver purchases. 

• There are approximately 9,600 jurisdictions in the United States that collect 

sales tax, a number that grows by several hundred each year. Subscription tax 

software is inadequate and can be expensive for occasional sellers, and few 

states provide adequate tax lookup or consolidated tax filing options. Sales tax 

can vary by product, by time, and by location in the state. In 7 states, local governments can have a different sales tax base from the state tax base. 

• Congress has five basic options on how it may proceed: 

» Reaffirm the physical presence rule for sales taxation, and by implication, the 

disparity of treatment between brick-and-mortar sales and Internet sales. 

» Reaffirm the physical presence rule but adopt a new tax approach that mitigates the disparity of treatment between brick-and-mortar sales and Internet 

96 

1See, e.g., Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 224 (1824) (Johnson, J., concurring). 2See U.S. CONST. art. I, § 8, cl. 3 (Interstate Commerce Clause); U.S. CONST. art. I, § 10, cl. 

2 (Import-Export Clause); U.S. CONST. art. I, § 10, cl. 3 (Tonnage Clause); U.S. CONST. art. IV, 

§ 2, cl. 1 (Privileges and Immunities Clause); U.S. CONST., amend. XIV, § 1 (Privileges or Immunities Clause). 3 James Madison, THE FEDERALIST NO. 42 (1788). 4 1 STORY CONST § 497. 5See, e.g., Freeman v. Hewit, 329 U.S. 249, 252–53 (1946) (‘‘A State is . . . precluded from 

taking any action which may fairly be deemed to have the effect of impeding the free flow of 

trade between States’’); Leloup v. Port of Mobile, 127 U.S. 640, 648 (1888) (‘‘No State has the 

right to lay a tax on interstate commerce in any form.’’). 6 430 U.S. 274 (1977). 

sales (such as an origin-based system or a national sales tax on online purchases). 

» Modify the physical presence rule in the limited context of state collection of 

use tax from out-of-state sellers, by those states that have adopted simplified 

sales tax systems under minimal Federal standards, to reduce the harm to 

interstate commerce. This trade-off would replace the check on state power 

provided at present by the physical presence rule. 

» Repeal the physical presence rule without conditions on the states, granting 

states unchecked authority to export tax burdens and damage interstate commerce. 

» Do nothing and risk the continued growth of unchecked and fragmented state 

authority to export tax burdens and damage interstate commerce. 

The Constitution Empowers Congress to Limit State Tax Power When It 

Seeks to Shift Tax Burdens to Non-Residents or Do Harm the National 

Economy 

What you have before you is not a new issue. Absent congressional or judicial 

checks, states have an incentive to shift tax burdens from physically present individuals and businesses, to those who are beyond their borders. Indeed, it was the 

states’ unchecked behavior in this regard that led to the Constitutional Convention 

in the first place. Under the Articles of Confederation, states with ports taxed commerce bound for interior states, tariff wars proliferated, and the national economy 

was imperiled. As Justice Johnson described in 1824, these actions were ‘‘destructive to the harmony of the states, and fatal to their commercial interests abroad. 

This was the immediate cause that led to the forming of a convention.’’ 1

And so the Constitution was adopted, and through that document, the Congress 

was granted the power to restrain states from enacting laws that harm the national 

economy by discriminating against interstate commerce.2 James Madison noted that 

these powers would check the ‘‘clamors of impatient avidity for immediate and immoderate gain’’ that drive state legislation discriminating against non-residents.3

Justice Story later praised the ‘‘wisdom and policy in restraining the states themselves from the exercise of [taxation] injuriously to the interests of each other.’’ 4

So strong was this concern that the rule for a century and a half was that states 

could not tax interstate commerce at all.5 This eroded in the 1950s and 1960s as 

it was recognized that those engaged in interstate commerce do enjoy benefits in 

states where they are present, so it is not unfair to have them support those services with taxes. The complete ban on state taxation of interstate commerce was 

abandoned in 1977, replaced by a recognition that resident businesses engaged in 

interstate commerce should pay for the fair share of the state services they consume. In Complete Auto Transit, Inc. v. Brady, the U.S. Supreme Court held that 

states may tax interstate commerce if the tax meets a four part test: 6

• nexus, a sufficient connection between the state and the taxpayer; 

• fair apportionment, the state cannot tax beyond its fair share of the taxpayer’s 

income; 

• nondiscrimination, the state must not burden out-of-state taxpayers while exempting in-state taxpayers; 

• fairly related, the tax must be fairly related to services provided to the taxpayer. 

Before and since Complete Auto, the courts have routinely exercised this power 

to restrain state tax infringements on interstate commerce, and these decisions are 

one of the more non-controversial aspects of constitutional law. Congress has also 

been active in this area, legislating limits on state tax power where states are incapable of achieving a simplified, uniform system that restrain each state from 

claiming more than its fair share of taxes on interstate commerce. These have included prohibiting state taxes on food stamps, Federal Reserve banks, interstate airVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00102 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
97 

line and bus travel, satellite services, and nonresident members of the military and 

nonresident members of Congress. Congress has also banned discriminatory state 

taxes on Federal employees, interstate electricity transmission, and interstate railroads. 

Nexus Based on Physical Presence 

Generally, the historical standard is that states may tax those physically present 

in the jurisdiction, and may not tax those not physically present. This is premised 

on a view known as the ‘‘benefit principle’’: that the taxes you pay should roughly 

approximate the services you consume. State spending overwhelmingly, if not completely, is meant to benefit the people who live and work in the jurisdiction. Education, health care, roads, police protection, broadband access, etc.: the primary 

beneficiaries are state residents. The ‘‘benefit principle’’ thus means that residents 

should be paying taxes where they work and live, and jurisdictions should not tax 

those who don’t work and live there. 

A physical presence standard for state taxation is in line with this fundamental 

view of taxation. Developments have arisen in the three major state tax areas (corporate income tax, individual income tax and sales tax), as well as with some other 

state taxes (such as telecommunications taxes, taxes on digital goods, car rental 

taxes, and so forth). Bills have been introduced in the Congress that seek to reaffirm the physical presence rule in these areas (such as BATSA with corporate income tax, Mobile Workforce with individual income tax). 

Recent Developments in State Sales Tax: Overview 

There are a number of proposals to reverse a series of U.S. Supreme Court decisions (most recently the Quill decision of 1992) that prohibit states from imposing 

sales tax collection obligations on businesses with no property or employee in the 

state. This ‘‘physical presence’’ standard is meant to prevent states from shifting tax 

burdens to non-residents away from residents who are the primary beneficiary of 

state services, while also protecting the free flow of interstate commerce from the 

compliance costs of non-uniform and numerous (9,600+) sales tax jurisdictions in the 

United States (see Figure 1, Figure 2, and Table 2). 

The steadily increasing growth of Internet-based commerce has however led to 

frustration with this standard, primarily due to disparate sales tax treatment of 

similar goods within states that has no economic basis. This can be addressed while 

also ensuring that some standard exists to restrain states from engaging in destructive behavior, such as tax exporting to non-voters or imposing heavy compliance 

costs on interstate businesses, that the Congress is empowered to prevent. Further, 

because economic integration is greater now than it has ever been before, the economic costs of nexus uncertainty are also greater today and can ripple through the 

economy much more quickly. These actions are only the latest chapter in a long 

saga over the proper tax treatment of sales made over the Internet, and an even 

longer saga over the proper scope of state taxing authority. At its core is a dispute 

over which is more important: limiting state power to tax nonresidents and thus 

harm the national economy, or ensuring that some transactions do not escape tax 

because they are conducted online. Discussions following a recent compromise in 

California, driven by the desire of large Internet retailers to expand their physical 

presence to enable next-day delivery, suggest that there are policy options that 

could achieve both ends. 

98 

Figure 1: New State/Local Sales Tax Jurisdictions Created Each Year 

Figure 2: Sales Tax Jurisdictions with Changes Each Year 

Table 2: Other Examples of Contributors to Sales Tax Complexity 


801TAX1.eps 801TAX2.eps 801TAX3.eps

New State/Local Sales Tax Jurisdictions 

Created Each Year 

25

200 

ISO 

0 

=== '00 

50 

o 

Note: As of July lOll. there were ~ total of 9.6-46 saleswc 

Jurisd ictions In the United States. 

Source : Verte)/.. 

Sales Tax Change s Each Year 

'" 0<' ." 0<' 

r-' ;- r-- I- r200 V l- I- - r0 

200' 200< "'" "'" 200' 

No, e: All chlnl'" by Jurisdiction. Includi ng new 

Jurl.dlctlon •. 

So\Jrce: Ve".,.. 

" '" - r-

- I-

- r-

- "" 

States With Local Option Sales Taxes: 37 

,->.ss 

-

I--

2010 

lOll 

- <SO 

r- I7 

lOll 

States That Permit Local Government to Define A Separate 

Sales Tax Base: 7 

States With Sales Tax Holidays: 17 
99 

7See National Bellas Hess, Inc. v. Dept. of Revenue of Ill., 386 U.S. 753, 759–60 (1967). 8See Nat’l Geographic Society v. Ca. Bd. Of Equalization, 430 U.S. 551, 559 (1977). 9See Quill Corp. v. North Dakota, 504 U.S. 298 (1992). 

The Quill Decision: Not a Loophole, But a Check on State Power to Export 

Tax Burdens and Do Harm Interstate Commerce 

What is nexus for a remote seller? In 1967, the U.S. Supreme Court held that 

a business does not have nexus with a state if the business has no retail outlets, 

solicitors, or property in the state, and communicates with customers only by mail 

or common carrier as part of a general interstate business.7 Otherwise, the Court 

concluded, states could ‘‘entangle National’s interstate business in a virtual welter 

of complicated obligations to local jurisdictions with no legitimate claim to impose 

a fair share of the cost of the local government.’’ This decision was reaffirmed after 

the Complete Auto test was announced in 1977.8

During the 1980s, some academics and many states criticized National Bellas 

Hess as archaic, formalistic, and outmoded. Officials were encouraged to ignore the 

decision, and some state courts disregarded it, even as the number of sales taxes 

rose from 2,300 to 6,000. Different murky definitions of economic nexus have been 

proposed: 

• Engaged in exploiting the local market on a regular, systematic, large-scale 

basis. 

• Presence of intangible property or affiliates 

• Number of customers in state, value of assets or deposits in the state, and receipts attributable to sources in the state 

• Analysis of frequency, quantity, and systematic nature of economic contacts 

with the state 

• Derivation of economic benefits from state’s residents 

Defying the Court rulings, North Dakota enacted a law requiring the out-of-state 

Quill Corp. to collect sales tax on its sales to 3,000 in-state customers. Any state 

that advertised three times in the state was liable. In the case, the U.S. Supreme 

Court reaffirmed National Bellas Hess and Complete Auto.9 There they stated that 

the physical presence rule ‘‘firmly establishes the boundaries of legitimate state authority to impose a duty to collect sales and use taxes and reduces litigation concerning those taxes.’’ 

The Streamlined Sales Tax Project Has Watered Down Membership 

Standards in an Unsuccessful Effort to Entice More State Members in 

Its Effort to Change Quill 

Today, there are over 9,600 state and local sales tax jurisdictions in the United 

States. There are different rates on different items, they change frequently, and are 

not even aligned to 9-digit zip codes. States are reluctant to cooperate on even basic 

rules and definitions. 

The Streamlined Sales Tax Project (SSTP) was launched in 2000 with the mission 

of getting states to adopt changes to their sales taxes to make them simple and uniform. SSTP then hopes to convince Congress or the courts to overrule Quill and 

allow use tax collection obligations on out-of-state companies (‘‘Main Street Fairness 

Act’’). 

However, the SSTP has abandoned simplification efforts and any attempt to reduce the number of sales tax jurisdictions, instead focusing on uniformity efforts. 

In many cases, the Project has enabled state sales tax complexity by permitting separate tax rates for certain goods. States generally are reluctant to yield parochial 

advantages, even with the possibility of online sales tax revenue in return, undermining their argument to Congress as part of the Main Street Fairness Act that 

they have succeeded in their mission. Large states have generally avoided the SSTP, 

and membership has been stuck at ∼20 states for some time. This in turn has led 

to impatience from states and others. 

Some States Have Sought to Defy Quill through Unconstitutional 

Legislation 

In 2008, New York adopted an ‘‘Amazon’’ tax, nicknamed after the Internet retailer as the most visible target. The law held that a person or business with no 

physical presence in the state nevertheless has nexus if it (1) enters into agreement 

with in-state resident involving commissions for referring potential customers; and 

(2) has gross receipts from sales by out-of-state company from referrals within the 

state are more than $10,000 in a 12-month period. 

100 

10See Mark Robyn, ‘‘Colorado Amazon Regulations Ruled Unconstitutional,’’ (Apr. 4, 2012), 

http://www.taxfoundation.org/blog/show/28111.html 

Amazon.com & Overstock.com responded by terminating affiliate programs in 

New York, and Amazon.com filed a lawsuit in state court. The law was upheld by 

a trial judge (New York’s trial courts are called the ‘‘New York Supreme Court,’’ 

causing confusion about who upheld the Amazon tax as constitutional); the judge 

concluded that Amazon.com’s in-state affiliates are necessary and significant to establishing and maintaining out-of-state company’s market in the state. But because 

they make up only 1.5 percent of sales, that was the basis for the appeal. The New 

York Supreme Court, Appellate Division ruled in late 2010 that law is not facially 

unconstitutional but may be unconstitutional for Amazon. The case was remanded 

to the lower court, but Amazon is appealing to state’s highest court, the New York 

Court of Appeals. The case is ongoing. 

In 2009, Rhode Island and North Carolina adopted identical New York-style laws. 

Neither has seen any revenue and Rhode Island has actually seen revenue loss due 

to reduced income tax collections from terminated in-state affiliates. Laws were also 

passed in California and Hawaii but vetoed. (See Table 3 for a status of all state 

efforts to defy Quill legislatively.) 

Table 3: Status of State Efforts to Defy Quill Legislatively 

In 2010, Colorado considered the same law but faced opposition from in-state affiliates. Instead it adopted a law (H.B. 10–1193) designed to push Amazon into collecting use taxes without explicitly requiring it. In January 2010, a Federal judge 

stayed the law stayed as probably unconstitutional on First Amendment grounds, 

and the law was thrown out completely in April 2012.10 A similar law in North 

Carolina was also struck down as violating the First Amendment in October 2010. 

In 2011, Illinois and Arkansas enacted New York-style laws (the Illinois law was 

subsequently ruled unconstitutional). California enacted one but after a possible repeal referendum was proposed, the state and Amazon.com reached an agreement 

whereby Amazon.com will develop a physical presence in the state (i.e., build warehouses). 

While for the most part unsuccessful, these state efforts have highlighted the desire to modify the Quill holding in some way. This pressure is likely to continue. 

Possible Solutions 

Substantial progress has been made in recent months toward possible solutions 

that could (1) simplify sales tax systems and avoid discriminatory compliance costs, 

(2) eliminate non-neutral tax rates on similar products sold by online and brick-andmortar businesses, (3) limit taxation in a state to those residents who enjoy the benefits of state services, (4) prevent multiple taxation of interstate commerce, and (5) 

prevent unconstitutional and fragmented state attempts to impose such tax burdens 

in a destructive manner. 

Congress has five basic options on how it may proceed: 

• Reaffirm the physical presence rule for sales taxation, and by implication, the 

disparity of treatment between brick-and-mortar sales and Internet sales. 

• Reaffirm the physical presence rule but adopt a new tax approach that mitigates 

the disparity of treatment between brick-and-mortar sales and Internet sales 

(such as an origin-based system or a national sales tax on online purchases). 

• Modify the physical presence rule in the limited context of state collection of use 

tax from out-of-state sellers, by those states that have adopted simplified sales 

tax systems under minimal Federal standards, to reduce the harm to interstate 

commerce. This trade-off would replace the check on state power provided at 

present by the physical presence rule. 


801TAX4.eps
101 

• Repeal the physical presence rule without conditions on the states, granting 

states unchecked authority to export tax burdens and damage interstate commerce. 

• Do nothing and risk the continued growth of unchecked and fragmented state 

authority to export tax burdens and damage interstate commerce. 

The third option is the basis for several pending pieces of legislation; this would 

allow the states to collect use tax from remote sellers on condition that they simplify 

their sales tax systems in accordance with minimum Federal specifications. The 

Marketplace Equity Act (H.R. 3179) and Marketplace Fairness Act (S. 1832) are 

two recent proposals that would eliminate the physical presence rule but otherwise 

make advances towards ensuring that states reduce the burdens associated with collecting their sales taxes. Example provisions include requirements that states have 

a single state-level agency that administer all sales tax rules, offer one tax return 

and audit for the entire state, require one uniform tax base for the entire state, provide software that identifies the applicable tax rate for a sale, including local rates 

and hold sellers harmless for any software errors or mistakes by the state, provide 

30 days’ notice of any local sales tax rate change, and exempt sellers with a de minimis level of collections. (See Table 4 for a comparison.) Effective simplification is a 

necessity for any Federal proposal. 

Table 4: Provisions of Current Pending Federal Legislation 

All these simplifications are desirable, and together would provide a sufficient 

check on state tax overreaching while leaving ample space for states to structure 

their tax systems and rates in line with their own preferences. The only infringement on state sovereignty is an infringement on state power to burden interstate 

commerce with problematic tax policy. 

Congress has passed a number of statutes limiting the scope of state tax authority 

on interstate activities, carefully balancing (1) the ability of states to set tax policies 

in line with their interests and that allow interstate competition for citizens over 

baskets of taxes and services and (2) limiting state tax power to export tax burdens 

to non-residents or out-of-state companies, or policies that would excessively harm 

the free-flow of commerce in the national economy. A package specifying a floor of 


801TAX5.eps
102 

all the simplifications listed in Table 5 would be welcome and would greatly reduce 

constraints on economic growth. 

Conclusion 

Businesses throughout our Nation’s history have plied their trade across state 

lines. Today, with new technologies, even the smallest businesses can sell their 

products and services in all fifty states through the Internet and through the mail. 

We at the Tax Foundation track the numerous rates, bases, and exemptions that 

litter our state sales tax codes. Frequent and ambiguous alterations of tax codes and 

the confusion they cause are a key source of the growing tax compliance burden. 

We have several staffers as well as computer-based and publication subscriptions 

dedicated to being up to date and accurate on the frequent changes, but even we 

have trouble doing it. It would be extremely difficult for those in business to do business, not conduct tax policy research. 

We now live in a world of iPods, telecommuting, and Amazon.com. It is a testament to the Framers that their warnings about states’ incentives to hinder the national economy remain true today. Some may argue that faster roads and powerful 

computers mean that states should now be able to tax everything everywhere. While 

some constitutional principles surely must be revisited to be applied to new circumstances, the idea that parochial state interests should not be permitted to burden interstate commerce remains a timeless principle regardless of how sophisticated technology may become. 

About the Tax Foundation 

The Tax Foundation is a non-partisan, non-profit research institution founded in 

1937 to educate taxpayers on tax policy. Based in Washington, D.C., our economic 

and policy analysis is guided by the principles of sound tax policy: simplicity, neutrality, transparency, and stability. 

About the Center for Legal Reform at the Tax Foundation 

The Tax Foundation’s Center for Legal Reform educates the legal community and 

the general public about economics and principled tax policy. Our research efforts 

focus on the scope of taxing authority, the definition of tax, economic incidence, and 

taxpayer protections. 

THE COUNCIL OF STATE GOVERNMENTS

August 1, 2012 

Senator JAY ROCKEFELLER, 

Chairman, 

Senate Committee on Commerce, 

Science, and Transportation, 

Washington, DC. 

Senator KAY BAILEY HUTCHISON, 

Ranking Member, 

Senate Committee on Commerce, 

Science, and Transportation, 

Washington, DC. 

Dear Senator Rockefeller and Senator Hutchison: 

On behalf of the Council of State Governments (CSG), the Nation’s only association serving all three branches of state government, we want to express CSG’s support for the Marketplace Fairness Act and commend you for highlighting the importance of tax fairness at your upcoming hearing. This legislation is essential both for 

establishing a level playing field for America’s retail employers and ensuring that 

states and territories have the legal authority they need to collect revenues that are 

already owed to them. 

Governors and legislators appreciate that our country faces a fiscal crisis. We 

have first-hand experience in meeting this challenge having collectively addressed 

over $500 billion in budget gaps since the beginning of this recession. 

However, it is this very fiscal challenge that underpins the importance of Congress passing the Marketplace Fairness Act. In an era of decreasing revenues and 

stark economic challenges, we can’t afford to maintain revenue systems which advantage one sector of our retail community over another while depriving our jurisdictions of revenue which could be used to lower tax burdens for all, make needed 

investments in infrastructure, or pursue any other number of policy options that 

states and territories are best equipped to identify. 

Given the long list of issues currently before the Senate, we thank you both for 

choosing to draw attention to this important issue. If we can be of assistance to you 

and your staff as you pursue the impact of this important legislation please do not 

103 

hesitate to contact ourselves or CSG’s Washington Office Director, Chris Whatley, 

at (202) 624–5460 or cwhatley@csg.org. 

Sincerely, 

STATE SENATOR JAY EMLER, KANSAS, 

CSG Chairman. 

GOVERNOR LUIS FORTUN ̃ O, PUERTO RICO

CSG President. 

August 1, 2012 

Hon. JOHN D. ROCKEFELLER IV, 

Senate Commerce, Science, 

Transportation Committee. 

Hon. KAY BAILEY HUTCHISON, 

Senate Commerce, Science, 

Transportation Committee. 

Dear Chairman John D. Rockefeller and Ranking Member Kay Bailey Hutchison: 

Our undersigned labor unions thank you for your leadership in convening the 

Commerce Committee August 1 hearing, ‘‘Marketplace Fairness: Leveling the Playing Field for Small Business’’, on the bipartisan Enzi Durbin-Alexander ‘‘Marketplace Fairness Act’’ (S. 1832). Our unions strongly support S. 1832 and this hearing 

is an excellent opportunity to demonstrate its broad and bi-partisan support. We 

support S. 1832 because it would grant states, which streamline their sales tax systems, the authority needed to collect the sales and use taxes they are owed. As sales 

increasingly move to the internet, it is vital to highlight the resulting problems and 

S. 1832’s potential benefits. 

Our unions have long supported constructive Congressional proposals that enable 

state and local governments to collect sales and use tax from remote and online sellers of goods and services. University of Tennessee economics professor Dr. William 

Fox estimates uncollected use tax from all remote sales in 2012 will cost state and 

local governments a cumulative $23 billion. While the loopholes are always problematic, they are very troubling now because states and localities suffer from years of 

broadly reduced revenues. In addition, out of state and online sales are skyrocketing 

along with uncollected sales and use taxes. Together, these loopholes inflict unfair 

competitive disadvantages on Main Street and mom-and-pop retailers. 

Now is the time to enact S. 1832. First, Congress has clear constitutional authority to act to regulate interstate commerce of online and remote sales. Second, state 

and local governments support S. 1832 and urge Congress to act on this issue. Their 

ongoing work to develop the Streamlined Sales and Use Tax Agreement demonstrates they could implement effective and efficient solutions. Third, both large 

and small businesses also support S. 1832 and urge Congress to act. They are supportive because it levels the playing field for all businesses and streamlines sales 

tax systems. Finally, many experts have demonstrated that small business remote 

sellers can relatively easily collect sales and use taxes. Accurate, affordable, and 

user-friendly software now provides automatic computation, compilation, and collection of sales taxes. 

We must note that S. 1832 would not enact new taxes. The affected taxes already 

exist under current law in all45 states (and the District of Columbia), which impose 

a sales and use tax. Unfortunately, millions of U.S. consumers either unknowingly 

or purposely do not pay existing use taxes on their remote and online purchases. 

S. 1832 merely provides states the authority and ability to collect these existing uncollected taxes. It is also important to note that S. 1832 would have no cost to the 

Federal Government. 

We thank your Committee for convening this important hearing and providing 

Senators Enzi, Durbin, and Alexander with an opportunity to discuss the ‘‘Marketplace Fairness Act’’. We strongly support their bill. 

Sincerely, 

American Federation of Labor and Congress of lndustrial Organizations (AFL–CIO) 

American Federation of State, County and Municipal Employees (AFSCME) 

American Federation of Teachers (AFT) 

Department for Professional Employees, AFL–CIO (OPE) 

International Association of Fire Fighters (IAFF) 

International Federation of Professional and Technical Engineers (IFPTE) 

National Education Association (NEA) 

Service Employees International Union (SEIU) 

The International Union, United Automobile, Aerospace and Agricultural Implement 

Workers of America (UAW) 

104 

SOFTWARE FINANCE AND TAX EXECUTIVES COUNCIL

August 1, 2012 

Via E-mail 

Hon. JOHN D. ROCKEFELLER, IV, 

Chairman 

Hon. KAY BAILEY HUTCHISON, 

Ranking Member, 

Committee on Commerce, Science, and Transportation, 

United States Senate, 

Washington, DC. 

RE: HEARING ON S. 1832—THE MARKETPLACE FAIRNESS ACT

Dear Chairman Rockefeller and Ranking Member Hutchison: 

I write on behalf of the Software Finance and Tax Executives Council (SoFTEC) 

to express the views of the software industry on S. 1832, the Marketplace Equity 

Act. If enacted, this legislation would give states the power to require that out-ofstate sellers collect and remit state sales and use taxes owed by consumers who purchases goods and services from such sellers; in essence, a legislative overturn of the 

Supreme Court’s decision in Quill v. North Dakota. SoFTEC strongly believes that 

any legislation making such significant changes must also (1) require that a state 

first adopt ‘‘radical simplification’’ of its sales and use tax laws and (2) resolve uncertainty regarding the appropriate nexus standard for imposition of state income 

and other business activities on out-of-state businesses. Because S. 1832 lacks such 

provisions, SoFTEC does not support this legislation in its current form. We ask 

that you make this letter a part of the record of the hearing on this matter. 

SoFTEC is a trade association providing software industry focused public policy 

advocacy in the areas of tax, finance and accounting. SoFTEC’s members sell their 

products in many states and must maintain an infrastructure that handles the administrative burden associated with collecting and remitting sales and use taxes for 

those states in which they have physical presence. SoFTEC’s members have an interest in this legislation because enactment of it would expand the number of states 

for which they must collect and remit sales taxes and would require significant investment to expand their infrastructure devoted to sales and use tax compliance. 

Enactment of the bill also could lead to an inference that the physical presence 

nexus standard has been repealed not only for sales and use taxes but for state income and other business activity taxes as well, significantly increasing their exposure to such taxes. 

Radical Simplification 

One reason SoFTEC does not support the bill is that it would not require that 

states radically simplify their sales and use tax systems as a prerequisite to the 

grant of collection and remittance authority. In deciding the physical presence nexus 

standard was appropriate to protect remote sellers from the burdens of administering myriad state and local sales and use taxes, the Supreme Court in Quill 

pointed to the Nation’s 7,800 plus taxing jurisdictions at the time. Quill was decided 

in 1992 and the number of taxing jurisdictions has grown to 9,600 in the meantime. 

In short, since Quill was decided, the burden has grown significantly with a nearly 

increase in the number of taxing jurisdictions. 

The bill does nothing to reduce the number of tax jurisdictions for which remote 

sellers would have to collect and remit sales and use taxes. The bill, instead, seeks 

to address this problem by mandating that states furnish ‘‘adequate’’ software that 

would identify the applicable rate. This seems to suggest a ‘‘one-size-fits-all’’ software solution to the problem. But there are states and the District of Columbia and 

there is no suggestion that they all provide the same or similar software. Nor is 

there any requirement that the states provide versions of the software compatible 

with the myriad computer-based billing systems used by remote sellers. We alsonote 

that such software is expensive to integrate into existing systems and maintain. Requiring that states provide software as a prerequisite to obtaining collection authority is not a solution to the problem. 

We believe mandating a single rate per state for remote sales is the solution to 

the problem. In a single stroke, such a mandate would reduce from 9,600 to 46 the 

number of state and local taxing jurisdictions a remote seller would be faced with. 

States could use their internal political processes to resolve differences with local 

jurisdictions with regard to setting the rate and distributing collected taxes to the 

individual localities. Coupled with the single form and filing and uniform state tax 

base components of the bill, this approach would cause much of the existing complexity to recede into the background. One-rate-per-state for remote sales represents 

the main ingredient in the sort of ‘‘radical simplification’’ needed to justify repealing 

105 

the physical presence nexus standard for sales and use taxes of the Quill decision. 

But, even more simplification should be required before expanded collection authority is granted. 

Alternative to Streamlined Sales and Use Tax Agreement 

The bill allows two paths to collection authority. First, states that are members 

of the Streamlined Sales and Use Tax Agreement will obtain collection authority 

roughly three months after the bill is enacted. Other states that adopt a modicum 

of sales and use tax simplification must wait six months after their legislatures 

adopt the simplification package. We are concerned that the simplification adopted 

by the Streamlined states is more rigorous than the other non-members states 

would have to adopt in order to obtain the same expanded collection authority. We 

are concerned the availability of this easier path to collection authority will serve 

as a disincentive for those states to join the Streamlined Agreement and could provide an incentive for current Streamlined states to drop out of the Agreement. 

The easier path to collection authority should be dropped from the bill and collection authority should be conferred only upon states that are, or later become, members of the Streamlined Agreement, provided additional simplification requirements 

added to the bill. Specifically: 

• Collection authority should be withheld for states that have not adopted the 

one-rate-per-state proposal suggested above, 

• Destination sourcing for all remote sales should be another condition for collection authority. 

• Federal court jurisdiction should be expanded to include cases or controversies 

involving the Streamlined Agreement (see below). 

Federal Court Jurisdiction 

SoFTEC also does not support the bill because it would not permit Federal courts 

the power to interpret and enforce state compliance with the Federal requirements 

for expanded collection authority. The processes and remedies available at the state 

level are inadequate, expensive, time consuming and biased. Additionally, the interpretation and enforcement of the Streamlined Agreement by its own Governing 

Board makes the administrators of the Agreement also the judges and the jury. 

Having Federal courts interpret and administer the requirements for expanded collection authority would foster both fairness and trust in the system. 

Physical Presence Nexus for State Income and other Business Activity 

Taxes 

Disputes between states and businesses over the appropriate nexus standard for 

imposing state taxes on out-of-state businesses are not limited to sales and use 

taxes. Many states point to the fact the Quill case only involved sales and use taxes 

as a reason for using a different nexus standard for other types of state taxes, such 

as income and other taxes based on business activity. The business community, on 

the other hand, believes the Commerce Clause of the Constitution does not impose 

different nexus standards depending on the type of tax involved and the physical 

presence nexus standard of Quill applies to all types of taxes. It would be inappropriate to eliminate the physical presence nexus requirement for sales and use taxes 

but leave unresolved the existing uncertainty regarding its application to other 

types of taxes. 

In October of 2011, the House Judiciary Committee reported H.R. 1439, the Business Activity Tax Simplification Act of 2011 (BATSA). This bill would resolve the 

uncertainty regarding the appropriate nexus standard for state income and other 

business activity taxes by codifying the physical presence standard of Quill for those 

types of taxes. SoFTEC supports BATSA and believes Congress should pass it before 

(or at the same time as) it passes any legislation impacting the physical presence 

nexus standard for sales and use taxes. 

Conclusion 

For the reasons stated above, SoFTEC does not support S. 1832, The Marketplace 

Fairness Act, in its current form. We thank you for the opportunity to provide these 

comments. Any questions regarding them should be directed to Mark E. Nebergall 

who can be reached at (202) 486–3725 or mnebergall@softwarefinance.org. 

Respectfully submitted, 

MARK E. NEBERGALL, 

President, 

Software Finance & Tax Executives Council. 

CC: Senator Michael B. Enzi 

106 

PREPARED STATEMENT OF SENATOR PAMELA ALTHOFF, ILLINOIS; DELEGATE SHEILA

HIXSON, MARYLAND; AND SENATOR CURT BRAMBLE, UTAH; EXECUTIVE COMMITTEE

TASK FORCE ON STATE AND LOCAL TAXATION, NATIONAL CONFERENCE OF STATE

LEGISLATURES

Chairman Rockefeller, Ranking Member Hutchinson and members of the Commerce Committee, we are pleased to submit this statement on behalf of the National 

Conference of State Legislatures and respectfully request that you submit it for the 

record. The National Conference of State Legislatures is the bipartisan national organization representing every state legislator from all fifty states and our Nation’s 

commonwealths, territories, possessions and the District of Columbia. 

We are pleased to have the opportunity to inform you of the concerns of state legislators about state and local taxation in the new economy, specifically, the ability 

of state and local governments to collect the sales and use tax presently owed on 

transactions with remote sellers, which occur primarily through electronic commerce. We want to express our full support for the Marketplace Fairness Act, S. 

1832 as introduced by Senators Mike Enzi of Wyoming, Richard Durbin of Illinois, 

Lamar Alexander of Tennessee and 17 other of your colleagues from both parties. 

The Marketplace Fairness Act will provide those states that comply with the simplification requirements outlined in the legislation, the authority to require remote 

sellers to collect those states’ sales taxes. 

Let us make this very clear, state legislators are not advocating any new or discriminatory taxes on electronic commerce. We desire, however, to establish a simplified sales and use tax collection system that allows sellers regardless of where 

they are located to collect and remit the legally owed sales and use taxes. 

The new economy or if you prefer, electronic commerce, which is not bound by 

state and local borders makes it critical to simplify the collection state and local 

taxes to ensure a level playing field for all sellers, to enhance economic development, and to avoid discrimination based upon how a sale may be transacted. Government can not allow a tax system that was designed for an economy that existed 

almost 80 years ago, to be the deciding factor as to where our constituents make 

a transaction. 

As many of you may know, state legislators and governors have been seeking the 

ability to collect sales taxes on out of state transactions for many years. With the 

growth of electronic commerce, the current financial and economic situation, and the 

effort to address the Federal deficit, the urgency to act is even more immediate. 

As you know, the recent recession has had a debilitating impact on state budgets. 

According to NCSL’s survey of state legislative fiscal officers, between FY 2008–FY 

2013, states closed a cumulative $527.7 billion budget gap, primarily through program reductions. While some states have showed a slight increase in revenues, 

other states are still facing budget deficits and sluggish revenues. For FY 2012, 

states have closed over $72 billion in state budget deficits. 

With the enactment of the Federal Budget Control Act and the resulting sequestration, states are preparing for additional reductions to many state Federal programs. The likely $400–$500 billion in reductions in Federal funds as a result of 

deficit reduction coupled with the over $500 billion in state budget reductions during the recession will mean that states have $1 trillion less for many essential programs than states had only five years ago. Raising taxes in sluggish economy is not 

a viable option for most states, and closing the loophole on sales tax collection will 

provide states with additional revenue without having to raise new taxes. 

According to the Center for Business and Economic Research at the University 

of Tennessee, in 2003, the estimated combined state and local revenue loss due to 

remote sales was between $15.5 billion and $16.1 billion. For electronic commerce 

sales alone, the estimated revenue loss was between $8.2 billion and $8.5 billion. 

The report from the University of Tennessee further estimates that the revenue loss 

will grow and that this year, 2012, the revenue loss for state and local governments 

could be as high as $23 billion, of which it is estimated that $11.4 billion would be 

from sales over the Internet. (See Table 1) 

107 

Table 1.—Combined State & Local Revenue Losses from E-Commerce and All Remote 

Commerce—2012 

Source: Dr. Donald Bruce & Dr. William Fox, Center for Business & Economic Research University of Tennessee 

Total 

All Out of State 

Electronic Sales 

Total 

All Out of State 

Sales 

Alabama 170,400,000 347,734,399 

Alaska 1,500,000 3,035,981 

Arizona 369,800,000 708,628,254 

Arkansas 113,900,000 236,311,930 

California 1,904,500,000 4,159,667,947 

Colorado 172,700,000 352,563,574 

Connecticut 63,800,000 152,367,405 

District of Columbia 35,500,000 72,517,182 

Florida 803,800,000 1,483,690,010 

Georgia 410,300,000 837,610,389 

Hawaii 60,000,000 122,514,495 

Idaho 46,400,000 103,120,482 

Illinois 506,800,000 1,058,849,588 

Indiana 195,300,000 398,817,708 

Iowa 88,700,000 181,012,560 

Kansas 142,900,000 279,224,028 

Kentucky 109,900,000 224,484,309 

Louisiana 395,900,000 808,311,357 

Maine 32,100,000 65,430,824 

Maryland 184,100,000 375,944,240 

Massachusetts 131,300,000 268,002,460 

Michigan 141,500,000 288,954,339 

Minnesota 235,300,000 455,219,250 

Mississippi 134,900,000 303,286,360 

Missouri 210,700,000 430,191,928 

Nebraska 61,300,000 118,052,068 

Nevada 168,900,000 344,923,618 

New Jersey 202,500,000 413,390,425 

New Mexico 120,500,000 245,989,786 

New York 865,500,000 1,766,968,251 

North Carolina 213,800,000 436,517,492 

North Dakota 15,300,000 31,274,219 

Ohio 307,900,000 628,613,189 

Oklahoma 140,800,000 296,348,658 

Pennsylvania 345,900,000 706,241,542 

Rhode Island 29,000,000 70,436,458 

South Carolina 124,500,000 254,290,538 

South Dakota 29,800,000 60,826,849 

Tennessee 410,800,000 748,480,889 

Texas 870,400,000 1,777,090,593 

Utah 88,500,000 180,658,961 

Vermont 25,100,000 44,759,329 

Virginia 207,000,000 422,651,971 

Washington 281,900,000 540,968,704 

West Virginia 50,600,000 103,284,206 

Wisconsin 142,100,000 289,006,114 

Wyoming 28,600,000 61,744,705 

Total 11,392,700,000 23,260,009,564 

We believe that the Marketplace Fairness Act would allow the states to close this 

significant and growing loophole in our sales tax revenue and level the playing field 

for all sellers regardless of the medium used to conduct a transaction. S. 1832 also 

ensures that our constituents do not fall guilty to tax avoidance. While the $23.3 

billion in uncollected sales taxes will not much any funding reductions from the Federal Government, it will provide state with some fiscal relief. In the words of Senator Roy Blunt, a sponsor of this legislation, it is ‘‘fiscal relief for the states that 

does not cost the Federal Government a single dime.’’ 

Thank you. 

108 

PREPARED STATEMENT OF THE NATIONAL ASSOCIATION OF CHAIN DRUG STORES

Chairman Rockefeller, Ranking Member Hutchison, the National Association of 

Chain Drug Stores (NACDS) thanks you for the opportunity to provide a written 

statement to the Committee on Commerce, Science & Transportation hearing on, 

‘‘Marketplace Fairness: Leveling the Playing Field for Small Businesses.’’ 

NACDS represents traditional drug stores, supermarkets, and mass merchants 

with pharmacies—from regional chains with four stores to national companies. 

Chains operate more than 40,000 pharmacies and employ more than 3.5 million employees, including 130,000 pharmacists. They fill over 2.6 billion prescriptions annually, which is more than 72 percent of annual prescriptions in the United States. 

The total economic impact of all retail stores with pharmacies transcends their $900 

billion in annual sales. Every $1 spent in these stores creates a ripple effect of $1.81 

in other industries, for a total economic impact of $1.76 trillion, equal to 12 percent 

of GDP. 

We applaud the Committee for holding this hearing to examine the loophole that 

prohibits states from requiring Internet and other remote sellers to collect sales and 

use taxes. This loophole, created in 1992 by the Supreme Court opinion in Quill 

Corp. v. North Dakota, has resulted in an uneven playing field for local businesses 

such as chain pharmacies. 

The retail pharmacy industry is highly competitive, with an average profit margin 

of 2 percent. Chain pharmacies compete in the marketplace aggressively, offering 

competitive prices on a wide variety of products, ensuring convenience for their customers, and providing prescription drugs and important healthcare services such as 

immunizations. Chain pharmacies are under constant market pressure to deliver a 

competitive value. 

However, chain pharmacies, like other brick-and-mortar retailers, are at a competitive disadvantage, since the Quill decision provides online-only companies with 

a price advantage of as much as 10 percent. This inequity threatens the ability of 

Main Street businesses, which are so critical to the economic vitality of their communities, to compete. 

Local businesses are not alone in the competitive disadvantage created by the 

Quill decision. States, struggling to address budget challenges in this difficult economy without raising taxes, are denied the ability to collect sales taxes that are already owed to them. In testimony on behalf of the National Governors Association, 

Tennessee Governor Bill Haslam estimated his state is unable to collect $400 million in sales tax annually—nationally an estimated $20 billion in sales tax goes uncollected each year (Statement of Governor Bill Haslam, U.S. House of Representatives, Committee on the Judiciary, July 24, 2012). 

The inability of states to collect sales taxes owed to them has a direct impact on 

communities, limiting funding for roads, schools, healthcare services, law enforcement and other basic services. As Congress grapples with reducing the deficit, Federal funding to the states is likely to be reduced. This makes it even more critical 

to provide states with the ability to collect the taxes owed by their residents. 

The problem of uncollected sales taxes will only increase as e-commerce grows. 

Forrester Research estimates Americans will spend $327 billion in 2016 shopping 

online, an increase of 45 percent from 2012 and a 62 percent increase from 2011 

(Forrester Research, U.S. Online Retail Forecast, 2011 to 2016). Action is needed 

by Congress now to level the playing field for states and Main Street businesses. 

NACDS supports, S. 1832, the Marketplace Equity Act, introduced by Senator 

Mike Enzi, as a means to address the growing problems of uncollected sales tax. 

We thank Chairman Rockefeller for co-sponsoring this important legislation, as well 

as other Committee on Commerce, Science & Transportation members Senators 

Blunt, Boozman, Inouye, Klobuchar, and Pryor. This bipartisan legislation would 

give states the authority to manage their sales tax laws, providing a path forward 

for states to collect sales taxes, simplify their sales tax statutes, and assist vendors 

with compliance, while providing for a robust small business exemption. Enactment 

of S. 1832 would help preserve Main Street businesses that are critical to the economic vitality of their communities and empower states to address their budget 

challenges without raising taxes, or adding to the Federal deficit. We urge all members of the Committee to co-sponsor S. 1832, report it favorably, and work towards 

its passage by the full Senate. 

Thank you for the opportunity to share our views. We look forward to working 

with you on this important legislation. 

109 

1David Campbell, Chief Executive Officer of The Federal Tax Authority (FedTax), founded the 

company in 2008. FedTax is a Washington State Limited Liability Company with operations in 

Washington, Connecticut, and Kansas. Its management team includes highly experienced professionals who have been directly involved in building some of the most recognizable brands in ecommerce, including MasterCard, Google, WebMD, Microsoft, Expedia, and American Express. 2 Joan Wagnon served as Secretary of Revenue in Kansas from 2003 to 2011. She also chaired 

the Streamlined Sales Tax Governing Board in 2008–9 and the Multistate Tax Commission from 

2006 to 2008. She served on the Board of Directors of the Federation of Tax Administrators for 

8 years before joining FedTax to work toward the passage of Federal legislation granting states’ 

collection authority over remote sales. 3The notion that out-of-state retailers would find it overly burdensome to keep track of every 

state’s sales tax rules can be traced directly to the 1967 Supreme Court ruling in National 

Bellas Hess v. Illinois Department of Revenue. In its majority opinion, the court ruled that ‘‘the 

many variations in rates of tax, in allowable exemptions, and in administrative and record-keeping requirements could entangle National’s interstate business in a virtual welter of complicated 

obligations to local jurisdictions’’ (emphasis added). 

In 1992, the matter of remote sales tax collection came before the Supreme Court again in 

Quill v. North Dakota. This time, the court reaffirmed the earlier Bellas Hess decision by a ruling of 8 to 1, primarily on the basis of stare decisis. The ruling went on to state, ‘‘[O]ur decision 

is made easier by the fact that the underlying issue is not only one that Congress may be better 

qualified to resolve, but also one that Congress has the ultimate power to resolve.’’ 

FedTax frequently cites the earlier Bellas Hess quote because it summarizes the ruling’s basis 

in complexity and burden, which has rippled forward to the present day and created a tidal 

wave of unintended consequences. This ruling has shielded all out-of-state retailers from the obligation to collect sales tax, based on the notion that it would place too much of a burden on 

businesses. Perhaps it would have, in 1967. That was the year the floppy disk was invented 

at IBM. 4States typically depend on voluntary means of collecting from individuals, such as a voluntary line on the income tax form. Audit procedures, which are used for businesses, are ineffective for consumers. 5On Cyber Monday (the first Monday after Thanksgiving) in 2011, over $1.2 billion in sales 

were transacted online. On that day alone, approximately $58 million in sales tax went uncollected. 

PREPARED STATEMENT OF R. DAVID L. CAMPBELL,1 CHIEF EXECUTIVE OFFICER AND

JOAN WAGNON,2 EXECUTIVE VICE PRESIDENT, THE FEDERAL TAX AUTHORITY, LLC 

Alexander Hamilton wrote in The Federalist in 1788 that ‘‘individual States 

should possess an independent and uncontrollable authority to raise their own revenues for the support of their own wants.’’ 

Today the discussion about state sovereignty over matters of taxation continues 

unabated. State revenue directors have seen firsthand how the actions of the Federal Government have affected state and local revenues. Members of Congress are 

increasingly bombarded by requests for action because state laws are restrictive to 

business or seen as unfair. There are any numbers of examples where congressional 

action has been beneficial or harmful to states. 

But the issue that has been most devastating to state and local government has 

resulted from Congressional inaction, rather than action: the failure of Congress to 

overturn Quill v. North Dakota.3

The Marketplace Fairness Act (MFA), S. 1832, sponsored by a bipartisan group 

of senators (Enzi, Durbin, Alexander, et. al.) is a good solution to the revenue problems of states, but more importantly, it gives states a better mechanism than they 

have now to collect the taxes they already levy.4

The MFA also corrects a growing imbalance between groups of retailers. Under 

the current court ruling, tax is collected on some sales and not on other sales of 

the exact same items. Why should tax be collected on a book or camera purchased 

from a local business and not on an identical item purchased from a mail order or 

Internet business? 

Remote sales are growing at double digit rates.5 However, states’ inability to collect sales tax on these sales results in the erosion of the states’ tax bases. Certainly 

this unfairness is not the hallmark of good tax policy! Congress is creating winners 

and losers among the retail community by its inaction. 

Opponents cite two specific reasons for allowing this unfair situation to continue: 

(a) that remote collection would be overly burdensome and complex, and (b) that any 

systems necessary for remote collection would be prohibitively costly. This testimony 

will provide technical information for Congress to consider when evaluating those 

arguments. 

I. The Complexity Argument 

Technology has advanced considerably since the 1967 and 1992 Supreme Court 

rulings that created the current sales tax situation. Even the more recent of these, 

Quill, occurred before the first graphical browser was invented, before most homes 

110 

6FedTax has been designated a Certified Service Provider (CSP) by the Streamlined Sales Tax 

Governing Board specifically for its TaxCloud service. There are six CSPs and 24 member and 

associate member states. 7 Although ‘‘software and services’’ is not defined in the Marketplace Fairness Act, likely it 

will include Application Programming Interfaces (APIs), Web Services, rates and boundaries 

databases, and a process for certifying service providers to process returns accurately under 

state laws. 

had Internet connections, and long before e-commerce forever changed the retail 

landscape. Today, forty-five years after Bellas Hess and twenty years after Quill, on- line marketplaces and auction sites easily manage millions of items for sale at any 

given moment. 

Today, keeping track of a few thousand local tax rates and filing requirements 

is not an insurmountable technical, administrative, or financial burden. TaxCloud, 

the sales tax management system created by FedTax, proves this point by calculating and collecting sales tax on any purchase for any tax jurisdiction in the United 

States in less than one second. The service is free to all retailers. 

The technologies necessary to create such a system are not new; they are wellestablished. In fact, they are currently being used throughout e-commerce. They are 

Application Programming Interfaces and Web Services. An Application Programming Interface (API) allows dissimilar and unrelated systems to communicate with 

each other using pre-established syntax and structure. Web Services allow APIs to 

be used for machine-to-machine interactions over the internet. Both are now commonly used in e-commerce—for example, in real-time-shipping, which allows a retailer to provide its customers with accurate, real-time quotes for shipping costs 

based on at least five variables, including weight, size, delivery speed, origin, and 

destination. Often customers can even compare shipping costs among multiple shippers. 

With APIs, Web Services, and other technological advances of the past twenty 

years, it is now possible for remote retailers to easily keep track of every state’s tax 

laws. 

To minimize or completely eliminate the undue burdens cited in Bellas Hess and 

Quill, more than half of the states with sales tax have worked together for twelve 

years to create the Streamlined Sales and Use Tax Agreement (SSUTA). These 

states provide free rates and boundaries databases for all of their respective taxing 

jurisdictions, and regularly issue updates when rules, rates, or boundaries change. 

In addition these states also certify and pay for software and service providers to 

manage sales tax compliance on behalf of retailers.6 The Marketplace Fairness Act 

requires that any states seeking remote collection authority shall comply with 

SSUTA or provide comparable rates and boundaries information as well as certified 

software and services that retailers can rely upon to achieve compliance with minimal burden.7

Ironically, those who argue most strenuously that remote collection would be too 

complex are a few large online businesses that already rely on these same technologies every day, in every transaction. The plain fact is that eBay operates the 

largest marketplace in the history of the world by relying on technology to simplify 

and automate a host of historically burdensome chores, including payment automation, location-specific marketing, personalized recommendations, and for foreign governments, they even help their sellers manage Duties and Value Added Tax—Why 

don’t they help their sellers manage sales tax in the United States? Simply put, because they don’t have to. 

II. The Costs-of-Compliance or Undue Burden Argument 

Opponents also argue that even if technology can solve the technical burden of 

keeping track of rates, jurisdictions, and filing complexities, such software would be 

prohibitively costly, particularly for small businesses. TaxCloud is provided to retailers at no cost—so the argument that such software would be prohibitively costly 

should be flatly disregarded. However, the costs-of-compliance argument also maintains that even if the software is free, businesses will still be burdened with the 

cost of integrating such software into their existing systems. 

This line of argument ignores the reality that all but the very largest retailers 

rely upon pre-written software and/or online hosted platforms for e-commerce and 

order management. Retailers rely upon these systems to avoid the costs of developing, managing, and maintaining such systems on their own, costs that are magnified by the changing nature of e-commerce. It is no secret that e-commerce is constantly changing to respond to evolving cyber-crime threats, payments and security 

industry best-practices, and, yes, legislative requirements. When their retailer clients need to collect sales tax, platform vendors will provide ways for them to do so, 

embedded within the platforms that retailers already use. 

111 

E-commerce platform vendors are intensely competitive and focused; they take 

pride in not only complying with evolving requirements but often surpassing them, 

occasionally with stunning results. For example, much of the cloud computing infrastructure now transforming every corner of the technology sector can be traced to 

several of the largest e-commerce companies adapting to comply with the Sarbanes 

Oxley Act of 2002. Most platforms already provide basic sales tax management features for their clients. Upon enactment of MFA, these existing systems will quickly 

be adapted to ensure compliance. 

An analogy can be made to the automotive industry. There are many cars on the 

road today, but almost all of them were produced by an easily identifiable group of 

manufacturers. In 1968, a Federal law was enacted requiring seatbelts in cars. Ignoring the role of manufacturers, proponents of the cost-of-compliance argument 

would have portrayed a situation in which every car operator in the United States 

had to pay for and install seatbelts in their cars. Obviously that’s not the case; nor 

is it the case that retailers will need to pay for and install their own systems to 

handle sales tax collection. 

To conclude, modern technology has made it easy for retailers to collect sales tax 

for any address in the United States. TaxCloud enables retailers of any size to easily collect sales tax and comply with the provisions of The Marketplace Fairness 

Act—for free. More information is available at TaxCloud.net. 

And in addition to TaxCloud, five other companies are certified by the Streamlined Sales Tax Governing Board and ready to assist when Congress authorizes collection—and no doubt hundreds more will emerge soon after legislation is passed, 

because the free-market system will provide the incentive for entrepreneurs and 

innovators to develop these products. 

Please enact the Marketplace Fairness Act. Passing this bill can be the foundation 

for future reform as well as provide great benefit to both state and local governments. Passing this bill benefits consumers, by shielding them from inadvertent tax 

evasion due to the unreasonable expectation of voluntary self-reporting and remittance of use taxes. Finally, passing this bill will benefit business large and small, 

by incentivizing states to modernize and simplify their sometimes arcane and incomprehensible sales tax rules. Congressional action is needed now more than ever to 

restore balance to the retail industry by guiding states to enact forum-neutral sales 

tax policies and ensure equal justice under law. 

R. DAVID L. CAMPBELL, 

Chief Executive Officer. 

JOAN WAGNON, 

Executive Vice President. 

STATEMENT OF KELLY WILLIAM COBB, GOVERNMENT AFFAIRS MANAGER, 

AMERICANS FOR TAX REFORM

Introduction 

Chairman Rockefeller, Ranking Member Hutchison, and Members of the Senate 

Commerce, Science, and Transportation Committee, thank you for the opportunity 

to submit written testimony on behalf of Americans for Tax Reform on the issue of 

remote state sales tax collection and physical presence. 

Americans for Tax Reform advocates for a system in which taxes are simpler, flatter, more visible, and lower than they are today. However, ATR is concerned that 

the Marketplace Fairness Act (S. 1832), sponsored by Sens. Dick Durbin (D–Ill.) and 

Mike Enzi (R–Wyo.), would not only raise tax revenue on net for states, but also 

fail to adequately simplify the tax code and erode the physical nexus standard that 

protects Americans from the tax laws of other states. 

Under the U.S. Supreme Court’s ruling in Quill v. North Dakota, it is a violation 

of the Commerce Clause for a state to require an online or remote retailer without 

a physical presence in that state to collect and remit the sales tax. This is not a 

‘‘tax loophole’’ as some would suggest, but law derived directly from the U.S. Constitution. The Marketplace Fairness Act would overturn the Quill decision, permitting overzealous state tax collectors to reach well outside their borders to force online and other out-of-state retailers to collect their state’s sales tax. 

The effects on taxpayers of the Marketplace Fairness Act and similar legislation 

would be dramatic. From a taxpayer perspective, any bill that touches remote sales 

taxes must preserve the physical presence standard and protect consumers on net 

from a higher tax burden. Unfortunately, the Federal online sales tax bills miss the 

mark widely on both fronts. 

112 

State-level Tax Burden Will Increase 

Proponents of Federal Internet tax legislation repeatedly claim that the measure 

is not about new taxes. The Marketplace Fairness Act even includes a section called 

‘‘No New Taxes,’’ which enshrines little into law except rhetoric. Yet, proponents are 

also quick to point out that it would raise as much as $23 billion in tax revenue 

from consumers at the state level. 

While consumers do currently owe ‘‘use tax’’ on products they purchase online and 

out-of-state, compliance is scant and most states have failed to even undertake basic 

enforcement mechanisms, such as including use tax collection on income tax forms. 

Yet, use tax is simply not the same as a sales tax, which is actually owed by retailers that may legally pass the tax liability onto consumers. Where they do find 

common ground is their basis in the current physical nexus standard: businesses 

with a physical footprint in a state remit ‘‘sales tax,’’ and consumers with footprint 

remit ‘‘use tax.’’ 

The Marketplace Fairness Act would force out-of-state retailers to collect and 

remit sales taxes—to say nothing of consumer-paid use taxes. This is a fundamental 

change in tax law and certainly a new form of taxation. Furthermore, for the numerous retailers who do not pass sales tax liability onto their consumers at the register, this legislation amounts to a new out-of-state tax that will come directly out 

of a business’s bottom line. 

Proponents also claim remote sales are ‘‘eroding’’ the sales tax base and without 

Federal action states will raise other taxes to compensate for a drop in revenues. 

First, this grossly overstates whatever problem might exist. According to one study, 

this so-called erosion amounts to ‘‘less than three-tenths of one percent of state and 

local tax revenues.’’ 

Second, it ignores that states can also solve budget shortfalls by cutting spending. 

As GDP plummeted during the last recession, states increased spending by 8.4 percent. Fiscally responsible lawmakers should not be encouraging states to engage in 

such profligate spending by pushing for a measure that will raise as much as $23 

billion in tax revenue at the state level. 

Dissolving Physical Nexus Weakens a Fundamental Taxpayer Protection 

The physical nexus standard is a staple of our tax code, preventing states from 

reaching across their borders to force out-of-state businesses or individuals to comply with their tax codes—whether it be collecting, remitting, or even paying taxes. 

The Marketplace Fairness Act will dissolve this physical nexus requirement for collecting sales taxes. 

The Marketplace Fairness Act also opens the door—at least to conversation— 

about other forms of ‘‘economic nexus’’ standards that would permit states to apply 

their tax codes to non-residents with mere economic presence in the state. Codified 

in many different forms across the country, the economic standard grants nebulous 

authority to force out-of-state, non-residents to comply with a state’s tax code. The 

gradual shift to economic nexus is an attempt by states to raise tax revenue beyond 

what their own economies and taxpayers can sustain. 

Economic nexus poses a direct threat to the principle of republican governance by 

the people, shifting the cost of government to non-residents. It also violates the 

‘‘benefits principle’’ by pushing the tax burden onto those that receive no direct benefit from the state. 

To put it simply, measures to dissolve the physical presence standard have the 

potential to usher in the second coming of taxation without representation in America. 

Outsources State Tax Rules to an Unelected Body 

Under the Marketplace Fairness Act, twenty-four states operating under the 

Streamlined Sales and Use Tax Agreement (SSUTA) would be able to tax remote 

sales almost automatically. Remaining states would have to comply with a number 

of requirements or choose to join the Streamlined Sales Tax Project (SSTP). 

Reliance on SSUTA allows a handful of tax administrators and state lawmakers 

on the Streamlined Sales Tax Governing Board—which has long advocated for tearing down the physical nexus standard for sales taxes—to control remote sales tax 

decisions for states and incents the states that are not part of SSUTA to join. NonSSUTA states will watch helplessly as the ‘‘streamline states’’ hassle their resident 

businesses to collect more tax revenue. 

Tax Code Complexity Will Increase 

The Marketplace Fairness Act will force online, catalog, TV and other remote retailers to comply with over 9,600 sales tax jurisdictions across the country. First, 

whatever un-level playing field for tax collection does exist would be perpetuated— 

113 

not resolved—by the Marketplace Fairness Act. In fact, the scales would be tipped 

against remote retailers, who would have to comply with the 9,646 tax jurisdictions 

across the country, while brick-and-mortar stores would comply with only the one 

where they are located. 

While SSTP purports to simplify the tax code, the Marketplace Fairness Act’s reliance on it will further increase complexity. Since SSTP’s creation over a decade ago, 

the number of sales tax jurisdictions across the country has skyrocketed. The roughly 8,000 tax jurisdictions in existence in 2009 have risen to 9,646 today—with an 

average of 651 new or different sales tax rates or jurisdictions every year. 

Additionally, by attempting to define very specific goods and services, SSTP’s pursuit of uniformity between state tax codes has created even worse complexity. For 

example, SSTP has long struggled with defining specific products, such as ‘‘candy’’ 

and ‘‘cereal’’ that can both contain very similar ingredients. Such Platonic collectionand-division-style tactics by SSTP to create uniformity and simplicity not only create enormous complications in our tax codes but also are by design destined for failure. Instead, states should work toward the opposite end: scrapping definitions for 

individualized goods and services. 

SSTP also allows for diverse and discriminatory tax rates on various goods, even 

to the point of carving out exceptions for various member states. Defining goods 

more generally instead of individually would also help to eliminate discriminatory 

state and local tax rates on specific goods. 

While it is true that software—if frequently updated—could calculate the sales tax 

rate for each jurisdiction, software cannot keep track of the varied definitions for 

taxing goods and can hardly advise a retailer of these complex determinations. A 

computer cannot, for example, determine if a KitKat bar should be considered 

‘‘candy’’ or more generally as ‘‘food,’’ since items that contain flour under SSTUA are 

not considered candy. This is but one example of controversial determinations made 

by SSTP. 

Preserving Physical Nexus and Preventing a Higher Tax Burden 

Instead of pursuing the Marketplace Fairness Act, Congress should look toward 

strengthening the physical presence standard, which is being slowly eroded by revenue-hungry states. With regard to remote sales, origin-based sourcing—whereby 

tax is based on the jurisdiction of the seller rather than the buyer—is one option 

to preserve the physical nexus standard while addressing remote sales. 

Regardless of the path, any effort to tax remote sales must preserve physical 

nexus and be made revenue neutral at the state level to ensure that the net tax 

burden on consumers does not rise. 

The Senate should also take up legislation that would help to strengthen the 

physical presence standard in other ways. Lawmakers should consider the Business 

Activity Tax Simplification Act, or BATSA (H.R. 1439), which has been introduced 

in the U.S. House of Representatives by Rep. Bob Goodlatte (R–Va.). 

BATSA establishes a clear physical presence standard for taxing multistate businesses engaged in cross-border transactions. The bill will help to foster inter-state 

economic activity by eliminating the burden for businesses of having to comply with 

varying and complex state income tax laws. As Congress considers measures like 

the Marketplace Fairness Act and as nearly half of states have already sought to 

loosen their physical nexus standard, BATSA could not come at a more critical juncture. 

Conclusion 

Congress has well-established Constitutional authority to regulate interstate commerce and related tax laws. However, with that tool in mind, it is critically important that Congress work toward lowering the tax burden and strengthening the 

physical nexus standard that was reaffirmed in Quill v. North Dakota. Unfortunately, the Marketplace Fairness Act and similar measures under consideration by 

Congress today would do the opposite. 

114 

STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS

Providence, RI, August 1, 2012 

Hon. JOHN D. ROCKEFELLER IV, 

Chairman 

Committee on Commerce, Science, and 

Transportation, 

U.S. Senate 

Washington, DC. 

Hon. KAY BAILEY HUTCHISON, 

Ranking Member, 

Committee on Commerce, Science, and 

Transportation, 

U.S. Senate 

Washington, DC. 

Dear Chairman Rockefeller and Senator Hutchison: 

Thank you for scheduling a hearing on an important piece of legislation for all 

states, S. 1832, The Marketplace Fairness Act. This bipartisan bill, introduced by 

Senators Alexander (R–TN), Durbin (D–IL), Enzi (R–WY), and Johnson (D–SD) 

would authorize states that are members of the Streamlined Sales and Use Tax 

Agreement to collect state sales taxes from online remote vendors on transactions 

into their states that are already owed to state governments. 

I have long advocated for passage of Main Street fairness legislation, and last 

year I sent letters to every Governor encouraging their support of Federal legislation. This bill presents an opportunity for states to modernize their tax systems and 

perhaps more importantly to the business owner, helps level the playing field between Main Street stores and online retailers. 

While it is estimated that Rhode Island would collect an additional $70.4 million 

in sales and use tax remittance from remote sellers in the first year after passage 

of Federal legislation, my commitment to fairness between bricks and mortar retailers and online sellers runs deeper than that. The Fiscal Year 2012 state budget that 

I signed into law included a provision that would trigger a reduction of the state 

sales tax from 7 percent to 6.5 percent if Federal Main Street fairness legislation 

passed; and this Fiscal Year 2013 budget that I approved includes an elimination 

trigger of an expanded sales tax on clothing purchases greater than $250 that would 

exempt state sales tax collection on clothing purchases. With those two provisions 

in Rhode Island state statute, passage of The Marketplace Fairness Act would have 

a net impact of $457,854 in increased revenue. However, at the end of the day, 

Rhode Island businesses will be able to compete on a level playing field with online 

sellers, and Rhode Island consumers will benefit from a reduced state sales tax burden. 

As I have traveled across my state visiting communities and talking to businesses, 

this topic of fairness often comes up. A bookstore owner in Middletown tells me 

about patrons browsing books in the store, only to leave without making a purchase. 

Is it fair for that Main Street store to lose business to online companies just because 

online retailers are not collecting state sales tax? Internet shopping is not going 

away, and it is clearly time to treat similar sales transactions equally. 

As many states and businesses continue to struggle in this economy, I encourage 

you to authorize states to collect sales and use taxes on online sales and give local 

businesses the opportunity to compete fairly with online retailers. I urge you to support The Marketplace Fairness Act and act swiftly to markup and ultimately pass 

this legislation. 

Sincerely, 

LINCOLN D. CHAFEE, 

Governor. 

cc: Members of the Senate Commerce, Science, and Transportation Committee 

August 1, 2012 

Hon. JOHN D. ROCKEFELLER IV, 

Chairman, 

United States Senate Committee on 

Commerce, Science, and 

Transportation, 

Washington, DC. 

Hon. KAY BAILEY HUTCHISON, 

Ranking Member 

United States Senate Committee on 

Commerce, Science, and 

Transportation, 

Washington, DC. 

Dear Chairman Rockefeller and Ranking Member Hutchison: 

Thank you for convening a hearing to explore changes to Federal policy that 

would require U.S. businesses to collect and remit sales taxes for purchases made 

by remote customers. Changes to Internet sales tax law have long been of importance to the eBay Marketplace and the hundreds of thousands of small businesses 

and entrepreneurs that use our platform. 

115 

While eBay Inc. is a large company, we have an interest in small retail businesses’ success and growth. For the past 16 years, the eBay Marketplace has served 

as a platform for small business retailers and a tool to encourage small business 

development and entrepreneurship. We are a facilitator for small business retailers—not a competitor—and we have experienced firsthand the challenges that small 

retailers face in the current retail environment. 

In November 2011, I appeared before the U.S. House Committee on the Judiciary 

to testify on the issue of sales taxes on the Internet, representing the interests of 

our company and the small businesses we serve. At the November 2011 hearing, I 

shared eBay’s concerns that proposed Internet sales tax policies, including the Marketplace Fairness Act (S. 1832), would negatively impact small business retailers in 

every state. 

The ability of small business retail to play a meaningful role in the 21st Century 

retail marketplace is critical for expanding retail competition, developing new businesses and better serving consumers. I would like to reaffirm our support for small 

business protections and reiterate three of eBay’s major concerns with the current 

Internet sales tax debate: 

• Big Retail v. Small Retail: Multi-billion-dollar retailers increasingly dominate 

online retail, just as they do ‘‘in-store’’ retail. Even under current sales tax law, 

small online retailers have lost 11 percent of their share of the U.S. e-commerce 

market in just two years. What would happen when they would be forced to collect and remit in over 9,600 tax jurisdictions, driving up the costs of their products in states where they do not have stores and distribution centers to use to 

serve customers locally? 

• Fairness and Sameness: Many have claimed that ‘‘fairness’’ means that all retailers using the Internet should be held to the same remote sales tax standard. 

Under the status quo, small businesses are not treated the same as their larger 

competitors. For example, small businesses do not benefit from volume-driven 

pricing or shipping prices, and small businesses do not benefit from local and/ 

or state tax deals that the large national retailers often receive. Is it really fair 

that small businesses should be held to the same tax collection standard as 

mega-retailers? 

• Misleading Data: There are those that believe small businesses should not be 

protected from new sales tax burdens. In an effort to sway policymakers, Amazon and other supporters of the Marketplace Equity Act have publicized a study 

entitled, Online Retail Sellers and Sales Volume Thresholds, which suggests a 

majority of small businesses would be protected by the small seller threshold 

contained in the dominant House and Senate Internet sales tax bills. The study 

is deeply misleading, as it distorts retailer data by including millions of consumers who occasionally sell on the Internet in its data. In short, very small 

volume casual sellers (the Internet-enabled equivalent of garage sales) are 

counted as retailers in that study in an attempt to validate imposing tax burdens on retailers that are very small businesses. 

The Internet and Small Business Growth 

eBay Inc. connects millions of buyers and sellers across the globe everyday 

through the eBay platform, which is the world’s largest online marketplace and 

through PayPal, which enables individuals and businesses to securely, easily and 

quickly send and receive online payments. We also reach millions of consumers 

through specialized marketplaces such as StubHub, the world’s largest resale ticket 

marketplace, and eBay Classifieds sites, which, together, are available in more than 

1,000 cities around the world. 

Among those that use the eBay platform are hundreds of thousands of U.S. small 

businesses and entrepreneurs who are located in every state and congressional district in the country. The Internet and the eBay marketplace provide these small 

businesses and entrepreneurs with relatively low-cost access to potential buyers far 

outside the limits of their traditional geographic footprint. Small business retailers 

have always been at the heart of the eBay business model, and eBay cares about 

how Federal legislation impacts them. 

Regardless of the size of a retailer, technology and the Internet are now central 

to almost every retail business model. By opening up new markets, the Internet empowers particularly small businesses to reach a global consumer base, opening up 

international markets to small business retailers in ways unimaginable just fifteen 

years ago. So, the very idea that this debate is about ‘‘Online Retail’’ v. ‘‘Offline Retail’’ is a false paradigm. All 21st Century retail business models have some physical 

facilities, whether stores, management offices, warehouses or distribution centers, 

and use the Internet alongside other technology tools. 

116 

1 ConsumerReports.org. (July 2010). America’s Top Stores: 30,000 Readers Reveal the Best 

Places to Shop for Practically Anything. Consumer Reports 

Big Retail v. Small Retail 

The sales tax debate has really come down to ‘‘Big Retail’’ v. ‘‘Small Retail’’ and 

whether or not it is smart public policy to treat a small business retailer the same 

as a multi-billion dollar retailer. Over the past 30 years, giant retailers have grown 

more dominant, while small independent retailers have been pushed to the edges. 

As I testified in November 2011, big-box retailers accounted for 42 percent of total 

retail sales in 1987. As of July 2010, their market share had jumped to 87 percent.1

In addition, retail giants make up 18 of the Top 25 retail websites today. eBay is 

not calling on the Congress to change laws to turn this trend around, but we do 

oppose changes in law that would disadvantage small retailers online. 

Retail giants are trying to use a bill named the Marketplace Fairness Act (S. 

1832) to disadvantage small businesses and require them to have the same tax burden, even though they do not have the physical presence or other benefits that larger retailers enjoy. For example, Amazon has been a retailer with facilities in the 

state of Tennessee, along with over 20 other states, for many years and, yet, has 

not been required to collect sales taxes in the state. Amazon has successfully leveraged its size in states across the country to receive an exemption from collecting 

sales taxes for several years in exchange for adding to their in-state facilities. Interestingly, these same deals have not been applied to the small businesses that use 

their platform. 

The small business retailer, when using the Internet to compete for sales with 

customers who are far away, does not benefit from local facilities. They enter the 

fray without the benefit of stores, distribution centers and other local facilities that 

can help serve customers. On the other hand, the largest retailers have national 

store or distribution networks and can offer key services like in-store pick up, fast 

and free shipping, and in-store returns of items bought online. Consumers value 

those features, and as a result, large retailers are commanding more and more market share year over year. 

While small business retailers are active online and are adopting technology, they 

do not enjoy any particular advantage, as previously stated, and, instead, face significant competition from large retailers that are also adopting the full range of 

technologies. Small business retailers using the Internet face meaningful threats. In 

fact, market share data helps cut through the rhetoric and illustrates that small 

business retailers face meaningful challenges today without a new tax burden being 

placed on them by the U.S. Congress. 


801EBAY1.eps
117 

2 Uncollected Sales Taxes on Electronic Commerce: A Reality Check’’; Eisenach and Litan: 

2010. 3 ‘‘The Fiscal survey of States: 2011’’: http://www.nasbo.org/sites/default/files/2011%20Fall 

%20Fiscal%20Survey%20of%20States.pdf 4Malowane, Laura and Stephen Siwek. Online Retail Sellers and Sales Volume Thresholds. 

Washington, D.C.: Economists Incorporated, 2010. 

Moreover, if small business retailers using the Internet were gaining unfair advantages from current remote sales tax laws, one would expect that their share of 

Internet sales would be growing. As you can see from the chart on the previous 

page, that is not the case. Just as importantly, the idea that small business retailers 

on the Internet are a threat to the survival of small business store fronts is ridiculous. The threat to small independent retailers is coming from giant multi-billiondollar competitors online and offline, which has been the case for nearly half a century. Taking the tax burden that comes with those local services and applying them 

to a remote small business will further tip the playing field against the small business retailer. 

Fairness and Sameness 

Some have claimed that a ‘‘level playing field’’ means all retailers, big and small, 

remote and in state, should collect the same sales taxes. However, it is important 

to keep in mind that the retail playing field is already un-level. We all know that 

small business retailers have proportionally higher costs of doing business. As previously mentioned, there are also many direct tax benefits enjoyed by the largest 

retailers that never flow down to their small business competitors. These include 

state and local property tax breaks and sales tax exclusions, like the Amazon example outlined above. 

There has also been discussion about how the current remote sales tax structure 

is unfair for state and local governments that face financial challenges in this current economic environment. eBay is sympathetic to states’ budget difficulties; however it is important to point out that recent reports have indicated that with the 

rise of the ‘‘Brick and Click’’ retailers who are now collecting and remitting in most 

tax jurisdictions, the amount of uncollected revenue has actually been dramatically 

reduced. In fact, according to a study by economists Jeffrey Eisenach and Robert 

Litan, uncollected revenues (from firms with more than $5 million in remote sales) 

will average approximately $2.67 billion over the 2008–2012 period, or about twotenths of one percent of total state and local tax revenues.2 Is it really fair to adopt 

a blanket sales tax law that would disadvantage small business retailers using the 

Internet for about two-tenths of one percent of total state and local tax revenues? 

In addition, in a recent report by the National Governors Association and the National Association of State Budget Officers, it appears state revenues are starting 

to improve, and 38 states reported that they had higher general fund spending in 

fiscal 2011 compared to fiscal 2010.3 While the recovery is ongoing, states are rebounding from the recession. Should we be placing additional burdens on small 

business job creators and jeopardizing their continued ability to contribute to state 

coffers through economic growth? 

Also, many states have chosen not to enforce their consumer Use Tax laws and 

have, instead, opted for an approach that would burden out-of-state businesses. Certainly, the Marketplace Fairness Act is a politically expedient alternative for state 

officials that are uninterested in enforcing their own laws. However, is it fair to authorize state tax commissioners to enforce their tax laws on non-resident businesses 

and jeopardize small businesses development with unforeseen costs? 

At eBay, we believe that if fairness truly is the goal of policy proposals, then current remote sales tax policies should be preserved for small businesses. Unfortunately, the Marketplace Fairness Act walks away from small business protections 

by dropping the ‘‘small business exemption’’ included in previous legislation and replacing it with a ‘‘small seller exception’’ that protects the Internet version of garage 

sales and hobby sellers. It is entirely fair to allow small business retailers to collect 

taxes only where they operate their business. 

Misleading Data 

There have been studies that claim that current Internet sales tax proposals protect over 99 percent of online sellers.4 The members of the Committee should be 

wary of these claims since the relied upon study does not differentiate between casual sellers who occasionally sell on the Internet and actual small business retailers 

that use the Internet as an integral part of their business. 

It is misleading to include occasional sellers in studies that claim to illustrate the 

impact of a tax increase on small businesses. No one expects an individual that casually sells their unwanted stuff online to collect and remit sales taxes the same way 

118 

5Small Business Administration 2012 size standards: http://www.sba.gov/content/tablesmall-business-sizestandards 

no one expects a garage sale to collect sales taxes. Distorting retailer data by including millions of consumers who occasionally sell on the Internet is an effort to hide 

the real negative impact on real small business retailers who are working to provide 

meaningful competition to established retail giants. 

Real Small Business Protection 

If you believe that real small businesses should not be harmed by a change in 

remote sales tax law, then the definition of a small business is an important one. 

Congress traditionally delegates authority to the Small Business Administration 

(SBA) to set small business size standards. The SBA’s unique position allows it to 

take into account the intricate differences in diverse business models.5 While eBay 

does not think the SBA should blindly adopt otherwise developed small business 

definitions (namely the SBA lending standards), we do think that the SBA could 

fairly define the profile of the small business that should be exempt from sales tax 

collection burdens. 

It is important to note that every previous remote sales tax proposal until the 

111th Congress has included small businesses protections, recognizing the playing 

field is unequal for small businesses. More specifically, proposals introduced in the 

107th through the 110th Congresses included a small business exemption of at least 

$5 million, or authorized the SBA to establish the exemption threshold. 

The current small seller exemption in the legislation being considered today is not 

only arbitrary and significantly below SBA levels, it is well below other small business definitions, such as the single $10 million in revenue level proposed last year 

by the U.S. Department of the Treasury. Tax legislation passed in both chambers 

has included an employee threshold to protect small businesses, and an employee 

threshold could offer a good method of setting an appropriate small business exemption in this context as well. 

There will always be retail small businesses and emerging small businesses, and 

they will always be deserving of relief from national-level tax collection in order to 

promote their growth into major retail businesses. For all of these reasons, eBay 

strongly supports S. Res. 309. This bipartisan resolution opposes new tax collection 

requirements for small online businesses and entrepreneurs. The Resolution, which 

was introduced by Senator Wyden and Senator Ayotte, calls for policies to maintain 

the principle that small businesses should not be held to the same standard as large 

retail businesses with significant presence. 

To conclude, eBay’s business is to help the small businesses that use our platform 

succeed in a challenging and rapidly changing retail world. Not surprisingly, our 

focus has been to protect small business retailers using the Internet. eBay strongly 

supports a robust small business exemption being included in any new remote sales 

tax regime and will continue to urge members of the Committee to do the same. 

Sincerely, 

TAD COHEN, 

Vice President and Deputy General Counsel, 

Government Relations, 

eBay Inc. 

119 


801BRIEF1.eps

Briefing I RESEARCH ·~ .. '!',. ' :.' :c:;' ,: 

The Taxman Cometh Online 

,\, • ""uI, of 11K: 1992 Supn.,.,," Coon rulml!, on 2J1ill C.mp. " ,\ ".,,;, J)dWd. 

bu,""""",,, "....., not "-'lUIl't<l 1(, cnU"". "', ... In,," Oil bch.lf of '"U" or 1"",.1 

)!O"mlln,"I" "nlrs, .hl- b",~"·,, lut' • IlI,"U' of "",,""1011' 11' the "'U', "flu, "'hn!! 

tl"'< ~ I'roc •• <1, .. ","8<' .. k.SI d ... ,j«-o f ,I.,. .. I"" ... 1o m.~-<",k' ."d/ .... It",,,,,,·, CVI"l""~~ ut· .... ""d" ~l1l bnc:k-.,~I-m.-.r .. ' ,-""bh,hm"",_ 

The pnce ,..]\":lIlUg< IS nol ehumpch.,,!!". }\ccordml! tn the :-:,00",1 C.<~,fcr<'llcc 

of St"" l.<')ll,I'IUIT', ,,>to; 10>. Sl8 bIn III uncollected ''"'c; m 2OOlI. of winch S7.7 

bl" WLTC .he IT,,,II of ol~mc 'n",.c',,,,,'. TIlL}''''"''''>!'' .h .. l<», .. , ' ..... ·<'1'0< .. wdl 

,ump to $23 bl" 111 2012, "'th roughl)' SI2.S bIn romn'll lrom c _commcret>. 

\X";,h Ioal ,...!Oil('<S 'l<uAAl"'g ffUm ,Ill' pn<c ,I,~h .. ,,, • .,.... .m.;I,Io" ,,,,.k ''''''''.om)' 

.",1 '"lte .,.J 1ocr1 go",.,.,,,,,,,,,,, III Ill'-...! "f ""'c,,uc .. . fter th., bou''''g bubbk en;l" 

,It",,' b,,~ h.,·c bt"" c,ucted ,,'th l"Duro ;ucc ... ; th .. force 1 "temet n'",ikN to 

roll."" sob u, .... 

That i. likely ,,,change, how",'''' 

l-<::"""". ,w Sol .. .. 0 ~".n' ... of Rei. SoIoo 

• 

,,-'"""''' 
120 


801BRIEF2.eps

Online VS. Brick-and-Mortar 

Amazon.com A.\Ii'.~') ~nd tho H~t" ofC..ahfom .. com" to~" ~grt'eme'" '" 2011 

tl .. t "-'1"",_"<1 l\muon to st.n <01"-'<1\\'11 stlte ."d 1oc.1 ",Ies .. xcs bcgr'''''''J; ", 

Scptcmlx-r 2012. ,\ma",,, "W""I to ,et "1' a f"lml",,,,,, OO'''"r '" San Bernard",o. 

I" ",n'Ml. Sa" Ikrnard",o c".",ded tn br<'3k, to Ama,-"n that .",arl), ~"l ... kd tlte 

IocoJ .... ,. ,\""WIl ,,'IS set to collect. 

S"nil1fagn"C""''''' we", nego"atod be,w""" }\",",on and the ""C of To .. " 

fore",); ~I" c·re .. iler to roIlect the 6.25' . stlte ",I", ta. on.1I ",Ie, st.n"'J;Jul), I, 

2012. 

Anothe, 'l1"'''''''' \\l1h the .... " of~c'\ .da will coil for A""zon to collect th.t 

" .. e, 8.1' . s.les ... bell''''''''g OOJ,". I, 201~. 

,'\, ,'\m. wn goes. til(' rest of oolnt(' .. ",ailtng will folio'"'' 

n,p.m,.n ,uI1"""' nt Co.tg1Cs<" gl'O''''''g to pas< the .\I ... ketpl:occ F.,,,,,'S. ,\ct. 

0,,«, en><t<'lt. thIS !:ow ,,"OUld , .. , .. 1:0"1,,,· tl", coll"""on method, of ,.Ic, Ia-'c, for 

OIJme t ... ",.coons. wh,d, wook! ",.kc n ,""er for romp.n .. ," tocOllll~), \11th 't:lte 

and Iocol ,,10. "" I'\I~ , Small hI",,,,,s<," " .. ,It ",I.,.. of I"" 'h1\\ SYlO.OOO ""0\,1<1 lx' 

"""mpt from tit(' "'1",,, .. n,,,*_ 

'11,C1'c i, abo the IIlarkc1]'!:occ E'Ill1t), ,let. whd,,,. <nnih' bill .nd \1"< mtro<l\JC{"(! 

tt, the 110"'" ",,,,,,,d of the Semtc, 'Il'e), kcj- d,ff"""ICe" ,I,., th" bill "l' ,mall 

bu,,,,,,,,"c, ,,,,it .. les oflcs; ,h'n SI min, orbs th." 5100.000 m a '1'<'C1fic ,t:lto. 

\\"0\,1<1 IX" oxempt f1"Ol\\ tl", "'1",,,,.\\('n,,_ 

Wal·Mart (\\ ~n) i, a p.oP01l,,'" of ,h~ bill (onc of 'he . "thon of ,h~ "--g.<ll1,O\\ " 

RCl'ublicon R'1,,,,,.,,,,.ti,-e S",,",, WOlllock fron, ,tt. comp'''»' district i" 

,'\ricln,..). The "omp.n)" ho; Ix"'t! stOl'p,ng "1' 'I> k>bb)'nlg effor" ., ,t fa" .. 

Ulet't"1'mg coml"'tttion from "'~n'c ", .. ile.,., ,uclt ""Imazon. 

I" e,"e'ICo. l\m.,-on" boomgproaclt"" 1\\d 1"",'IO<\\ng """Iffor ,It(' m",·tt.ble. II)" 

n<"gOtI."nll p<'Occfully before' Co.tJ;1<''' "". I\m""", is .ble to ""1' tlte beuef1" of 

t.rg<' "" bt-""k, who .. " .. nthc .. onltne re\lik"" \\'ill fi.nl th",\\,,-,II-e, mICk \\'"h I, .. , 

<Ot"l)o;l!111'e pnt:'" \I'lhou1 an)" 1\-COUt'>C. 

..%.0 
121 


801BRIEF3.eps

From an Economic Perspective 

, .... '0/<: '/"}i,. 11I1Id 

• ",-, "JIll ~"'" 

,4~ 1M""",,. M .. "' .... , .... 't.· 

1'dhtf',l;Jtwd'; -. 

Cum",!!)", thc " 'crag<: ",tc and local sak .. t>x """ Ii ",·c. 9.6' .. v.~. ,wc .nd ~.>C31 

1>""""nnnc,,,, arc 0,,')" coUee.mg an effec.,,'" ra.c of (,.S· .. ..I "%,,, portJ<m of .he 

' pn,"-d be.ween the oc.u.l.ud cffccn,'c "''',. ,>: •• the n'Suh of stronge. ouln'" 

dctttlud.c!pcoaUy m'e •• he lolt fc,., yea",. 'l1.e \Iorkc~)l>ce Fotrn($! ,Ict.or 

~nednng ,unil ••. w"uld m'''g;ltc '"rnc of .he ""' •. 

A •• n.o u.s. St . . . ..... loul 

Solo. T • •• 0 '" 

s .. t . ..... local Sa," lox R .... n ... 

... of ." ... ",t.' .... ~ ~) 

~ 

~ 

~ 

,~ 

,-

,~ 

,~ 

~ 

~ , • t • 

= - 2006 2009 20Il _ .. "",,,,_M ...... 

Some lobbp'''' fO>" til<' oul"," ",tI.lers .", eOt •• "ud.ng th .. the"" neu' "~Iu.n,u"n" 

'n" .<:1U.1I)" a twu' Cf""uml' '''''' tI" Th" .. no. nc'Cc,,.ril)" tTl"" 

,\11 45 ita.", .ha. h",'" iale! "txc" rcq'u", COn,,,me'" to <:olle'<:' .he ,,'-, on o"lm" 

, ..... ,,"Cfl<,," tltCrn«:h-c • • nd ,ubnu •• hem wilL"' filUlg taR" c .. ch ye .... S •• "" • 

howe,"er. lock prop'" enforcc,,,,,,,, gauge • .,,,1 .",h •• bilin" •. 'n.u •. m",. 

"''''i"m,,,, undc", .. t" .hc i.1e! tnc .. the)" .<:1U.1I)" o"'c. 

"IllC beud,,, to ''''e . ud local g<:n'Cfumc",,, .ud bnck·.nd·mort ... ",<aile.,., ,!tollid 

ou,w"'g!t .hc dedit'" in cou<u"",,.,' di;p,» .ble ute,,,,,,,. 

St1.~ .",11oc:al g<:n-e",mcrtt. currentl)" h."" n~"TI)' S3.0 dn in ou"ta,,,!tug ,Id". 

Khik ,h~ n'COwr)" oflos •• ox ",,'cnu" will not be c",ough '01»')" off'hcdcb •. It ,,,II 

help I"""~m "'ore cut • • o p"*,,," . nd ,,-""i<;c' unnl the '-'C01lOl11)" full)" n w "c.,.,.. 
122 


801BRIEF4.eps

Tot .. Stott _ 10<101 Government 0<1» O"Ut ...... "1 '_I ~l.SOO 

,,~ 

~l.SOO 

,,~ 

,~ 

" = m, , ....... ,_ ....... ,.,,0 ,.", 

.... On tho bus"'c"" "<k'. remil,.,., hke lIeot nuy (1111') "';]1 see tho" l'TlCCS bccotno 

more CO!llI><'OOW ,nth onhnc retlOilc",_ 'Il"t shOl'kl b<xost 0,-",..11 "'tail "b, 

"'e" .. ," profi .. ,alkn,UO 1""""'" to cut payn:.>ll. funlwr, and ''''prow Illnng 

cond,uons, 

m 

w, 

m 

" " " • 

• 

" " " = ....... , .. -

~.il T,ocM P.yroll. ro __ ; 2007 . 100) 

- i\ t th~ ",nl(, "me, OI,h,,~ M.iIe",. hke '\m.1W" , SC"c.",U)' do nOl )\;l\'~ l:Irgt: 

worHon: .... or ",I< ... taff., n", I"". of o"l,n< ... 1< .. ,,,lIlo",or on),nc reto;ler profilS, 

but should h".., f",.. ''''II'u,,'c cffcc," on ",-crall c!nl'lopncnt !c,'ct,_ 
123 


801BRIEF5.eps

Rool Salo, 1M'< Wo<lo. r 

__ .otoI ..... -""'8<1>' ""'" ~ 

• """---"":C:---,,,,, :C:---,,,,, :C:---,,,,,:C:---, '- ...... ,_.. ...... 'lll1t "'<311< the coliection of soles tax~, by IM111II~ "'It"P""c" ,hnuld ,,-,<ult ut. net 

1')0111111 'W"I')O'l' ""8"'" "1'O!1gcr empkJ)'m<"u I,,'·cl, .. bnck-."d-momo. 

"",bh,hme1lt; ilion: th ..... off,ct the po:>lcl1h;1l k""", f"'~n "tllme rCI.ue.." 

From a Corporate Perspective 

"'iii": "f/", if "'" "" cJ».t,ti,. ;,1. ad fo<' 

t<ri .,,},' •• rtM,1tr 

-./"i<*.",.d·-nar 

'""'fW'- _IJ '" 

"d 

ur, m.s. ""' I. i.dMdt 

Ilrdz, .... (lJIDZI.,ib 

II!.w Mit III tht fo.-

i, M'If "''1'''..4 I'J 

GIt_G""f>. 

Exa lllple .. of o"llIte re!1ilc'1S .",1 competl"g bnck-t.l1d·monor "ore. IIlClutk 

• ,\rrumm.com >"<""u' Barn~$ & N o ble (1IK."). Il,,;tlluy .".1 IX·.I·:\hrt 

RC1><)rt; III the IVIIUJlmrjOllnl"f.mj the Finlllld"fT1",,, ;uggt''' ,h .. \"''''~I lII'y 

be dC1'lo)'lIg IK~" fulfulmc,"' "-'"It"" '" \\"y to I1I1' tatC <>me_d. y ddwel)'. Tit" 

",o"ld ehmm>1" the m.m 0.1, .. " .. 8" ,h .. brick" "d·mo,,a, "'table<hm""" h1\'e 0 .... "· 

,I,,,,-;ron, 

·n" .. , '\lIIo;,rul \\"O<IM "" • .-ml)" "'" "",cfil< fmm "'. "'",k" b"t dc" ... "d fo< ," 

proUtlC'" \\'0\11<1 III""""" ' " con,,,mm; ore able to ""e"'" pureh""" "'ithoul 

,h'I'I""g <l<i.)',. Ttu, 'hought ",ill hhlr be. h ,· pom, of contc",i"'t !l"ttlll 

forward for bnck-."d-Illo rtar "·,,,ilm; a1111111& to 1",",·1 the l'bp"l1 fidd "'!lh A",,,,,,,, 

."d othL.,. Olulnc ITtllle..,. 

• Bille Nile C'- 11.F.) """tIS l'larry Winsto n Diamond (I IIX'D). Tiffany ( 1"11') 

al1d Zalc ("l:I.C) 

lIlt><· :---'il" said 111 ," lIlo<t ,,'<;c"'t 10·1( thot "net,.les ma)" be ""I')OII\'c1)" . ff,'<;t('d If 

we arc reqUIred to c,~1cCt tne~ '~I ]>u"h,><-"< ."d/ or d,,,,lo<c OUr <:u<tomL""· l'm .. ,e 
124 


801BRIEF6.eps

",form1lic", '0 ",-, .utl.onti<, •. ~ '11," company currcmly only roIlect< .. I". , .. " ... HI 

\".,h"'S'0n, "'t'" YO<K at><l "en .. " fore't;lt COO'Hnc • 

• (h-crstock.com (OS"I""-) ",""u. J.e. PerlnC)' 00'). Kohl's (KSS). cy'~ (,\/) 

.",1 St- ~ ... 1-1 " ,,1;" 8 ("I II .11) 

o.·'""tock .1<0 drscu,..,d tlK" w<"S toX ,"su" ,n 'IS mos, rc<:em 1O·K. '11,,, comp''''r 

,.id "new ,"'-'" ta, n·gu,.non, in st.",. when: w" do not now roIk-ct "ot" ."clIon1 

toxcs. m'r ,ub""" u, to the 001'.'1'1'100 10 colkct .nd ,e",,, stot" .,><llonl ""<"s. 0. 

'ub),-"<, us to o<kl.tiorw;t:rte and ,,,,::., <;o.k, al11ll11c<~nc "xc>. <,.. 00 "''lUI'"'''''''' 

II"e,,,IOO '0 as"st stot"" ",,1. ,he","" roIlcctio" effon •. " It belte", .. the,e "'-, 

colkctlOll OOI'gltllOn. coo ld h,,'e an .d'·' ...... effect 011 o,h 1I0w •• "d """I .. of 

op<· ... uon •.• ' ,,·,·11., ,h"l'o.siblht)" th .. compa")" 1m)" be 'lib""" 10 "),~,,fica"~' 

fUle' 0' other PIl.'''pncnt, fot >I,)" 1"'" failull."/< to coml~)" ,,,'h the;,: n'<.juuemc""" 

Fi".Il)". ell ay (1-:11,\\) has be,", c.mP"grll1lS"I-:'''''S! hk'ral k1'1,1,"01" "]l,o 

<OI"I"'''y'' d,ff"KI" th." tl,." ' H,lmc ", .. iln. mentlOlled .bm·e 1><."Ou"" II 1'''''',.1., a platform forotlt",. ........ iIcrs to , cli produc". It ,toe, not. howner. coll""t ttxe, ot, 

good, 0< ,,,,.,';0,,, sold b)" u,er.; of ell>y. 

The coml"n)' 'Old \0, U, ,tlOSt ll.'Cem 10_K ,hot "collcC1lOn te'1lO""bi)IIY .nd the 

add"uM,.1 c",," ."""",,,,,1 ""h co"'ple. U'" to .• colk'Ctkm, cumltance and .".1" 

""'l,,,,,·m .. ,,!> would m,h ""lImgon 00' wcb.1ie, b • • n ... ,,!,,· .. f01" ,m.1I btl"ne," 

ct,toile"n'. and """Id h"m '~ Ir bu"ne",.~ 

The cOlnpany c'P""" <mlmc ",,1e,,!OX to h,l'p'''' at !Ome 1'0"'" It »,<1 on ," 

'<'Corld quancrcnnfe,..."ce oil ,Itot tlte !;IlIil i; to mll"'< effon,;" Cahf,m'lIi. wltcrc 

"work«[ ,>'th legr,btute to rn. .. te. ,ml1l bu'""e'" c.du,ie", fo< te .. ik'l'S who sold 

Ie,! tltm SI min "' 'he !to!e, 

Conclusion 

From an e'C"""Hoi< pcr<p<.'Ct\yc. tltete i; hnl" !«go""" 11111"''' _ .Tld pcrl..p, some 

pOSlft\'C lO'P"'" _ from.n IlI"n .. .., lit ... n~·<1"'c .nd. more lc"cI plo)"ing fie1<l In 

tl« 1"(''';[ '''''to< 

From. corporate pcr<p"""'"". 11K" hattk" """)' '" d'e tnthOl stages. ,\, lhc llOl,,,ol 

"01"}' 1'1>)". OIl(, oth .... onl",c rt'taik"n' .te [,kdr to go !h .. 1'0\1(0 of ,\m"OI' (01)<l 

dhy) by n"gu'nto,s ",S"",.Ij""e 'gr,.'cmc",'" to mlngo« tlte l111pact nf p<>fent,,1 

t"-' "'a .... "' •. 

,\, ,h ... ""J of ,' .... ,L.)". m~u'" r< ... ~'''. 1 ... ,.., /!"""" ,w')" ,,,,], "01 ]")";"gl C<)lkc<"'g 

t"-,e". E'·""'u.tll)". tlllt will come to an "ltd. 
125 

* Jessica Melugin is an Adjunct Analyst at the Competitive Enterprise Institute in Washington, D.C. 

Competitive Enterprise Institute—July 30, 2012—No. 180 

THE MARKETPLACE FAIRNESS ACT WOULD CREATE A STATE SALES TAX CARTEL AND

HURT CONSUMERS

AN ORIGIN-BASED SYSTEM OFFERS AN ALTERNATIVE FORWARD

By Jessica Melugin *

The rapid growth of online retailing has been accompanied by increasing calls by 

state and local officials to allow them to capture more sales tax revenue and by 

brick-and-mortar retailers to ‘‘level the playing field.’’ The Marketplace Fairness Act 

(S. 1832) seeks to capture more tax revenue for states on Internet purchases.1 Traditional retailers, states, and localities have urged Congress to act in the name of 

‘‘fairness,’’ but for consumers, this will only mean a tax increase. There certainly are 

inequities in the way online sales are taxed, but in the case of S. 1832, the cure 

is worse than the disease. If Congress is to consider Internet sales tax policy as part 

of broader tax reform efforts, an origin-based approach would address the legitimate 

need for sales tax reform and avoid the Marketplace Fairness Act’s harmful consequences.2

Quill—Not too Shabby. The Internet is not a tax-free zone. At the Federal level, 

the Internet Tax Freedom Act of 1998 banned ‘‘special and discriminatory taxes’’ 

which states might impose, especially for transactions conducted over the Internet. 

State and local sales tax restrictions are dictated by a 1992 Supreme Court decision, 

Quill Corporation v. North Dakota.3 In its Quill decision, the Court held that a state 

may not collect sales tax from retailers that have no physical presence, or nexus, 

within its borders unless Congress uses its Interstate Commerce powers to grant it 

explicit permission to do so; S. 1832 gives this consent. 

Under current law, for example, when a Virginia resident buys a book online from 

a retailer in Oklahoma, Virginia may not collect sales tax on the purchase unless 

that Sooner bookseller has a nexus—such as a warehouse, store, or sales representative—in the Commonwealth. Technically, the Virginia resident may owe a use tax 

on the purchase, but these taxes are seldom enforced or collected. When proponents 

of remote Internet sales taxing argue that they are not calling for ‘‘new’’ taxes, they 

are referring to these obscure use taxes. For consumers who face increased costs for 

their online purchases, it is little consolation that those costs are not the result of 

new taxes, but of existing taxes newly collected. 

The current arrangement is not an arbitrary loophole of tax law, but instead a 

manifestation of the principle of ‘‘no taxation without representation.’’ It is vendors, 

not customers, who remit the sales tax to governments. And, much to the advantage 

of consumers, it is vendors, with their trade associations and eyes on the bottom 

line, who often put more organized pressure on politicians to keep tax rates low. 


801BRIEF7.eps
126 

The principles articulated in Quill also promote tax competition between jurisdictions. If state governments were allowed to tax vendors in other states, to whom 

they are not accountable, that would result in substantially less downward pressure 

on tax rates. Consumers would wear their states’ tax burden like an albatross even 

when buying from companies on the other side of the country. When there is no exit 

for consumers, there is little incentive for politicians to keep tax rates reasonable. 

The Quill decision also protects the free flow of interstate commerce. It spares 

sellers the burdensome task of remitting sales taxes to the approximately 7,400 different state and local taxing jurisdictions across the country. The Dallas-Fort Worth 

Airport has more than a dozen distinct jurisdictions alone.4 The cost of these calculations would doubtless be passed along to customers and taxpayers. 

The Marketplace Fairness Act would do away with all these benefits. 

The Marketplace Fairness Act—the Good, the Bad, and the Really Bad. States and 

localities can already tax in-state sellers, to whom they are accountable, but S. 1832 

seeks Congress’ permission to tax those outside of their jurisdiction, to whom they 

are not accountable. 

Specifically, the proposed legislation codifies into law the Streamlined Sales and 

Use Tax Agreement (SSUTA).5 The stated goal of the SSUTA is to ‘‘simplify and 

modernize sales and use tax administration,’’ and ‘‘substantially reduce the burden 

of tax compliance.’’ 6 But the agreement also calls for Congress to overturn Quill and 

allow remote taxation, so the unarticulated goal of the SSUTA is to form a de facto 

state tax cartel.7 In practice, that means that member states agree to simplify their 

sales tax rates and bases, but only in exchange for the lucrative privilege of reaching beyond their borders to tax business in other states. So far, 21 states have 

joined the SSUTA as full members and tens of others are at various stages of compliance. 

The above example of a Virginia resident buying a book online from an Oklahoma 

retailer would look very different under the SSUTA scheme. Virginia would be able 

to collect tax from the Oklahoma-based retailer despite the Oklahoma retailer having no physical presence in Virginia. Never mind that the company being taxed has 

absolutely no voice in what items Virginia decides to tax or at what rates it does 

so. And never mind that the company receives no benefit from any services Virginia 

provides with its tax dollars. 

Even more alarming is a scenario where both the seller’s state and the vendor’s 

state may collect tax on the same transaction. The SSUTA agreement permits states 

that join and simplify their tax rates to periodically change their sourcing rules. 

This opens the door for double taxation. The Internet Tax Freedom Act currently 

prohibits this, but that protection expires in November 2014. 

In any case, consumers will experience remote taxation as a tax hike. It is true 

that use taxes are already on the books—though, again, seldom collected and remitted—but that tax law technicality will be cold comfort to consumers paying more 

online for their purchases. Extracting more money from taxpayers to put in state 

and local tax coffers is, in plain fact, the objective of this legislation. The National 

Conference of State Legislatures itself has pointed out in a letter to Senators, ‘‘[i]n 

2012, states will collectively lose an estimated $23.3 billion in uncollected sales 

taxes from out-of-state sales.’’ 8 While that’s not enough money to make up for state 

and local budget shortfalls, it’s more than enough for voters to take notice. 

Aside from raising tax revenue, proponents of this legislation also argue it will 

usher in an era of ‘‘fairness’’ in sales taxes between traditional brick-and-mortar retailers and remote sellers.9 However, tax fairness is only one of many desirable 

characteristics of sound tax policy. Efficiency, preservation of federalism, privacy, 

and accountability all must be valued and balanced with an even playing field. 

Despite the fairness mantra, S. 1832 sacrifices the goal of fairness with an exemption for smaller online sellers.10 It would excuse sellers with less than $500,000 in 

gross receipts on remote sales in the preceding calendar year from having to calculate, collect, and remit sales taxes on remote transactions. Hence, the inequity between small bricks-and-mortar sellers and small online retailers will continue. 

Moreover, the legislation is not particularly fair to the localities that will be forced 

to align their tax rates and base statewide. The Founders imagined many small policy laboratories in states, wisely acknowledging that governments closer to the people would be more responsive to those they served. Surely this idea also applies to 

localities within states. The language in the agreement requiring all localities to be 

homogenous in their sales tax policy flies in the face of this idea. It is, quite simply, 

an assault on local sovereignty. 

Simplification is not all good news for taxpayers, either. A simplified tax base will 

inevitably involve an across-the-board expansion of what gets taxed. Currently, only 

about 40 percent of sales that could be taxed are taxed. Certain items enjoy exemptions for a variety of reasons. Foods are frequently viewed as staples. Similarly, a 

127 

town might exempt the product of its local industry. In the simplification process, 

each area’s exemptions can’t be made universal without narrowing the tax base to 

the vanishing point. Since that would defeat the whole point of increasing states 

revenue, states will have to take the opposite tack and harmonize upward. Items 

subject to tax anywhere will be subject to tax everywhere. 

The legislation is not fair to the online retailers that will have to calculate an 

amount based on approximately 7,400 local and 45 state tax jurisdictions and remit 

accordingly, while bricks-and-mortar retailers continue to tax at the point of sale. 

Imagine requiring every clerk behind a counter to ask their customers to prove 

where they live and wait around while they calculate the applicable tax rate! That 

would certainly be fair, but it would also be invasive, inefficient, costly, and irritating for all parties involved. 

The tax maze is too complex and varied to burden retailers with remote collection 

and remittance. Tax cartel proponents argue that simplification will ease this burden, but the ‘‘simplified’’ agreement is still 200 pages long and full of loopholes and 

exceptions.11

Supporters of the legislation also argue that software will make all of the tax calculations, thus sparing businesses the burden of doing so. Unfortunately, this technology will have a cost that most likely will be passed along to consumers. It also 

raises as many concerns as it purports to resolve. The potential for privacy problems 

when state and local governments gather this amount of personal information is 

alarming—especially if they store the information.12 Handing over all that information to a third party to calculate tax obligations creates another opening for potential security breaches. Putting aside the larger question of whether government 

should be able to track who buys what, where, and when, the practical potential 

for identity theft, stolen credit card information, and general embarrassment should 

give legislators pause. 

Businesses will not benefit from S. 1832’s brand of fairness—with the exception 

of a few large online retailers who have already cut rent-seeking incentive deals 

with states in exchange for collecting and remitting remote taxes. It is not fair to 

company owners taxed by remote, politically unaccountable authorities who provide 

them no public services. If someone is going to tax you, shouldn’t you at least be 

able to vote for, or against, them? For businesses that decided to locate in low sales 

tax jurisdictions, this amounts to changing the rules mid-play. That is not part of 

anyone’s idea of fairness. 

The proposed legislation is also unfair in that it creates inequities of taxing authority among states, depending on their degree of compliance with the SSUTA.13

Full membership allows tax collection on remote sellers and some flexibility with 

sourcing and exemptions, while partial compliance without full SSUTA membership 

empowers states to collect on remote sales, but denies them the flexibility full member states will enjoy. States that neither join nor comply with SSUTA will not be 

able to collect on remote sales, but their businesses (even in sales tax-free states) 

will be subject to other states remote taxation. 

Granting states permission to tax remote sellers also undermines federalism. The 

Founding Fathers understood that, necessarily, one state’s autonomy must end 

where another’s begins. They sought to preserve the beneficial tension between 

states when they are forced to compete for citizens and commerce. For this reason, 

they granted Congress authority to protect the free flow of interstate commerce. The 

proposed legislation’s request for Congress’ blessing of interstate tax collusion flies 

in the face of this principle of competitive federalism. We have seen what happens 

when states’ rights include protectionism and discrimination against out-of-state entities; it was called the Articles of Confederation, and we all know how that ended. 

The SSUTA’s vagueness in how auditing and court jurisdiction would work will result in further questions of state sovereignty. 

An Origin-Based Alternative. If Congress intends to tackle Internet sales tax policy as part of broader tax reform efforts, it should consider an origin-based tax regime, where the tax rate is assessed for the vendor’s principal place of business instead of the buyer’s location. An origin-based approach will address the problems 

of the current system and avoid the drawbacks of S. 1832 and the SSUTA plan by 

treating all retailers the same and helping preserve federalism, tax competition, political accountability, and consumer privacy. 

Here is how our same online book purchase example would look under an originbased regime: Regardless of whether the Oklahoma retailer has a store or warehouse in Virginia, the purchase will incur Oklahoma sales tax and perhaps any local 

taxes on where the bookseller is located. The retailer will remit the sales tax to his 

tax jurisdiction only. 

128 

• An origin-based approach would address the ‘‘fairness’’ issue by treat all retailers the same. For walk-in stores sales tax is calculated at the point of sale, not 

by the residency of the customer—who may be crossing state lines or city limits 

for better deals or tourism. Expanding this origin-based principle to all retailers 

will ensure that online, catalogue, phone, and yet-to-be-invented sales platforms 

all will be treated the same as purchases on Main Street. 

• An origin-based system would help preserve federalism and put downward pressure on taxes. It would allow customers to ‘‘vote with their wallets’’ and gravitate towards lower tax-rate jurisdictions when shopping online or by mail. Citizens benefit when states and localities are free to act as policy laboratories, not 

when they are forced into a one-size-fits-all national scheme like the one S. 

1832 would create. 

• The accounting burden would be minimal. Retailers of every sort would only 

have to calculate and remit the taxes applicable to their primary place of business. Their rate and base stays constant whether they sell an item in the store 

or mail it across the country. This efficiency benefits the economy at large (with 

the possible exception of sales tax software companies). 

• An origin-based regime preserves consumer privacy. The tax calculations are 

based on the seller’s location only, so there is no need to collect, store, or share 

any location information of the buyer. No databases to fill or maintain, no third 

parties to calculate rates and no audits to verify accuracy are needed under an 

origin-based approach. 

• An origin-based sales tax keeps political authorities accountable to those they 

tax, namely, businesses in their own jurisdictions. This is an especially important consideration for the maintenance of democratic governance. It is simply 

too easy to tax those who lack a political voice. Therefore, it should be avoided 

at all costs. 

Conclusion. The tax-cartel approach in S. 1832 raises the question: Fairness at 

what cost? Sacrificing the principles of ‘‘no taxation without representation,’’ healthy 

state and local tax competition, consumer privacy, and economic efficiency is too 

high a price to pay in order to boost state revenues and appease the special interest 

group of bricks-and-mortar sellers. 

Moreover, it is unnecessary, as there is an alternative approach that brings equity 

among retailers and preserves the benefits of the current system. If Congress is to 

act, it should exercise its authority over interstate commerce to produce legislation 

that fundamentally reforms sales taxes by shifting to an origin-based regime. 

Notes 

1Marketplace Fairness Act (S. 1832), 112th Congress, 1st Session, http://www.gpo.gov/fdsys/ 

pkg/BILLS-112s1832is/pdf/BILLS-112s1832is.pdf. 2Michael Greve, Testimony Submitted the United States Senate Committee on Finance, August 1, 2001, http://www.finance.senate.gov/imo/media/doc/080101mgtest.pdf. See also 

Veronique de Rugy and Adam Thierer, ‘‘The Internet, Sales Taxes, & Tax Competition,’’ 

Mercatus on Policy No. 98, Mercatus Center October 2011, http://mercatus.org/publication/ 

internet-sales-taxes-and-tax-competition. 3Quill Corp. v. North Dakota, 504 U.S. 298 (1992) No. 91–194, United States Supreme Court, 

argued January 22, 1992, decided May 26, 1992, http://scholar.google.com/scholarlcase?case 

=3434104472675031870&q=quill+v.+north+dakota&hl=en&aslsdt=2,9&aslvis=1. 4Michael Greve, States Already Can Tax Out-of-State Purchases, But Rarely Enforce Those 

Laws, McClatchy Newspapers, June 21, 2012, http://www.aei.org/article/economics/fiscal-policy/taxes/states-already-can-tax-out-of-state-purchases-but-rarely-enforce-those-laws/. 5Streamlines Sales Tax Governing Board, Inc., Streamlines Sales Tax Agreement (SSUTA), 

http://www.streamlinedsalestax.org/index.php?page=modules. 6SSUTA, Sec. 102. 

7SSUTA, Art IV. 

8 National Conference of State Legislatures, Letter to Sens. Richard Durbin, Michael Enzi, 

Lamar Alexander, and Tim Johnson, November 9, 2011, http://www.ncsl.org/documents/ 

statefed/LetterofSupportMarketplaceFairnessAct.pdf. 9 National Retail Federation, ‘‘NRF Lobbies for Sales Tax Fairness,’’ news release, May 22, 

2012, http://www.progressivegrocer.com/top-stories/headlines/industry-intelligence/id35471/ 

nrf-lobbies-for-sales-tax-fairness/. 10Market Place Fairness Act S. 1832, Section 3 (c), http://www.gpo.gov/fdsys/pkg/BILLS 

112s1832is/pdf/BILLS-112s1832is.pdf. 11SSUTA. 12See Daniel Mitchell, ‘‘Should You Pay Sales Tax on Amazon?’’ The New York Times, 

July 29, 2011, available at http://www.cato.org/publications/commentary/should-you-paysales-tax-amazon. 13SSUTA. 

129 

Mercatus on Policy—No. 98, October 2011—Mercatus Center, George Mason University 

THE INTERNET, SALES TAXES, & TAX COMPETITION

By Veronique de Rugy and Adam Thierer 

With most state lawmakers facing large budget deficits, they have become more 

aggressive about collecting online sales taxes. And now, Congress is considering 

blessing a multistate compact that would permit states to impose such taxes on 

interstate commerce, ending a 15-year long debate. To that end, Senator Dick Durbin (D–IL) recently introduced S. 1452, ‘‘The Main Street Fairness Act,’’ which 

would force retailers to collect sales tax for states that join a formal tax compact.1

Apart from getting chronic state overspending under control,2 a better solution to 

the states’ fiscal problems than a tax cartel that imposes burdensome tax collection 

obligations on out-of-state vendors would be tax competition.3 Congress should adopt 

an ‘‘origin-based’’ sourcing rule for any states seeking to impose sales tax collection 

obligations on interstate vendors. This rule would be in line with Constitutional protections for interstate commerce, allow for the continued growth of the digital economy, and ensure excessive, inefficient taxes do not burden companies and consumers. 

Background 

While the United States does not have a national sales tax, 45 states and approximately 7,400 local jurisdictions impose sales taxes. State and local governments 

have the power to require retailers within their borders to collect these consumption 

taxes at the point of sale in the government’s name, but they do not have the authority to require businesses outside of their jurisdictions to collect taxes for them. 

Starting in the 1960s, a string of Supreme Court decisions restricted state efforts 

to impose tax collection requirements on interstate, or ‘‘remote,’’ mail order and 

catalog vendors.4 The Court held that states could only require firms with a physical 

presence—or ‘‘nexus’’—in their jurisdictions to collect sales taxes on their behalf. Applying the timeless principle of ‘‘no taxation without representation,’’ these rulings 

extended sensible Commerce Clause protections to interstate activities. In addition, 

the Court has ruled that the complexity of state sales tax laws represents an undue 

burden on interstate commerce because it would be too difficult for out-of-state vendors to comply with those 7,400 local tax systems.5

Figure 1: Sales Tax Rate Changes, 2003–2010 

Source: Vertex Inc., Berwyn, PA, vertexinc.com 

Though the Court will not let the states collect taxes from out-of-state sellers, it 

will let them tax in-state buyers through ‘‘use taxes.’’ But, because few people voluntarily compute and pay use taxes,6 states want online retailers to collect the taxes. 

States then have turned to counting in-state ‘‘affiliates’’ of online retailers as a sufficient nexus to impose sales-tax collection obligations, arguing that the presence of 


801MERC1.eps
130 

an affiliate in a state is sufficient cause for an Internet company to collect the sales 

taxes for that state.7

Companies, however, are as eager to avoid taxes as states are to impose them. 

In states that have imposed affiliate taxes, online vendors have canceled commission 

arrangements, destroying in-state jobs and tax revenues. Amazon.com and Overstock.com recently cancelled affiliate contracts in Connecticut and California, for example, and Amazon has threatened to cut ties with other states. Amazon is also negotiating with states where it has a nexus, such as Texas and South Carolina, for 

tax-exempt status in exchange for the promise of jobs and investment in those 

states.8 If Amazon succeeds in its negotiation, the resulting agreements would not 

only give the company special treatment compared to other businesses, but it would 

also would create a vicious cycle in which large companies could get ‘‘tax-free’’ treatment in exchange for promises of jobs, while medium-sized to smaller companies 

would bear the heavy burden of tax compliance. 

Complicated ‘‘Simplification’’ 

States are now attempting to circumvent Supreme Court rulings through the 

‘‘Streamlined Sales and Use Tax Agreement’’ (SSUTA).9 The SSUTA seeks to minimize the burden associated with multiple sales tax rates and definitions and, in the 

process, overcome the constitutional prohibition on the taxation of remote vendors. 

Different definitions and exemptions greatly complicate the sales tax codes, as do 

constant revisions to the sales tax rates (see Figure 1). For example, is a cookie a 

‘‘candy,’’ which is taxed in most jurisdictions, or a ‘‘baked good,’’ which is typically 

tax-exempt? What type of clothing is ‘‘essential’’ and, therefore, untaxed? When 

should sales tax holidays be allowed and for what goods? The SSUTA is a good-faith 

effort to answer such questions. However, the latest incarnation of this constantly 

changing ‘‘simplification’’ effort runs over 200 pages. Even if states adopted SSUTA, 

the sales tax base would remain riddled with definitional loopholes and complexities 

that could burden vendors, especially mom-and-pop operators.10

A 2006 PricewaterhouseCoopers study found that sales tax compliance costs for 

small retailers (with less than $1 million in sales) equaled almost 17 cents of every 

dollar they collected for states.11 Expanded tax collection obligations could increase 

that economic burden and discourage marketplace innovation and new entry. To 

remedy that, states have considered a ‘‘small seller’’ exemption, but piling exemption on exemption would undermine the goal of simplifying the sales tax system. 

Nonetheless, 24 states already have signed on to the SSUTA. It is unclear whether all states will join the effort, meaning complexity will persist if multiple tax rules 

remain in place. If all states did join the effort, however, it would be the equivalent 

of a de facto national sales tax system, led by the states. It would discourage beneficial tax competition among governments and likely lead to increased taxes for consumers. 

On ‘‘Fairness’’ 

States insist the SSUTA is needed to ‘‘level the playing field’’ between online and 

main street retailers. ‘‘Main Street’’ vendors—whether the mom-and-pop retailers or 

larger companies, such as Walmart or Target—are clearly burdened with significant 

tax collection responsibilities. The difference in tax treatment is what animates Senator Durbin’s ‘‘Main Street Fairness Act.’’ 

But fairness cuts many ways. Requiring out-of-state vendors to collect sales taxes 

on behalf of jurisdictions where they have no physical presence remains unfair and 

unconstitutional, especially when there are other ways states could promote fairness. One way to level the playing field would be to cut or eliminate sales taxes 

on in-state vendors. Another alternative would be a national Internet sales tax that 

would avoid the complexity problem by imposing a single rate and set of definitions 

on all vendors. But that solution opens the door to a new Federal tax base, which 

would grow to be burdensome in other ways at a time when American consumers 

and companies are already over-taxed. 

The third and best option might be to clarify tax sourcing rules by implementing 

an ‘‘origin-based’’ tax system. In this system, states would tax all sales inside their 

borders equally, regardless of the buyer’s residence or the ultimate location of consumption. Under that model, all sales would be ‘‘sourced’’ to the seller’s principal 

place of business and taxed accordingly. 

This is, after all, how sales taxes have traditionally worked. A Washington, DC, 

resident who buys a televison in Virginia, for instance, is taxed at the origin of sale 

in Virginia regardless of whether he brings the television back into the District. 

Each day in America, there are millions of cross-border transactions that are taxed 

only at the origin of the sale; no questions are asked about where the buyer will 

consume the good. Policy makers should extend the same principle to cross-border 

131 

sales involving mail order and the Internet. Under this approach, Internet shoppers 

would pay the sales tax of the state where the online retailer is based. 

An origin-based sourcing rule would have many advantages over the ‘‘destinationbased’’ sourcing rule that state officials are pushing. It would eliminate constitutional concerns because only companies within a state or local government’s borders 

would be taxed. An origin-based system would do away with the need for prohibitively complex multistate collection arrangements such as the SSUTA because 

states would tax transactions at the source, not at the final point of consumption. 

An origin-based system also would protect buyers’ privacy rights, eliminating the 

need to collect any special or unique information about a buyer and to use thirdparty tax collectors to gather such information. Additionally, it would also preserve 

local jurisdictional tax authority whereas a harmonization proposal like the SSUTA 

plans would create a de facto national sales tax system that would exclude local governments. 

Finally, because it is more politically and constitutionally feasible, an origin tax 

may actually maximize the amount of tax collected for states by making compliance 

easier and incorporating currently untaxed activities. 

Conclusion 

If Congress feels the need to take action on this front, it should implement an 

origin-based sourcing rule for the taxation of interstate commerce and make it clear 

to the states that they are free to impose sales tax on vendors whose principle place 

of business is within their borders, but not on imports from other states. State officials might protest the vigorous tax competition such a sourcing rule would spawn 

since some companies might locate their business in more hospitable tax environments. But that is real federalism at work. Federal lawmakers should favor it over 

tax cartels. 

Endnotes 

1. S. 1452, ‘‘The Main Street Fairness Act,’’ 112th Congress, July 29, 2011, http:// 

www.govtrack.us/congress/billtext.xpd?bill=s112–1452; See also Mark Hachman, ‘‘Democrats Introduce Federal Bill to Collect Online Sales Tax,’’ PCMag.com, August 1, 2011, http:// 

www.pcmag.com/article2/0,2817,2389490,00.asp. 

2. Matthew Mitchell, ‘‘State Spending Restraint: An Analysis of the Path Not Taken’’ (working 

paper, Mercatus Center at George Mason University, 2010), http://mercatus.org/publication/ 

state-spending-restraint. 

3. Adam Thierer and Veronique de Rugy, ‘‘The Internet Tax Solution: Tax Competition, Not 

Tax Collusion,’’ Policy Analysis 49, Cato Institute, October 23, 2003, http://www.cato.org/ 

publdisplay.php?publid=1353. 

4. National Bellas Hess, Inc. v. Department of Revenue of State of Illinois 386 U.S. 753 (1967), 

Complete Auto Transit, Inc. v. Brady 430 U.S. 274 (1977), and Quill Corporation v. North Dakota 504 U.S. 298 (1992). 

5. Thierer and de Rugy. 

6. Nina Manzi, ‘‘Use Tax Collection on Income Tax Returns in Other States,’’ Policy Brief Research Department, Minnesota House of Representatives, June 2010, http://www.house 

.leg.state.mn.us/hrd/pubs/usetax.pdf. 

7. This tax is known as the ‘‘Amazon tax,’’ after Amazon’s popular affiliate program that allows websites—from personal blogs to enthusiast discussion forums—to generate revenue by 


801MERC2.eps
132 

promoting Amazon products on their sites. See Justin Pratt, ‘‘On Sales and Use Tax, Nexus and 

Affiliates,’’ Mobile Evolution, July 10, 2011, http://creativealgorithms.com/blog/ content/salesand-use-tax-nexus-and-affiliates. 

8. Ross Ramsey, ‘‘Let’s Make a Deal, Amazon Tells Texas,’’ New York Times, June 23, 2011, 

http://www.nytimes.com/2011/06/24/us/24ttramsey.html. 

9. Streamlined Sales Tax Governing Board, Inc., ‘‘Streamlined Sales and Use Tax Agreement,’’ 

November 12, 2002 [as amended through May 19, 2011], http://www.streamlinedsalestax.org/ 

index.php?page=modules. 

10. A lengthy ‘‘Library of Interpretations’’ is also included in the appendix of the Streamlined 

Sales and Use Tax Agreement (SSTUA) explaining how SSTUA officials answered questions 

such as what is ‘‘food sold with eating utensils?’’ and ‘‘do articles of human wearing apparel suitable for general use that are made from fur or hide on the pelt (i.e., animal skins with hair, 

fleece or fur fibers attached) constitute ‘clothing’ within the meaning of the Agreement?’’ Another debate dealt with the question of whether Jose Cuervo Margarita Mix and other ‘‘fruit 

flavored cocktail mixes’’ were ‘‘soft drinks.’’ In another section, it is determined that ‘‘breakfast 

cereals are not candy because they are not sold in the form of bars, drops or pieces,’’ but ‘‘natural or artificially sweetened breakfast bars, Carmel Corn Rice Cakes, and Rice Krispie Treats 

that do not have ingredient labeling specifying flour and do not require refrigeration are candy.’’ 

See Ibid., 167–8, 171, 189–90, 193. 

11. PricewaterhouseCoopers, Retail Sales Tax Compliance Costs: A National Estimate, Joint 

Cost of Collection Study, April 7, 2006, http://www.bacssuta.org/Cost%20of%20Collection%20 

Study%20-%20SSTP.pdf. 

The Mercatus Center at George Mason University is a research, education, and 

outreach organization that works with scholars, policy experts, and government officials to connect academic learning and real world practice. 

The mission of Mercatus is to promote sound inter disciplinary research and application in the humane sciences that integrates theory and practice to produce solutions that advance in a sustainable way a free, prosperous, and civil society. 

Veronique de Rugy is a senior research fellow at the Mercatus Center at George 

Mason University. Her primary research interests include the Federal budget, 

homeland security, taxation, tax competition, and financial privacy issues. 

Adam Thierer is a senior research fellow at the Mercatus Center at George Mason 

University. His primary research interests are technology, media, Internet, and free 

speech policy issues, with a particular focus in online child safety and digital privacy policy issues. 

July 19, 2012—Policy Tip Sheet 

MYTH VS. FACT—INTERNET TAXES

Myth 1: A tax on Internet sales just enables states to collect taxes they are 

already legally entitled to collect. 

Fact: A state is not legally entitled to collect taxes from Internet sellers 

with no physical presence in that state. 

In Quill Corp. v. North Dakota, the U.S. Supreme Court ruled in 1992 that a 

mail-order or Internet business must have a physical presence in a state for that 

state to require it to collect sales or use taxes, affirming the ruling in a 1967 case. 

While individuals may be legally obligated to report purchases they make out-ofstate or from online sellers and then pay a ‘‘use’’ tax to the taxing jurisdiction in 

which they live, the Supreme Court has said states legally cannot compel out-ofstate businesses to collect and pay such taxes to states where the sellers have no 

physical presence. 

More than 9,600 government units levy sales taxes, making compliance with an 

Internet sales tax incredibly difficult. For each state in which a business has a physical presence, a business already needs to collect accurate information on a buyer’s 

home or place of business, access online databases to calculate the tax due, collect 

the tax, and then arrange for it to be sent to the taxing body. North Dakota argued 

for a flexible test under which sellers with certain contacts with a state or buyers 

residing in that state (though lacking physical presence in it) would also be required 

to collect and pay the tax. The Supreme Court recognized this burden was unreasonable. 

Myth 2: An Internet tax would level the playing field between online and 

bricks-and-mortar businesses. 

Fact: A new tax is not necessary to ‘‘level the playing field,’’ and in fact 

introduces new distortions and unfairness. 

Businesses that maintain bricks-and-mortar stores are free to sell their products 

online, and in fact many or most do. So if the playing field isn’t already level, a 

133 

retailer can make it so by launching a website. A tax on Internet sales is really just 

a subsidy to businesses that refuse to make the transition to a blended retail model 

of bricks-and-mortar store with Internet sales. 

Local businesses benefit from federal, state, and local expenditures related to a 

business district, including roads, water, sewers, lights, and police and fire protection. The taxes they pay go to pay for those services, and arguably are the price 

of those services. The only cost an out-of-state Internet seller imposes is the use of 

roads by a FedEx or UPS truck delivering the product from a warehouse to a customer’s home. UPS and FedEx pay hundreds of millions of dollars a year in motor 

fuel taxes to pay for roads. 

The current arrangement, in short, accurately allocates the responsibility to collect taxes to the use of public services. 

Myth 3: Compliance will be easy and inexpensive due to software. 

Fact: The cost of compliance would be unduly burdensome for small 

businesses despite advances in software. 

Currently there are more than 9,600 state and local sales tax jurisdictions in the 

United States. An Internet sales tax would require online retailers to comply with 

the detailed, conflicting, ever-changing, and often-ambiguous requirements of those 

9,600 taxing jurisdictions. A 2006 PricewaterhouseCoopers study found small retailers (less than $1 million in sales) already have compliance costs of 17 cents for every 

dollar they collect in tax revenue for states. 

Mail and Internet use allow even the smallest businesses to sell their products 

or services all over the country, giving them enormous opportunities to expand their 

reach and grow while at the same time giving customers the greater choice and 

cheaper prices increased market competition provides. With increased compliance 

costs and liability risks, small businesses and entrepreneurs are less likely to expand their reach into other states. 

Myth 4: States are missing out on a massive amount of revenue. 

Fact: This tax would kill jobs and not be the revenue windfall advocates 

are claiming. 

The total potential uncollected sales tax revenues in 2008 would have been ‘‘less 

than three-tenths of one percent of state and local tax revenues,’’ according to a 

study by Jeffrey A. Eisenach, an adjunct professor at George Mason University Law 

School, and Dr. Robert Litan, a senior fellow at The Brookings Institution. 

To date very little revenue has been actually collected in states that have passed 

so-called ‘‘Amazon taxes.’’ Revenues from Internet taxes are likely to be curbed from 

economic losses as a result of small businesses and affiliate programs being no 

longer able to compete. 

According to the Tax Foundation, ‘‘Contrary to the claims of supporters, Amazon 

taxes do not provide easy revenue. In fact, the Nation’s first few Amazon taxes have 

not produced any revenue at all, and there is some evidence of lost revenue. For 

instance, Rhode Island has seen no additional sales tax revenue from its Amazon 

tax, and because Amazon reacted by discontinuing its affiliate program, Rhode Islanders are earning less income and paying less income tax.’’ 

Myth 5: The taxing powers offered by the Marketplace Fairness Act (MFA) 

are limited in scope. 

Fact: The MFA would open the door to state taxes on digital products, such 

as iTunes, and on other transactions outside their borders. 

Allowing states to collect taxes on transactions occurring outside their borders is 

fundamentally unfair and threatens basic economic liberties. The persons paying 

and collecting the taxes do not have an opportunity to vote or otherwise participate 

in the government process that creates the tax or sets its rate. This ‘‘taxation without representation’’ is compounded by the fact that those paying the taxes receive 

no public goods or services in return for their payment—‘‘taxation without benefits.’’ 

The incentive structure created by allowing such taxation will lead to ever-rising 

taxes and government spending, since the victims have no way to vote against higher taxes. 

Once the online sale of real goods is taxed, it will be only a matter of time before 

digital products, such as iTunes, apps, ring-tones, digital books, and movies will also 

be taxed. States will see the Internet as a practically unlimited source of tax income 

by charging low rates on large numbers of transactions. 

According to a study by the Mercatus Center, ‘‘Requiring out-of-state vendors to 

collect sales taxes on behalf of jurisdictions where they have no physical presence 

remains unfair and unconstitutional, especially when there are other ways states 

134 

†The authors are, respectively, Chairman, Empiris LLC and Adjunct Professor, George Mason 

University School of Law; and Senior Fellow, Economic Studies and Global Economics Programs, 

The Brookings Institution and Vice President, Research and Policy, The Kauffman Foundation. 

We are grateful to Allan Ingraham, Robert Kulick, Molly Wells and Billy Schwartz for assistance, though any errors or omissions are our own. The views here are those of the authors, and 

should not be attributed to any of the institutions with which they are affiliated, or to the trustees, officers, or employees of those institutions. Support for this study was provided by 

NetChoice. 

could promote fairness. One way to level the playing field would be to cut or eliminate sales taxes on in-state vendors. Another alternative would be a national Internet sales tax that would avoid the complexity problem by imposing a single rate and 

set of definitions on all vendors. But that solution opens the door to a new Federal 

tax base, which would grow to be burdensome in other ways at a time when American consumers and companies are already over-taxed.’’ 

Conclusion 

An origin-based tax system for online purchases is simpler and more taxpayerfriendly than a destination-based tax system. 

In a destination-based tax system, a customer is charged at the rate where the 

customer is located or is expected to use the product. The increase in the number 

of intangible services and property sold over the Internet makes it extremely difficult to determine where the product will be used, since computer programs and 

digital property such as music files can be downloaded all over the country. 

There are three problems with a destination-based tax on the Internet. Tax competition among the states would be hindered, it would undercut federalism, and it 

would push tax rates up. 

In comparison, states currently tax sales using an origin-based tax system. A consumer buys a product in a store or from a remote business, and he or she is taxed 

at the rate where the business is physically located. 

So while destination-based taxation requires reporting to multiple governmental 

jurisdictions and creating substantial business costs for small start-up companies 

and Internet entrepreneurs, origin-based taxation would foster competition among 

the states and would be simpler for businesses to comply with. 

Nothing in this report is intended to influence the passage of legislation, and it 

does not necessarily represent the views of The Heartland Institute. If you have any 

questions about this issue or The Heartland Institute, contact Heartland Government Relations Director John Nothdurft at 312/377–4000 or jnothdurft 

@heartland.org. 

Empiris LLC—February 2010 

UNCOLLECTED SALES TAXES ON ELECTRONIC COMMERCE: A REALITY CHECK

Jeffrey A. Eisenach and Robert E. Litan †

Executive Summary 

Under the Supreme Court’s 1992 Quill decision, online retailers are not required 

to collect sales taxes in states where they do not have a physical presence, or 

‘‘nexus.’’ As a result, state and local sales taxes are not collected on some proportion 

of interstate sales. Since the early days of the Internet, state and local governments 

have lobbied Congress to overturn Quill and force e-retailers to collect taxes on all 

sales, regardless of whether they have nexus. 

The amount of uncollected taxes involved is central to the debate. Overturning 

Quill would impose significant administrative costs, especially on small businesses 

(where administrative costs account for as much as 13.5 percent of taxes collected), 

and would have other negative consequences as well. If, the resulting tax collections 

would be too small to materially affect state and local government finances, then 

governments arguably should look elsewhere for a solution to their fiscal difficulties. 

In this study, we present an estimate of the amount of potential uncollected sales 

tax revenues for 2008, and a forecast of uncollected revenues through 2012. Our primary findings are: 

• Total potential uncollected sales tax revenues in 2008 were approximately $3.9 

billion, or less than three-tenths of one percent of state and local tax revenues. 

• More than one third of uncollected revenues are associated with small businesses. If firms with less than $5 million in remote sales were exempt (as proposed by legislation introduced in recent Congresses), potential uncollected reveVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00140 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
135 

nues fall to approximately $2.45 billion, or less than two-tenths of one percent 

of state and local tax revenues. 

• Uncollected revenues are not rising rapidly. Uncollected revenues (from firms 

with more than $5 million in remote sales) will average approximately $2.67 billion over the 2008–2012 period, or about two tenths of one percent of total state 

and local tax revenues. 

• The growth of ‘‘brick and click’’ retailing (i.e., brick and mortar retailers with 

substantial online sales) is likely to reduce the proportion of online sales on 

which taxes are not collected. In addition, states are using various tactics to 

promote tax collection by ‘‘out-of-state’’ firms. These two trends suggest that uncollected revenues are likely to fall over time—i.e., that the uncollected revenue 

problem is ‘‘solving itself.’’ 

• A few large firms account for the bulk of uncollected tax revenues. For example, 

the top 10 firms (ranked by uncollected taxes) account for approximately 47 percent of total uncollected revenues. This finding provides some support for those 

who have argued that the states should focus their efforts on firms with large 

uncollected tax revenues. 

Our findings differ markedly from those of a recent study by a group at the University of Tennessee (the Fox Study), which estimated uncollected tax revenues associated with Quill at over $7.7 billion in 2008, rising to as much as $12.7 billion 

in 2012. The differences can be attributed to three primary factors: 

• First, the Fox Study substantially overstates uncollected taxes associated with 

business-to-business (B2B) online sales. 

• Second, the Fox Study understates tax collections by small firms. 

• Third, with respect to ‘‘out-year’’ projections, the Fox Study assumes an unrealistically high and unsustainable growth rate for online sales, especially considering the fact that the growth of broadband penetration among U.S. households—one of the primary drivers of online sales growth—is slowing as household broadband penetration approaches saturation. 

The differences between our results and those of the Fox Study are summarized 

in the figure below. In our view, the most significant difference is in the rates of 

growth: Rather than growing rapidly, as the Fox Study suggests, our analysis demonstrates that uncollected revenues are, at most, growing slowly. Given that uncollected revenues account for such a small proportion of revenues, our assessment is 

that state and local tax collectors would be best served by focusing their efforts on 

other potential revenue sources. 

Potential Uncollected Revenue Forecasts, 2008–2012 


801LITAN1.eps
136 

1 504 U.S. 298, 112 S.Ct. 1904. 

2Of course, administrative costs are not the only consideration. In general, the most efficient 

taxes are those which generate the lowest deadweight losses, including the costs of economic 

distortions as well as administrative costs. See e.g., Edgar K. Browning and Jacqueline M. 

Browning, Public Finance and the Price System (New York: MacMillan Publishing, 1979) at 

288–294. 3Donald Bruce, William F. Fox, and LeAnn Luna, State and Local Government Sales Tax Revenue Losses from Electronic Commerce, University of Tennessee Working Paper (April 13, 2009) 

(hereafter Fox Study). 4For example, the Fox Study estimates uncollected revenues of $7.26 billion in 2008. The Census Bureau reports total state and local tax revenues for the 12 months ended December 2008 

were $1.304 trillion, and state and local sales and gross receipts taxes for this period were $305 

billion. See U.S. Census Bureau, Federal, State and Local Governments: Quarterly Summary 

of State and Local Government Tax Revenue (http://www.census.gov/govs/www/qtax.html, 

viewed August 31, 2009). 

Contents 

I. Introduction 

II. Data, Methodology and Assumptions 

A. Estimating the Tax Base 

B. Establishing Nexus 

C. Apportioning Sales Among States 

III. Estimates of Uncollected Taxes 

A. Uncollected Revenues in 2008 

B. Forecast of Uncollected Revenues, 2009–2012 

IV. Discussion and Implications 

V. Conclusions 

Appendix: State-by-State Estimates of Potential Uncollected Revenue 

I. Introduction 

In its 1992 Quill decision,1 the Supreme Court affirmed prior holdings that state 

sales tax regimes were so complex that forcing out-of-state firms to collect taxes 

would present an unreasonable burden on interstate commerce. Consequently, the 

court ruled that retailers could not be forced to collect sales taxes for states where 

they do not have a physical presence, or ‘‘nexus.’’ While states also require buyers 

to pay ‘‘use taxes’’ in lieu of unpaid sales taxes, and businesses generally do so, use 

tax compliance is generally agreed to be relatively low among consumers. As a result, states and localities have long complained that the growth of e-commerce—a 

portion of which is comprised of remote sales—is depriving them of significant tax 

revenues, and have sought legislation that would overturn Quill and force online retailers to collect and remit state and local sales taxes on remote sales. Retailers, 

on the other hand, argue that the administrative costs of collecting taxes for several 

thousand state and local sales tax jurisdictions would be overly burdensome, especially for small businesses that likely have de minimis sales in many states. 

Whether it makes sense to overturn Quill depends in part on how much additional tax revenue would actually be generated. If the potential increase in tax revenues is sufficiently large, some would argue that it would be worthwhile to incur 

the administrative costs (both public and private) required for collection; otherwise, 

the government should look elsewhere for revenue sources that involve lower welfare costs to society (as a share of taxes collected).2

Several studies have attempted to estimate the magnitude of uncollected sales 

taxes associated with out-of-state online sales. The most widely cited analysis, by 

Donald Bruce, William F. Fox, and LeAnn Luna at the University of Tennessee (the 

‘‘Fox Study’’), estimates that state and local governments will fail to collect between 

$44.8 billion and $49.1 billion in tax revenues on online sales over the five-year period between 2008 and 2012.3 While these estimates are still quite low as a proportion of total state and local tax revenues (about 0.6 percent), or even state and local 

sales tax revenues (about 2.5 percent),4 they are sufficiently large that states and 

localities have cited them in support of their efforts to promote Federal legislation. 

Other analysts have suggested these estimates are too high, that the actual amount 

of tax revenues foregone is much lower, and that the amount of additional taxes 

that might plausibly be collected is lower still, especially since Congressional proVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00142 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
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5See, e.g., Billy Hamilton, ‘‘Internet Sales Tax: What If There’s No There There,’’ State Tax 

Notes 49 (September 1, 2008) at 627 and Peter A. Johnson, Setting the Record Straight: The 

Modest Effect of Ecommerce on State and Local Sales Tax Collection (Direct Marketing Association, January 19, 2008). 

posals to mandate collection of remote sales tax have exempted small business retailers.5

In this study, we provide estimates of the potential state and local sales tax revenues from Internet retailers, using data from a range of sources, including a recent 

comprehensive survey of retailers doing business both on and off the Net (both pure 

Net retailers and those using the ‘‘bricks and clicks’’ model). Our estimates of lost 

revenue are far lower than those in the Fox Study—at $3.9 billion for 2008, slightly 

more than half. Moreover, assuming—as seemsextremely likely—that a sales tax 

collection mandate would include an exemption for small businesses, the amount 

would be even less: Approximately $2.4 billion, or less than two-tenths of one percent 

of state and local government tax revenues. In the balance of this introductory section we explain why our estimates differ from the Fox Study, and in the rest of the 

paper, we provide the details. 

The amount of revenue that would be generated by a mandate to collect remote 

sales tax depends on three primary factors: (1) The dollar amount of taxable e-commerce sales on which taxes currently are due, but not collected; (2) the applicable 

tax rates on these sales; and, (3) the ‘‘reach’’ of the mandate, i.e., the revenues that 

would be exempted if, for example, small businesses were not covered (or, realistically, if there was a significant amount of noncompliance). Unfortunately, none of 

these three magnitudes is directly observable, and it is therefore necessary to develop estimates. For example, while there are both public and private estimates of 

the total amount of retail online sales, it is necessary to estimate the proportion of 

these sales accounted for by products (e.g., food products, intangibles) that are exempt from state and local sales taxes. Of the remainder, it is necessary to estimate 

the proportion of sales for which taxes are already collected, either because they are 

made to customers in states where the seller has nexus, or because the buyer pays 

use taxes, which is typical for most business-to-business (B2B) sales. Once an estimate of untaxed sales is developed, the overall sales figure must be allocated across 

jurisdictions in order to apply the appropriate tax rates. Finally, in order to make 

going-forward projections of lost tax revenues, it is necessary forecast the key underlying variables for future periods. 

In this study, we utilize data from a variety of sources to estimate the amount 

of uncollected sales taxes on electronic sales for 2008–2012. The starting point for 

our analysis is a survey of sales tax collection practices of the largest online retailers as reported by Internet Retailer, which reports annual online sales revenues for 

the 500 largest Internet retailers, including both ‘‘pure play’’ online retailers (like 

Amazon.com) and ‘‘brick-and-click’’ or ‘‘multichannel’’ retailers (like Target and WalMart). To ascertain the extent to which these firms collect sales taxes on online 

sales, we went beyond the data in the Internet Retailer report to survey the sales 

tax collection practices of 250 firms (including the top 150, the bottom 50 firms and 

50 from the ‘‘middle’’ of the distribution) to ascertain the states in which sales taxes 

are already collected on online sales by the top 500 firms. We also develop estimates 

for uncollected taxes by smaller firms, which represent about $28 billion, or 21 percent, of 2008 online sales. Finally, we also forecast online sales and uncollected revenues for the five-year period 2008–2012. 

As indicated, we estimate that uncollected sales taxes on state and local sales in 

2008 totaled approximately $3.9 billion, slightly more than half of what is estimated 

by the Fox Study. Over the course of the five-year period from 2008–2012, our estimates diverge still further from those of the Fox Study. For example, the Fox Study 

estimates uncollected revenues could be as high as $12.7 billion in 2012, compared 

with our estimate of $4.7 billion. As we explain below, there are three major reasons 

for the differences between our estimates and those of the Fox Study: First, the Fox 

Study substantially overstates uncollected taxes associated with businessto-business 

(B2B) online sales; second, the Fox Study understates tax collections by small firms; 

third, with respect to ‘‘out-year’’ projections, the Fox Study assumes what we regard 

as an unrealistically high and unsustainable growth rate for online sales, especially 

considering the fact that the growth of broadband penetration among U.S. households—one of the primary drivers of online sales growth—is slowing as household 

broadband penetration approaches saturation. 

The remainder of this paper is organized as follows. Section II describes our approach and key assumptions, and describes our data set and survey methodology. 

Section III presents our results for both the baseline (2008) estimate of uncollected 

taxes and our five-year (2008–2012) forecast. Section IV puts our results in context 

138 

6See http://www.census.gov/retail/mrts/www/data/pdf/09Q2.pdf and http://www.census 

.gov/econ/estats/2007/2007reportfinal.pdf. 7See http://www.census.gov/econ/estats/2007/2007reportfinal.pdf at 2 (‘‘We estimate business-to-business (B-to-B) and business-to-consumer (B-to-C) e-commerce by making several simplifying assumptions: manufacturing and wholesale e-commerce is entirely B-to-B, and retail 

and service e-commerce is entirely B-to-C.’’) 8http://www.census.gov/econ/estats/2007/2007reportfinal.pdf at 3. 9For example, the Census Bureau’s definition of ‘‘wholesale’’ establishments clearly excludes 

retailers, yet the Fox Study includes sales by such establishments in the tax base for retail commerce. See U.S. Census Bureau, 2002 NAICS Definitions, 42 Wholesale Trade (at http:// 

www.census.gov/epcd/naics02/def/NDEF42.HTM). 

and briefly discusses policy implications. Section V presents a brief summary of our 

findings. 

II. Data, Methodology and Assumptions 

Our central objective is to estimate the amount of online retail sales made by 

firms in states where they are not required to collect sales taxes, and then to estimate the taxes not being collected on those sales. To do so, we begin by establishing 

the size of the overall tax base (i.e., the universe of taxable online sales). Next, we 

estimate the proportion of sales that occur in states where the seller lacks nexus 

(and therefore is assumed not to collect sales taxes). Third, we distribute these sales 

across states, and multiply by the appropriate tax rates. In this section, we describe 

the data, methodology and assumptions we used in conducting each step. Where appropriate, we note where our approach differs from that adopted in the Fox Study 

and explain why we believe our approach is more appropriate for evaluating alternative sales tax policies. 

A. Estimating the Tax Base 

Our first step is to estimate total retail e-commerce sales which are subject to 

state and local sales and use taxes. The authoritative source of such data is the U.S. 

Census Bureau, which conducts both monthly and annual surveys of retail trade 

and, on the basis of those surveys, reports retail e-commerce on both a quarterly 

and annual basis. Quarterly reports are based on the Monthly Retail Trade Survey 

(MRTS), and annual reports are based on the Annual Retail Trade Survey (ARTS).6

While the Census publishes separate estimates for B2B and B2C e-commerce, its 

B2C estimates in fact count all retail e-commerce, including retail e-commerce involving sales from one business to another.7 The Census online sales data are also 

comprehensive with respect to types of sellers, as they include ‘‘catalog and mail 

order operations, many of which sell through multiple channels; ‘‘pure plays’’ (i.e., 

retail businesses selling solely over the Internet); and e-commerce units of traditional brick-and-mortar retailers (i.e., ‘brick and click’).’’ 8 Thus, we believe the Census Bureau data represents the best estimate of the total amount of e-commerce potentially subject to sales tax, although, as we explain below, there are some reasons 

to believe it represents an overestimate of the overall tax base. Table 1 below shows 

the Census Bureau’s estimates of retail e-commerce from 1999 through the second 

quarter of 2009. 

Table 1.—Retail E-Commerce 1999–2009 

[$ billions] 

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008* 2009** 

E-Retail Sales $15 $28 $34 $45 $57 $76 $87 $107 $127 $133 $128 

% of Total Retail 0.5% 0.9% 1.1% 1.4% 1.8% 2.2% 2.4% 2.8% 3.2% 3.4% 3.6% 

YOY % Change — 86.7% 21.4% 32.4% 26.7% 33.3% 14.5% 23.0% 18.7% 4.7% –3.8% 

Source: U.S. Census Bureau/E-Stats 

* Based on most recent revised quarterly reports. 

** Annual rate based on Q1, Q2. 

Our estimate of retail e-commerce differs from the one advanced by the Fox 

Study, which takes a very different approach. For reasons which are not apparent 

(given that the Census Bureau retail sales data include B2B as well as B2C sales), 

the Fox Study begins by including all e-commerce sales, including sales classified 

by the Census Bureau as B2B sales. These sales have little or no potential for uncollected sales tax, for two reasons: First, wholesale sales or ‘‘inputs-to-production’’ 

generally are exempt from sales and use taxes.9 Second, even if some retail sales 

are captured in the Census Bureau’s B2B category, nearly all businesses file and 

139 

10The Fox Study does not document the methodology by which it arrives at its baseline estimates of the electronic commerce. Moreover, the study provides only an unlabelled bar graph 

showing historical electronic commerce data, making it impossible to compare the underlying 

data used in the study to actual data from the Census Bureau. As a result, it is not possible 

to estimate the precise amount by which the Fox Study overstates the tax base. 11See e.g., Johnson at 6. 12 As we discuss further below, ‘‘nexus’’ is an inexact and evolving concept. For example, New 

York has recently passed legislation defining nexus as including a situation where an online retailer has sales affiliates in the state (e.g., an Amazon advertisng partner). Amazon has sued 

the state over this law, and is collecting sales tax on sales to New York residents, pending the 

outcome of its lawsuit. 13 Information on the Guide is available at www.internetretailer.com/top500. 

pay the use tax due on their retail purchases, largely because state tax auditors can 

readily close use tax compliance gaps by examining business records. 

Recognizing that its approach is over-inclusive, the Fox Study next attempts to 

exclude some B2B sales, based in part on a survey the authors conducted of state 

sales tax personnel, who were asked to estimate the proportion of various categories 

of B2B sales which might be subject to sales tax. Having conducted the survey, however, the Fox Study concludes that the results are unreliable, and discards many 

of the responses in favor of ad hoc corrections based on a subset of the data which 

more closely match the authors’ a priori expectations. 

The ultimate effect of the Fox Study’s approach is to inflate the taxable base by 

including a substantial amount of B2B sales which are not subject to sales and use 

taxes, and then to apply an ad hoc and arbitrary approach to correcting the error.10

In our view, the entire exercise is both unnecessary and inappropriate: While the 

Census Bureau data are labeled ‘‘B2C,’’ they in fact include all retail sales, that is, 

all sales that are potentially subject to state and local sales and use taxes. There 

is no valid basis for adding in additional B2B sales. 

In fact, there at least three good reasons for believing the Census Bureau retail 

e-commerce estimates are over-inclusive with respect to taxable sales, even without 

adding in additional B2B sales. First, the Census Bureau’s retail e-commerce data 

include sales by motor vehicle and parts dealers, which comprise 19 percent ($24 

billion in 2007) of total retail e-commerce. Including these sales in the total likely 

overstates the potential tax base both because automobile sales—regardless of how 

they are conducted—are subject to taxation at the time of registration, and because 

many sales of automobile parts are likely B2B sales which are not subject to sales 

or use taxes in the first instance. 

Second, while the Census Bureau data exclude online travel services, financial 

brokers and ticket sales agencies, they include sales of at least three types of 

items—food, clothing, and intangibles (e.g., downloaded software,)—which often are 

not subject to sales tax. The Fox Study attempts, through its survey of state finance 

department personnel, to estimate the proportion of B2C sales that are subject to 

taxation, and ultimately concludes that about 30 percent of B2C sales are exempt 

from sales and use taxes. While we agree that many B2C sales are not taxable, we 

do not believe the Fox Study’s survey results are sufficiently reliable to form the 

basis for such a precise estimate. 

Third, to the extent the Census Bureau data include B2B sales, it is likely that 

the purchasing businesses pay use taxes on purchases for which sales tax is not collected by the seller. Past research suggests that the use tax compliance rate among 

businesses is between 85 and 100 percent.11

We considered various approaches to adjusting for these issues of over-inclusion, 

including—for example—excluding e-commerce sales by automobile dealers, supermarkets andonline music services), but we ultimately chose not to make such adjustments because we lack the underlying data needed to do so with precision. As 

a result, our estimate of the overall retail e-commerce tax base is likely to be significantly above the true amount, meaning that our estimates of uncollected taxes are 

likely also biased upwards relative to the actual amount. 

B. Establishing Nexus 

The second step in our analysis is to ascertain the extent to which sales taxes 

are already being collected on retail e-commerce sales, that is, to determine the extent to which retail e-commerce involves sales to customers in states where the seller has nexus or is, for whatever reason, collecting sales taxes.12 To do so, we began 

by researching the firms listed in the 2009 edition of Internet Retailer Top 500 

Guide, which provides data on 2008 retail e-commerce sales by the largest online 

retailers, or all those with annual online sales exceeding $9 million.13 Specifically, 

140 

14Five firms are Canadian and thus not subject to U.S. sales taxes or included in the U.S. 

Census Bureau data. Of the remainder, we surveyed each of the top 150 firms and bottom 50 

firms, and an additional 50 firms ranked between 150 and 450. 15When no determination could be made, we assumed that the firm in question did not collect 

sales taxes in any state. Our approach was similar to that used by the Fox Study, though their 

data was based on the 2007 edition of Internet Retailer, and they surveyed only 100 firms (the 

top 50 plus 50 more chosen at random). See Fox Study at 20. Note that, like the Census Bureau 

data, the Internet Retailer guide excludes online travel agents and brokerages, but includes several categories of sellers (e.g., music and game download sites, grocery stores) whose sales are 

likely largely exempt from sales taxes. 16We adjusted Amazon’s total sales to reflect the fact that approximately 47 percent of its 

$19 billion in sales (about $9 billion) are made outside the United States. See Amazon.Com, Inc., 

Form 10–K for the Fiscal Year Ended December 31, 2008 at 30. 17 As we discuss further below, the Fox Study cites a recent draft working paper which argues 

that the Census Bureau data underestimates sales by small firms. (See Joe Bailey et. al, ‘‘The 

Long Tail is Longer than You Think: The Surprisingly Large Extent of Online Sales by Small 

for 250 of the 495 U.S. firms listed in the guide,14 we ascertained the states in 

which each firm collected sales taxes on online sales. For each firm, we followed the 

following sequence: First, we visited the firm’s website and searched for a listing 

of states in which tax was collected; second, if the website data was inconclusive, 

we contacted the firm’s customer service department; third, if customer service was 

unable or unwilling to provide the information, we researched the firm’s website, 

its Securities and Exchange Commission filings, and other public data, for a list of 

states in which the firm in has a retail store or other physical presence.15

Several findings from this portion of our analysis are worth highlighting. First, 

there is an extremely wide variance in the number of states where firms collect 

taxes. For the top 150 Internet Retailer firms, for example, 77 collect in 10 states 

or fewer, and 62 collect in 30 or more; only 11 collect in 11 or more states but fewer 

than 30. This bi-polar distribution reflects the distinction between ‘‘pure play’’ retailers (such as Amazon.com) which have nexus in very few states, and ‘‘brick and click’’ 

retailers (such as Staples) which collect taxes in most or all states. As shown in 

Table 2, most of the largest online retailers (ranked by 2008 U.S. online sales) are 

‘‘brick and click’’ firms which collect taxes in most or all of the states with sales 

taxes. 

Table 2.—States Where Sales Taxes Are Collected, Top 20 E-Retailers 

Firm 2008 Online 

Sales 

States Where 

Taxes Are 

Collected 

Amazon.com16 $10,228,000,000 5 

Staples $7,700,000,000 44 

Dell $4,830,000,000 47 

Office Depot $4,800,000,000 47 

Apple $3,642,118,080 47 

OfficeMax $3,083,730,683 47 

Sears Holdings $2,693,433,600 47 

CDW $2,600,122,100 47 

Newegg $2,100,000,000 3 

Best Buy $2,015,183,282 47 

QVC $1,993,361,800 47 

SonyStyle.com $1,827,577,534 47 

Walmart.com $1,740,000,000 47 

Costco $1,700,000,000 38 

J.C. Penney Co. $1,500,000,000 47 

HP Home & Home Office Store $1,497,000,000 47 

Circuit City Stores* $1,414,000,000 29 

Victoria’s Secret $1,333,000,320 45 

Target $1,209,208,320 46 

Systemax $1,072,071,000 5 

Source: Internet Retailer 

*Circuit City Stores went through Chapter 7 in 2008 

Note: While it does not have a state sales tax, we count Alaska as a sales tax 

state, given that multiple local jurisdiction levy sales and use taxes. 

Second, as shown in Figure 1, the distribution of e-retail sales is heavily skewed 

towards the largest retailers. Overall, we found that the top 20 Internet retailers 

accounted for nearly $59 billion in 2008 sales (44 percent of the $133 billion total), 

and the top 495 firms accounted for approximately $105 billion in sales, or 79 percent of all sales. The remaining retail e-commerce sales ($28 billion) are associated 

with smaller firms, i.e., those with less than $9 million in online sales.17

141 

Volume Sellers,’’ Draft, University of Maryland, May 12, 2008.) While a complete critique of that 

paper is beyond the scope of this study, it is clear that it suffers from numerous methodological 

problems which make its results unreliable. (To cite just one example, the Bailey paper relies 

on comScore data on web sales by the top 140 online retailers (with average annual online sales 

of $675 million) to estimate sales by firms with sales below $1 million.) While the Fox Study 

relies on the Bailey paper to estimate the distribution of sales by firm size, it does not embrace 

the Bailey paper’s contention that the Census Bureau underestimates overall e-commerce sales 

and does not rely on the Bailey paper for its estimate of total online sales. 18We deviated from this method in the case of only three firms in our sample: Peapod, 

Safeway, and FreshDirect. These three firms are brick and click grocers with very specific areas 

of operations. We contacted these firms and determined the states in which they provide their 

online grocery service and applied their total online sales, as listed in Internet Retailer, only to 

those states. 19See, e.g., Austan Goolsbee, 2000. ‘‘In a World Without Borders: The Impact of Taxes on 

Internet Commerce,’’ Quarterly Journal of Economics 115; 2 (May 2000) 561–576. 

Figure 1: Distribution of Retail E-Commerce by Firm Size, 2008 

C. Apportioning Sales Among States 

Uncollected tax revenues in any given state are the product of online sales in the 

state upon which taxes are not collected and the applicable tax rate. Thus, the next 

step in our analysis is to apportion each company’s sales among the states. We do 

so by assuming that individual firm e-commerce revenues are distributed across the 

50 U.S. states (and Washington D.C.) in the same proportions as overall 2008 total 

retail sales, as reported by the Census Bureau. That is, for example, if a particular 

state accounts for five percent of retail commerce in the United States, we attribute 

five percent of each firm’s online sales to that state.18

We considered other approaches to apportioning sales across states. The Fox 

Study, for example, apportions sales on the basis of total state and local sales tax 

collections, thus weighting sales towards states with higher tax rates. The authors 

defend this approach on the basis of studies which show that consumers in high tax 

states are more likely to shop online than consumers in low tax states, presumably 

to avoid paying sales taxes.19 One problem with this approach is that tax rates are 

only one of many factors that affect the geographic distribution of online sales, inVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00147 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE

801LITAN2.eps
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20See, e.g., Glenn Ellison and Sara Ellison. ‘‘Internet Retail Demand: Taxes, Geography, and 

Online-Offline Competition,’’ (Massachusetts Institute of Technology Department of Economics 

Working Paper Series, May 2006). 21See e.g., John Horrigan, Online Shopping (Pew Project on the Internet and American Life, 

February 2008) (available at http://www.pewinternet.org/Reports/2008/Online-Shopping/01- 

Summary-of-Findings.aspx?r=1). 22See PriceWaterhouseCoopers, Retail Sales Tax Compliance Costs: A National Estimate 

(April 7, 2006) at 18 (available at http://www.netchoice.org/library/cost-of-collection-studysstp.pdf). 23We utilized the same source for sales tax rates as in the Fox Study, namely the Sales Tax 

Clearinghouse. Rates represent statewide rates plus local tax rates divided by the state sales 

tax base, i.e., they represent blended state and local sales tax rates for each state. See http:// 

www.thestc.com/STrates.stm. 

cluding (for example) the proximity of the retailer to the buyer,20 and demographic 

factors such as personal income, Internet penetration and broadband adoption.21

Thus, while there is some evidence that people in high tax states are more likely 

to shop online other things equal, there is no evidence we are aware of that suggests 

that differences in tax rates explain a significant portion of the variation in online 

retail sales across states. Moreover, we suspect one of the strongest determinants 

of the distribution of firm sales across states is domicile—that is, given the growing 

significance of ‘‘brick and click’’ retailing, we suspect many retailers’ online sales are 

concentrated in states where customers can visit their affiliated retail stores to preview items and seek the convenience of returning or exchanging items they 

havepurchased online. This phenomenon which would tend to work against the Fox 

Study’s bias of allocating more sale to high-tax states. In the end, rather than introducing spurious (or even biased) variation into our data set (as we believe the approach taken by the Fox Study does), we elected to simply apportion online sales 

according to overall retail sales. 

III. Estimates of Uncollected Taxes 

The next steps in our analysis are to calculate estimates of uncollected taxes for 

2008, based on the estimates of underlying variables discussed above, and then to 

forecast uncollected taxes into the future, i.e., for the period from 2009–2012. 

A. Uncollected Revenues in 2008 

To estimate uncollected revenues for 2008, we begin by estimating uncollected 

revenues for the large firms covered in the Internet Retailer report, and then add 

an estimate for smaller firms (those with revenues below $9 million). We note, however, that the estimate for smaller firms is, in a sense, less significant, as there appears to be general agreement that the administrative costs of collecting from smaller firms is much higher than for larger firms (For example, a survey commissioned 

by the Streamlined Sales Tax Project found that firms with annual retail sales of 

between $150,000 and $1 million incur collection costs averaging 13.5 cents for 

every dollar of sales tax they collect.22), and that even if larger firms were to be 

required to collect taxes on out-of-state sales, smaller firms would be exempted. 

To estimate uncollected revenues for large firms, we multiplied state-specific retail e-commerce revenues for each firm by the applicable sales tax rates for each 

state.23 Thus, for each firm, we calculated the amount of taxes that would be owed 

in each state, if the firm had nexus in that state. Next, for each firm, we sum this 

amount across all states in which the firm does not collect sales taxes. As shown 

in Table 3 below, the total for the top 150 firms in 2008 was $1.985 billion; for the 

bottom 50 firms, the total was $27 million. For the middle group of 300 firms, we 

first calculated the average ratio of taxes collected to potential taxes due for the 50 

firms whose tax collection practices we sampled from this group, and applied this 

ratio to all 300 firms. On that basis, we estimate the total for the 300 middle firms 

at $418 million. 

The last step in our analysis was estimate the ratio of taxes collected to potential 

taxes for smaller firms, or those not included in the Internet Retailer 500 survey. 

As noted above, we estimate these firms constitute approximately 21 percent (or $28 

billion in 2008) of retail e-commerce sales. 

We considered but rejected the approach adopted in the Fox Study, which was to 

simply assume extremely small tax compliance rates for small firms. Specifically, 

the Fox Study assumes, without any empirical basis, that ‘‘medium-sized firms’’ 

(those with online revenues of less than $10 million) pay taxes only in their home 

states, and thus (dividing 1 by 50) the Fox Study assigns these firms a two-percent 

compliance rate—even if their home state is California; and, it assumes that ‘‘small’’ 

firms (online revenues less than $1 million) only pay half of the taxes due even in 

their home states (on average), and hence have a compliance rate of one percent. 

143 

24See, e.g., H.R. 3184, 108th Congress, 1st Session, Sec. 4(b). 25 Note that these firms include both ‘‘large’’ and ‘‘small’’ firms as ranked by overall sales, 

since the criterion for exemption is that a firm have less than $5 million in remote sales. 

In our view, these assumptions are arbitrary and unsupportable, and at odds with 

our research on states where the top 500 e-retailers already collect sales tax. 

We believe the Fox Study errs in this regard primarily by assuming (or seeming 

to assume) that all or almost all firms with relatively low online sales fit some combination of two criteria: (a) they are exclusively or almost exclusively ‘‘pure play’’ 

online retailers, with few if any brick and mortar retail outlets; or (b) they are small 

firms that lack rigorous tax compliance programs, and/or are not subject to tax audits by state governments. This characterization, however, simply does not comport 

with the data. While some firms with small online revenues meet these criteria, others are actually large, multi-state brick-and-click retailers that collect taxes in multiple jurisdictions. For example, both Hancock Fabrics and Sur La Table have less 

than $10 million in online sales, as reported by Internet Retailer. Yet, Hancock Fabrics collects taxes in 36 states, and on 92 percent of its sales, while Sur La Table 

collects taxes in 21 states, and on 73 percent of its sales. To assume, as the Fox 

Study does, that both of these firms collect taxes on only two percent of sales clearly 

biases upward their estimate of uncollected sales tax. 

Upon examination of the data, we found only a weak correlation between online 

sales revenues and the proportion of taxes collected. Accordingly, we assumed that 

the ratio of taxes collected to potential tax collections for smaller firms (those with 

revenues less than $9 million) is the same as for the ‘‘bottom 50’’ firms in the Internet Retail 500 (firms with online sales of between $9 million and $11.8 million in 

2008 online sales), or approximately 26 percent. On that basis, as shown in Table 

3, we estimate uncollected taxes among these firms at less than $1.5 billion, assuming no de minimis exemption. 

Table 3.—Retail Sales and Potential Uncollected Taxes, By Firm Size, 2008 

Size Category 

(Ranked by 2008 E-Retail Sales) 

e-Retail Sales 

($millions) 

Potential Uncollected 

Sales Tax 

($millions) 

Large (Top 150) $95,145 $1,985 

Middle (Next 300) $9,351 $418 

Small (Bottom 50) $514 $27 

Subtotal (Internet Retailer 500) $105,010 $2,430 

Micro (Sales under $9 million) $27,990 $1,477 

Total $133,000 $3,907 

As the table indicates, summing across these four classes of firms, we estimate 

total uncollected revenues for 2008 at $3.9 billion. 

The last step is to estimate the impact of applying a de minimis exemption. As 

noted above, even proponents of overturning Quill recognize that the administrative 

burdens placed on small sellers (and tax collection agencies) would be very high relative to the amount of taxes collected; and, since some proposals contemplate reimbursing businesses for the collection charges, at least some of those collection costs 

would have the effect ultimately of reducing net tax collections, thus defeating the 

purpose altogether. Accordingly, most proposals would create a small business exemption which, for example, would exempt all firms with gross remote (i.e., out-ofstate) sales of less than $5 million.24

To estimate the impact of such an exemption, we first estimated the amount of 

remote sales for each firm on the Internet Retailer 500 list. Then, for firms with less 

than $5 million in remote sales, we summed our firm-specific estimates of uncollected sales taxes across the firms with less than $5 million in sales. We identified 

39 firms out of the top 500 that (a) had less than $5 million in remote sales and 

(b) did not collect taxes in one or more states.25 The estimated uncollected taxes for 

these 39 firms totaled only $4 million. 

To assess the impact of a $5 million exemption for those retailers which are not 

on the Internet Retailer 500 list, we first estimated the shape of the size distribution 

(based on online sales) for smaller firms. To do so, we fitted an exponential curve 

(i.e., a regression equation) based on the bottom 100 firms in the Internet Retailer 

500, and used the regression coefficients to estimate the sales revenues of the next 

500 firms. The results of the regression analysis are shown in Figure 2, which demonstrates that our regression model is an excellent fit, with the R-squared statistic 

144 

26 Indeed, projecting our results to the next 1,000 firms suggests the average online sales of 

firms ranked 1,001–2,000 are only $120,000, with the 2000th firm having less than $35,000 in 

sales; total sales in this group are only about $120 million. 

indicating we have explained approximately 99 percent of the variation in firm size 

over the relevant range. 

Figure 2: Regression Analysis of Firm Size 

The results of applying the regression coefficients in Figure 2 to estimate the size 

of the ‘‘next 500’’ online retailers are shown in Table 4. As the table indicates, the 

bottom 500 firms on the Internet Retailer 500 list (firms ranked 401–500) have average e-commerce sales of $12.1 million; the next 100 (ranked 501–600) have estimated average sales of $7.2 million; the next 100 (601–700) have estimated average 

sales of $4.1 million, and so forth. 

Table 4.—Estimated Retail E-Commerce Sales by Firm Size 

Firm Rank Total e-Commerce Sales Average e-Commerce Sales 

401–500 $1,208,032,677 $12,080,327 

501–600 (est.) $717,102,300 $7,171,023 

601–700 (est.) $413,539,010 $4,135,390 

701–800 (est.) $243,411,117 $2,434,111 

801–900 (est.) $143,272,993 $1,432,730 

901–1,000 (est.) $84,977,289 $849,773 

Total (501–1,000) (est.) $1,602,302,708 $3,204,605 

One important implication of the data in Table 4 is the fact that estimated retail 

e-commerce sales for the ‘‘second 500’’—firms ranked 501–1000 in online sales— 

total only about $1.6 billion annually, accounting for only 5.7 percent of the $28 billion in online sales we attribute to firms with less than $9 million in sales, based 

on the Census Bureau and Internet Retailer data. Thus, our estimates are consistent 

with the notion that there is indeed a ‘‘long tail’’ of small online retailers, for example, a tail consisting of five million sellers averaging $5,280 in online sales per year, 

or a total of $26.4 billion for all firms outside the top 1,000.26

To assess the impact of a small business exemption on this group of firms, we 

assumed that small retailers had the same ratio of in-state to out-of-state sales as 

the bottom 50 in the Internet Retailer list (that is that remote sales accounted for 

74 percent of total sales), and on that basis estimate that firms with more than 


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27The Fox Study also calculates the effect of a de minimis exemption. While it takes a very 

different approach (for example, it appears to base its exemption thresholds on total online sales 

rather than remote online sales), the effect is, coincidentally, entirely consistent with our estimate: Both methods find that a $5 million de minimis exemption would reduce collections by 

37 percent of total uncollected revenues. 28 U.S Census Bureau, Quarterly Retail E-Commerce Sales, Q1 2000—Q2 2009. We note that 

data for prior years are often restated in subsequent reports. In these cases, we used the data 

reported in the most recent available E-commerce report. 29Pew Internet & American Life Project, Broadband at Home, 2000–2009. The Pew survey 

data is reported in different months across different years. Thus, we used a two step algorithm 

to match the Pew broadband survey data to the census bureau’s quarterly e-commerce reports. 

First, we looked to see if for each quarter there was a survey date that was within that quarter. 

If there was we assigned that value to the quarter. If there were two surveys within a quarter, 

we assigned the later survey date. For quarters that were missing survey data, we used the 

value of the next quarter with available data. 

$6.76 million in online sales (= $5 million/0.74) would be required to collect sales 

taxes and all others would be exempt. There are 58 such firms, with estimated remote sales revenues of $339 million. Applying the national average tax rate (7.13 

percent) to these sales yields potential uncollected revenues from these firms of approximately $24 million. With these estimates in hand, we can now calculate the impact of a $5 million 

small business exemption. We begin with our total estimate of potential uncollected 

revenues of $3.9 billion, which includes $2.4 billion from the top 500 firms and $1.5 

billion from all other firms. As explained above, we estimate that a small business 

exemption would reduce collections from the top 500 firms by only $4 million. For 

all other firms it would reduce collections by $1.477 billion minus $24 million, or 

$1.453 billion. Thus, for 2008, we estimate a small business exemption would reduce 

potential collections by a total of $1.457 billion. Accordingly, we estimate that the 

maximum amount of additional revenue that would result from overturning Quill, 

assuming a small business exemption is adopted, is $2.45 billion.27

B. Forecast of Uncollected Revenues, 2009–2012 

We developed two forecasts for uncollected revenues for the period 2009–2012. 

The first (baseline) forecast is based on the projected growth of online sales over this 

period, assuming all other variables remain unchanged. The second (adjusted) forecast is based on the assumption that current trends with respect to collection rates 

continue—that is, that the proportion of online sales for which firms collect and 

remit state and local sales taxes continues to increase. 

To arrive at our baseline projection, we estimated a simple model of the level of 

retail e-commerce, variations in which we hypothesize can be explained by (a) overall retail sales and (b) the level of household broadband penetration. Accordingly, 

we collected data quarterly data on retail e-commerce, total retail commerce, and 

broadband penetration from 2000 through 2009. We acquired the e-commerce data 

and total retail commerce data from the Census Bureau’s Quarterly E-Commerce 

Reports.28 We acquired household broadband penetration data from the Pew Internet & American Life Project’s Broadband at Home Survey.29 Using these data, we 

specified a regression model where retail e-commerce was the dependent variable 

and total retail commerce and broadband penetration were the independent variables. Table 5 depicts the results of this analysis: 

Table 5.—Regression Analysis of Retail E-Commerce 

Variable Coefficient T-Stat P-Value 

Constant 17396.6 3.47 0.00 

Retail Commerce 0.029 4.45 0.000 

Broadband Penetration 37110.7 11.54 0.000 

Adjusted R-Squared 0.95 

Observations 38 

As the data in Table 5 indicate, our two-variable regression analysis explains approximately 95 percent of the variation in retail e-commerce over the nine-year period. Regression coefficients on both of the explanatory variables are, as expected, 

positive, and t-statistics indicate that they are significantly different from zero at 

a confidence level of greater than 99 percent. In short, our model is statistically robust and explains nearly all of the variation in retail e-commerce over the sample 

period. 

146 

30Source: Pew Project on the Internet and American Life. 31Gartner Research, Gartner Says 17 Countries to Surpass 60 Percent Broadband Penetration 

into the Home by 2012, Jul. 24, 2008, available at http://www.gartner.com/it/page 

.jsp?id=729907 (Last visited Aug. 31, 2009). 32 Congressional Budget Office, Table 2.1: CBO’s Economic Projections for Calendar Years 

2009 to 2019, available at http://www.cbo.gov/doc.cfm?index=10521 (Last visited Aug. 31, 

2009). 

We then used this model to forecast retail e-commerce sales for each quarter from 

Q2 2009 to Q4 2012, using forecasted broadband growth data from Gartner Research and forecasted nominal GDP growth data from the Congressional Budget Office (CBO). With respect to broadband adoption, our forecasts—from the Gartner 

Group—are consistent with the slowing growth of broadband penetration in recent 

years. For example, the latest data from the Pew Project on the Internet and American Life, shown in Figure 3, shows that the average annual growth in broadband 

penetration has fell by nearly 50 percent between 2005–6 and 2008–9, from 28 percent to only 15 percent. 

Figure 3: Growth in Broadband Penetration, 2004–200930

Specifically, we based our estimates of broadband penetration on forecasts from 

Gartner Research, which predicts that U.S. household broadband penetration in 

2012 will be 77 percent.31 Thus, for the purposes of projecting broadband growth 

we assigned Gartner’s penetration estimate of 77 percent to Q4 2012, and allocated 

the difference between this final projection and Pew’s Q2 2009 survey estimate of 

63 percent linearly across the remaining quarters. 

To project total Retail Commerce through Q4 2012 we simply grew total retail 

commerce in each quarter by the nominal GDP growth rate projected by the CBO 

relative to the same quarter in the previous year.32 Thus, Q3 2009 would simply 

be total retail sales in Q3 2008 plus the projected 2009 CBO growth rate times total 

retail sales in Q3 2008. Our projections for 2009–2012 are shown in Table 6. 


801LITAN4.eps
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33We also note that the Fox Study authors have dramatically overestimated e-commerce 

growth rates in their previous studies. See, e.g., Johnson at 2. 

Table 6.—Retail E-Commerce Baseline Forecast, 2008–2012 

[$ billions] 

2008 2009 2010 2011 2012 

Retail Commerce 

Level $3,973 $3,726 $3,834 $3,988 $4,199 

YOY percent Change –6.2% 2.9% 4.0% 5.3% 

Broadband 

Penetration 

Level* 57.3% 63.8% 67.5% 71.5% 75.5% 

YOY % Change 11.3% 5.8% 5.9% 5.6% 

Retail E-Commerce 

Level $133 $131** $142 $152 $164 

YOY % Change –1.5% 8.4% 7.0% 7.9% 

* Note that annual BB penetration represents the average value for the year 

based on our estimates derived from Pew and Gartner. ** Note that this figure differs from the 2009 value given in Table 1 because the 

retail e-commerce figure listed in this table was predicted based on our model’s 

estimates for Q3 and Q4, 2009, while in Table 1 the 2009 projection was created by multiplying the sum of e-retail sales in Q1 and Q2, 2009 by two. The 

close proximity of the two values serves as a good robustness check on accuracy 

of our model. 

Table 7 compares our projections for e-commerce growth with those used in the 

Fox Study. Our projections vary substantially, but we believe appropriately, from 

those advanced in the Fox Study, which projects dramatically higher growth in retail e-commerce. 

Table 7.—Comparison of Fox vs. Eisenach–Litan Projected E-Retail Growth Rates 

2008 2009 2010 2011 2012 CAGR 

(2008–2012) 

Fox Baseline 6.6% –10.0% 24.0% 17.6% 12.4% 10.2% 

Fox Optimistic 6.9% –3.1% 32.2% 14.1% 11.7% 13.0% 

Eisenach-Litan 3.9%* –1.3% 8.4% 7.3% 7.9% 5.5% 

*Actual, as reported by Bureau of the Census, E-Stats 

The Fox estimates are based on a regression model which the authors develop by 

‘‘regressing the log of e-commerce shipments on the log of nominal GDP and the real 

GDP growth rate for 1999 through 2006,’’ and then applying projections for GDP 

growth from a private forecaster, Global Insight, to forecast e-commerce from 2007 

through 2012. The result, as shown in Figure 4, is a ‘‘hockey-stick’’ shaped forecast, 

with a dramatic and unexplained surge in growth in 2010 and beyond. We find no 

basis for projecting such high growth rates into the future, especially given the slowdown in broadband penetration growth, which effectively limits the growth of ‘‘new 

shoppers’’ entering the online marketplace.33

Applying our projected growth rates to our baseline estimate of $3.9 billion in uncollected 2008 revenues, and assuming no other changes in the makeup of online 

sales, tax policy, or otherwise, we estimate potential uncollected revenues for the 

period 2008–2012 will average approximately $4.24 billion annually. Assuming enactment of a small business exemption, however, reduces the figure to an average 

of $2.67 billion annually. As shown in Table 8, our estimates are substantially less 

than the Fox Study’s forecasts over the same period. 

148 

34These ratios assume state and local taxes grow at the same rate as Gross Domestic Product 

throughout the period, i.e., at the same rate assumed in our e-commerce forecast for total retail 

sales. 

Table 8.—Comparison of Eisenach-Litan vs. Fox Projected Uncollected Taxes 

[$ billions, 2008–2012] 

2008 2009 2010 2011 2012 Average 

Without Small Business Exemption 

Eisenach-Litan $3.91 $3.85 $4.17 $4.48 $4.83 $4.25 

Fox Baseline $7.73 $6.95 $8.62 $10.14 $11.39 $8.97 

Fox Optimistic $7.75 $7.50 $9.92 $11.32 $12.65 $9.83 

With Small Business Exemption 

Eisenach-Litan $2.45 $2.42 $2.62 $2.81 $3.04 $2.67 

Fox Baseline $4.88 $4.39 $5.44 $6.40 $7.19 $5.66 

Fox Optimistic $4.88 $4.73 $6.25 $7.13 $7.97 $6.19 

The differences in these projections are both quantitative and qualitative in nature. As shown in Figure 5, the Fox Study—based on its ‘‘hockey stick’’ forecast for 

the growth of electronic commerce—forecasts that uncollected tax revenues will 

grow rapidly in the future. Our forecast, which is based on what we believe to be 

a far more realistic forecast for e-commerce growth, shows uncollected revenues 

growing only modestly. Indeed, our five-year forecast shows nominal uncollected 

revenues growing at only about 5.2 percent per year, only slightly higher than recent inflation rates—that is, in real terms, uncollected revenues are growing very 

slowly, if at all. Perhaps most importantly, our estimates show uncollected revenues—assuming no changes in either state tax collection policies or in the makeup 

of online sales—remaining nearly constant as a proportion of state and local revenues, remaining below 0.22 percent (one quarter of one percent) of total state and 

local revenues, and below one percent of sales and use tax revenues, throughout the 

projection period.34

Figure 5: Potential Uncollected Revenue Forecasts, 2008–2012 (assuming De 

Minimis Exemption) 


801LITAN5.eps
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35See Hamilton at 4. 36 Johnson at 6. 37 Id. 38See Hamilton at 5. 39See North Carolina GEN. STAT. § 105–164.8, as amended 7-Aug-2009. See also North Carolina Departmetn of Revenue, Form E–505 (9–09) at 2–3 (available at at http://www.dornc.com/ 

downloads/e505l8-09.pdf), and Rhode Island Division of Revenue, Department of Taxation, 

‘‘Important Notice: Definition of Sales Tax ‘Retailer’ Amended’’ (available at http://www 

.tax.state.ri.us/notice/RetailerldefinitionlNoticeC.pdf). 40State of California, Board of Equalization, Electronic Commerce and Mail Order Sales (November 3, 2009) (available at http://www.boe.ca.gov/legdiv/pdf/e-commerce-11–09.pdf). The 

Board of Equalization estimates uncollected revenues in 2012 at $1.0 billion, far below the Fox 

Study’s baseline estimate of $1.9 billion. 41See, e.g., Institute for Local Self-Reliance, ‘‘Internet Sales Tax Fairness—State Purchasing 

Provision—North Carolina’’ (available at http://www.newrules.org/retail/rules/internet-salestax-fairness/internet-sales-tax-fairnessstate-purchasing-provision-north-carolina). 

IV. Discussion and Implications 

Our results have several important policy implications. 

Most importantly, our results suggest that uncollected sales taxes are much 

smaller than previously thought, and that they are growing, if at all, at a much 

slower rate. Indeed, two factors we have not yet mentioned suggest uncollected sales 

tax revenues are likely to fall over time, at least as a proportion of all taxes. First, 

there is some evidence that the online sales of the brick–and-click retail model are 

growing more rapidly than those of ‘‘pure play’’ purveyors such as Amazon.com. For 

example, according to a survey conducted by the LakeWest Group, nearly three 

quarters of the top 100 retailers have embraced multichannel retailing and that ‘‘[o]f 

retailers who operate websites, 60 percent have at least some integration between 

store and site, and more than half allow returns to cross channel.’’35 To confirm this 

trend, we analyzed the growth of sales by ‘‘pure play’’ versus ‘‘brick and click’’ retailers in the Internet Retailer 500 list, and found that firms that paid taxes on more 

than 50 percent of their online sales did indeed grow faster between 2007 and 2008 

than firms that paid taxes on less than 50 percent of their online sales. These results are consistent with other research suggesting that online sales growth is occurring most rapidly among firms that collect sales taxes on large proportions of their 

sales. Johnson, for example, concludes that ‘‘the future of Internet growth has been 

shown to be in multi-channel, clicks and bricks,’’36 citing studies performed by 

Forrester Research that demonstrate ‘‘consumers’ desire to couple ‘clicks’-based 

shopping with ‘bricks’-based merchandise pick-ups and returns.’’37 Thus, there are 

strong reasons to believe that the proportion of online commerce associated with 

out-of-state sales is falling and will continue to fall over time. 

Second, states are not standing still waiting for Quill to be overturned, but instead are moving aggressively to use the tools at their disposal. For example, in 

April 2008, New York State passed legislation asserting nexus for any retailer that 

has sales affiliates in the state that generate a combined total of $10,000 or more 

annually in revenues for the retailer.38 In 2009, at least two state legislatures 

(Rhode Island and North Carolina) have enacted laws that assert nexus when remote retailers compensate in-state websites for displaying the retailer’s advertisements.39 In July 2009, California Governor Arnold Schwarzenegger signed legislation to improve business compliance with the state’s use tax. The California Board 

of Equalization estimated the new legislation, along with ongoing measures aimed 

at shrinking the ‘‘tax gap,’’ would reduce uncollected revenues from businesses by 

over 60 percent in the next two years.40 Furthermore, in recent years, some states 

have used their leverage as large purchasers to force sales tax collection by online 

retailers.41

Taken together, these two factors suggest that, rather than growing very slowly, 

as our uncorrected baseline estimates suggest, uncollected sales tax revenues may 

actually be declining as a proportion of state and local tax revenues, as illustrated 

in Figure 6. 

150 

42That is, for the 50 firms we surveyed in the middle 300, we calculated for each state the 

proportion of those firms’ sales upon which they collected taxes, and then applied that percentage to the estimated state-by-state sales of all 300 firms. 

Figure 6: Potential Uncollected Revenue as a Proportion of State and Local 

Tax Collections, 2008–2012 (Assuming Small Business Exemption) 

A second implication of our research is to provide some support for those who 

have suggested imposing a collection obligation on only those e-retailers with the 

highest amounts of uncollected sales tax. Our analysis of 2008 data shows that the 

ten firms with the largest amounts of uncollected taxes account for 47.3 percent of 

all uncollected taxes for the Internet Retailer 500 e-retailers, and 46.9 percent of un- collected revenues for all firms not subject to a $5 million small business exemption. 

V. Conclusions 

Taxation of remote sales is a hotly debated issue, and as states and localities experience the fiscal stresses associated with the current economic downturn, it is not 

surprising to hear renewed calls for overturning Quill and forcing e-retailers to collect taxes on out-of-state sales. However, a decision to impose such an mandate 

would have costs as well as benefits. The costs would include increased compliance 

costs for businesses, increased administrative costs for tax collection agencies, higher vendor compensation payments, and, of course, higher taxes for price-sensitive 

consumers who rely on online shopping. On the other side of the scale, state and 

local tax collections would increase. From the perspective of state and local governments, the relevant question is whether the increase in collections would more than 

outweigh the higher costs. Our research suggests that the increased collections associated with overturning Quill would be substantially lower than previously 

thought—approximately $2.5 billion annually rather than the $7 billion or more estimated in the Fox Study. Moreover, our analysis shows that uncollected taxes are 

not growing rapidly and, indeed, are likely constant or even shrinking as a proportion of state and local tax revenues. With this data in mind, policymakers should 

consider carefully whether the benefits of overturning Quill would exceed the costs. 

Appendix: State-By-State Estimates of Potential Uncollected Revenue 

In addition to the national estimates presented in the text, we also estimated potential uncollected revenues on a state-by-state basis. As explained in the text, our 

survey of firms’ tax collection practices in each state allowed us, for the firms surveyed, to directly estimate uncollected taxes on a firm-by-firm basis. (Indeed, our 

national estimates for these firms represent the summation of uncollected taxes 

across states and firms.) For firms not surveyed, i.e., un-surveyed firms from the 

Internet Retailer 500 and firms in the ‘‘tail,’’ we estimated potential uncollected revenues though a two-step process. First, we applied our sampling methodology for estimating the taxes avoided for the middle 300 Internet Retailer firms on a state-bystate basis.42 The reason for applying this state-by-state method was that it allowed 


801LITAN6.eps
151 

for variation in each state’s ratio of sample avoided taxes to sample total taxes, creating a more accurate portrayal of the each state’s estimated avoided taxes. Adding 

the estimated avoided taxes for the middle 300 firms to the avoided taxes for the 

top 150 and bottom 50 firms within each state yielded the total avoided tax for the 

top 500 Internet retailers in each state. Second, we then distributed the avoided 

taxes attributable to firms in the ‘‘tail’’ by allocating the total estimated avoided 

taxes for firms in the tail on a pro-rata basis according to each state’s proportion 

of taxes avoided by the top 500 Internet retailers. 

Having arrived at baseline estimates for 2008, we next calculated an estimate of 

the impact of applying the small business exemption (SBE). To do so, we first adjusted potential uncollected taxes on a state-by-state basis to omit the surveyed 

firms in the Internet Retailer Top 500 from the state-by-state calculation, and then 

calculated potential uncollected taxes for the ‘‘tail’’ by allocating to the states only 

those potential revenues that would not be affected by the SBE. 

Finally, we calculated estimated uncollected revenues for 2012 by applying our 

national projected growth rate for uncollected revenues to the 2008 estimate for 

each state. 

Our estimates, as well as the 2008 and 2012 baseline estimates from the Fox 

Study, are presented in Table A–1. As the data there indicate, our estimates are 

substantially below those of the Fox Study for every state other than Alaska; and, 

for some key states, they are dramatically lower. For example, the Fox Study’s baseline estimate suggests that uncollected revenues in California could reach $1.9 billion by 2012, whereas our estimate of less than $390 million (assuming an SBE) is 

only one fifth as high. Similarly, the Fox Study’s baseline estimate indicates state 

and local governments in New York State could lose as much as $865 million, while 

our SBE-adjusted results show the correct figure is approximately $105 million. To 

the extent state revenue collectors and fiscal authorities have viewed the repeal of 

Quill as a ‘‘silver bullet’’ that would make up for a significant portion of current 

budget shortfalls, the figures in Table A–1 clearly demonstrate otherwise. 

152 

Table A-1.—State-by-State Estimates of Potential Uncollected Revenues 

[$ Millions, 2008, 2012] 

2008 2012 

State Fox (baseline) EisenachLitan Eisenach-Litan 

with SBE Fox (baseline) EisenachLitan Eisenach-Litan with SBE 

Alabama $115.5 $75.3 $46.8 $170.4 $92.8 $57.8 

Alaska $1.0 $3.6 $2.0 $1.5 $4.4 $2.4 

Arizona $250.8 $79.3 $49.5 $369.8 $97.8 $61.1 

Arkansas $77.2 $49.6 $30.6 $113.9 $61.2 $37.7 

California $1,291.6 $503.9 $316.1 $1,904.5 $621.4 $389.8 

Colorado $117.1 $67.8 $42.4 $172.7 $83.6 $52.2 

Connecticut $43.2 $48.2 $30.1 $63.8 $59.4 $37.1 

DC $24.1 $3.5 $2.2 $35.5 $4.4 $2.7 

Florida $545.1 $227.7 $142.9 $803.8 $280.8 $176.2 

Georgia $278.2 $117.2 $73.5 $410.3 $144.5 $90.6 

Hawaii $40.7 $16.2 $9.6 $60.0 $19.9 $11.8 

Idaho $31.4 $17.8 $11.1 $46.4 $21.9 $13.7 

Illinois $343.7 $196.1 $123.0 $506.8 $241.8 $151.7 

Indiana $132.5 $95.9 $59.9 $195.3 $118.2 $73.8 

Iowa $60.1 $48.7 $30.1 $88.7 $60.1 $37.1 

Kansas $96.9 $29.5 $18.4 $142.9 $36.3 $22.6 

Kentucky $74.6 $36.0 $22.4 $109.9 $44.4 $27.6 

Louisiana $268.5 $95.9 $60.1 $395.9 $118.2 $74.1 

Maine $21.7 $18.3 $11.2 $32.1 $22.6 $13.8 

Maryland $124.9 $69.4 $43.5 $184.1 $85.6 $53.6 

Mass. $89.0 $87.9 $55.1 $131.3 $108.4 $68.0 

Michigan $96.0 $134.0 $83.9 $141.5 $165.2 $103.4 

Minnesota $159.6 $86.2 $54.0 $235.3 $106.2 $66.5 

Miss. $91.5 $40.6 $24.9 $134.9 $50.1 $30.8 

Missouri $142.9 $87.6 $54.7 $210.7 $108.0 $67.4 

Nebraska $41.6 $28.5 $17.5 $61.3 $35.1 $21.6 

Nevada $114.6 $40.6 $25.4 $168.9 $50.0 $31.3 

New Jersey $137.3 $123.0 $77.0 $202.5 $151.7 $94.9 

New Mexico $81.7 $26.4 $16.5 $120.5 $32.6 $20.3 

New York $586.9 $135.3 $84.8 $865.5 $166.8 $104.6 

N. Carolina $145.0 $112.4 $70.2 $213.8 $138.6 $86.6 

N. Dakota $10.4 $9.0 $5.5 $15.3 $11.1 $6.7 

Ohio $208.8 $156.1 $97.7 $307.9 $192.5 $120.4 

Oklahoma $95.5 $60.4 $37.4 $140.8 $74.5 $46.1 

Pennsylvania $234.6 $157.0 $98.5 $345.9 $193.6 $121.4 

Rhode Island $19.7 $16.8 $10.5 $29.0 $20.7 $12.9 

S. Carolina $84.5 $63.6 $39.7 $124.5 $78.4 $49.0 

S. Dakota $20.2 $13.2 $8.1 $29.8 $16.2 $10.0 

Tennessee $278.6 $105.1 $65.7 $410.8 $129.6 $81.0 

Texas $590.3 $319.6 $200.4 $870.4 $394.1 $247.2 

Utah $60.0 $35.3 $21.8 $88.5 $43.5 $26.8 

Vermont $17.0 $11.3 $6.8 $25.1 $13.9 $8.3 

Virginia $140.4 $71.9 $45.1 $207.0 $88.7 $55.6 

Washington $191.2 $78.3 $49.1 $281.9 $96.5 $60.6 

W. Virginia $34.3 $24.2 $14.8 $50.6 $29.9 $18.3 

Wisconsin $96.4 $66.9 $41.9 $142.1 $82.5 $51.7 

Wyoming $19.4 $7.9 $4.8 $28.6 $9.8 $5.9 

153 

PURPLE BOMB LLC 

Hilton Head, SC, July 31, 2012 

Hon. JIM DEMINT, 

United States Senate, 

Washington, DC. 

Dear Senator DeMint, 

As a longtime resident of South Carolina and the owner of a small business, I 

wish to express my concerns surrounding Internet Sales Tax legislation that has 

been introduced to the Congress, namely the Marketplace Fairness Act and the 

Marketplace Equity Act. 

I have been in the retail and wholesale business for over 25 years and started 

a store on eBay—purplebombauctions—in 1999 to augment my retail presence. 

Today, my wife and I employee four people that help us market our antiques and 

artwork including home and commercial bars and supplies, cigars as well as espresso and coffee machines. We have one small brick and mortar store, but the 

Internet is our main platform. We have used the Internet to grow and expand our 

business, and we plan to do so for many years to come. Using our own money makes 

it almost impossible to compete with the giant retail firms. So our only viable avenue of making a living with specialty home decor is online. 

However, we are concerned that proposed Internet sales tax legislation would impede our ability to grow our business. The thought of complying with the new, heavy 

tax burdens that this legislation is trying to impose is truly frightening. Collecting 

and remitting sales taxes in the two states where we have presence is burdensome, 

yet we understand that it is our duty as small business owners and citizens of South 

Carolina. However we simply can’t wrap our heads around having to collect taxes 

for an additional 45 states and what we know to be over 9,000 tax jurisdictions. We 

previously owned a mail order firm which was entangled in a real situation with 

small counties asking us to remit to them forms if whether or not we sold anything 

into that county. It was an accounting nightmare for my wife. 

This legislation creates uncertainty and just the discussion of new taxes on my 

business has jeopardized our business’ growth. I had scoped out plans to double the 

size of my business over the next 6–8 months, but with the unforeseen costs of outof-state audits, software integration, and filing fees, how can I possibly gain the certainty I need to grow my small business and create jobs? 

Additionally, it hardly seems fair that my small business in Hilton Head should 

be held to the same requirements as super-stores that have accountants, lawyers, 

and the financial resources to deal with new legislation. While I oppose this legislation outright, at the very least a small business exemption must be included to protect real small business job creators (and not just ‘‘small sellers’’) like me from additional tax burdens. Also, there must be a better way to assign an Internet tax (possibly at the Federal level) with one remittance government department instead of 

multiple state tax auditors. 

I have long supported your work in the Senate and very much appreciate your 

work to try to bring common sense to Washington. Hopefully you can bring some 

more sense to Washington by urging your colleagues to oppose this anti-small business bill. 

Thank you again for all you do. 

Sincerely, 

TIMOTHY P. JUDGE, 

Owner. 

154 

Backgrounder—No. 2676, April 6, 2012 

CONGRESS SHOULD NOT AUTHORIZE STATES TO EXPAND COLLECTION OF TAXES ON

INTERNET AND MAIL ORDER SALES

David S. Addington 

Abstract 

The U.S. Supreme Court’s landmark 1992 decision in Quill Corporation v. 

North Dakota protects out-of-state businesses in the Internet era from overreaching by revenue-hungry states. The Court’s decision prevents a state 

from forcing an out-of-state business to serve as the state’s sales tax collector 

if the business has no physical presence in the state and simply takes sales 

orders by Internet, catalog, or telephone. Congress has under consideration 

legislation (S. 1832) to overturn the Quill Corporation decision. To support 

a strong national economy and encourage fiscal responsibility among the 

states, Congress should reject the legislation. 

Congress has under consideration legislation (S. 1832 of the 112th Congress) to 

allow states to require out-of-state businesses that have no connection to the state, 

other than taking orders over the Internet, by mail, or by telephone from in-state 

customers and sending the ordered goods by common carrier or U.S. mail, to become 

sales tax collection agents for the states. Enactment of such legislation would increase the amount of tax dollars millions of Americans pay, encourage states to increase the size and scope of their governments, favor some states over others in 

granting Federal authority, and discourage free-market competition in interstate 

commerce. Accordingly, Congress should not enact the legislation. 

The legislation overrules the U.S. Supreme Court’s decision in Quill Corporation 

v. North Dakota.1 The Quill decision protects out-of-state businesses that have no 

facilities or personnel in a state, but that receive orders by Internet, mail order 

catalog, or telephone from in-state customers (called ‘‘remote sales’’), from the state’s 

desire to force the out-of-state businesses to serve as tax collectors. 

• Current law protects out-of-state businesses that take orders by Internet, mail 

order catalog, or telephone and that have no physical presence in the state from 

a state government that wants to force them to serve as the state’s sales tax 

collectors, but Congress is considering legislation (S. 1832) to override that protection. 

• Under S. 1832, state governments would take more tax dollars from millions 

of Americans, further intrude into free-market competition in interstate commerce, and increase the propensity for more government spending. 

• Hobbling out-of-state businesses that sell through the Internet or mail order 

catalogs does not help the national economy. 

• To avoid weakening the national economy, Congress should preserve existing 

protections for out-of-state businesses from state governments that want to 

reach outside their states for new revenue for governments to spend. 

• Congress should therefore reject S. 1832. 

Many state governments have budgetary and political interests in maximizing the 

revenues they obtain from out-of-state businesses through sales and use taxes.2

Many in-state businesses have an economic interest in increasing the costs of doing 

business for their out-of-state competitors to gain a marketplace advantage. 

Thus, it is unsurprising that state governments and their national associations,3

and brick-and-mortar instate retailers and their trade associations,4 have endorsed 

enactment of Federal legislation to override the Quill decision and allow state governments to require out-of-state businesses to collect and remit state sales and use 

taxes on remote sales. Associations representing companies that conduct or facilitate 

remote selling that is protected under the Quill decision from state compulsion to 

collect and remit sales taxes oppose the legislation.5

Congress should reject S. 1832 so that it does not discourage spending restraint in 

the states and free enterprise in the economy. 

In enacting S. 1832, Congress would use its power under the Commerce Clause 

to regulate interstate commerce, and perhaps its power under the Compact Clause 

to consent to compacts or agreements among the states, to override the Quill decision and allow state governments to increase revenues by requiring out-of-state sellers to collect state sales or use taxes on remote sales.6 Congress should reject S. 

1832 so that it does not discourage spending restraint in the states and free enterprise in the economy. 

155 

Quill Decision Protected Out-of-State Sellers from Undue State Burdens on 

Interstate Commerce 

In 1992, the U.S. Supreme Court faced the Quill case involving a North Dakota 

statute that imposed a tax on property purchased for storage, use, or consumption 

in North Dakota and required retailers to collect the tax from consumers and remit 

the revenue to North Dakota. North Dakota regulations implementing the statute 

made clear that retailers covered by the statute included those who engaged in ‘‘regular or systematic solicitation of a consumer market in this state.’’ 

Quill Corporation (‘‘Quill’’) was an office supply business incorporated in Delaware, with offices and warehouses in Illinois, California, and Georgia but with no 

employees, sales representatives, or significant property in North Dakota. Quill solicited sales from North Dakota residents by mail order catalog, advertisements and 

flyers, and telephone calls. Quill sent the purchased products to customers in North 

Dakota by U.S. mail or common carrier. Quill had about 3,000 customers in North 

Dakota and about $1 million in annual sales to them. Quill did not collect and remit 

the North Dakota use tax on its sales to North Dakota residents. North Dakota sued 

Quill in state courts for the taxes not remitted, and the case ultimately reached the 

U.S. Supreme Court. 

Quill maintained that the Due Process Clause of the Fourteenth Amendment to 

the U.S. Constitution (‘‘nor shall any State deprive any person of . . . property, 

without due process of law’’) and the Commerce Clause (‘‘The Congress shall have 

Power . . . To regulate Commerce . . . among the several States’’) barred North Dakota from imposing the use tax on property purchased from Quill for storage, use, 

or consumption in North Dakota and from requiring Quill to collect the use tax from 

customers and remit the collections to North Dakota. 

In its decision, the U.S. Supreme Court determined that ‘‘there is no question that 

Quill has purposefully directed its activities at North Dakota residents, that the 

magnitude of those contacts is more than sufficient for due process purposes, and 

that the use tax is related to the benefits Quill receives from access to the State’’ 

and agreed with the ‘‘conclusion that the Due Process Clause does not bar enforcement of that State’s use tax against Quill.’’ 7 However, the Court held that the Commerce Clause barred North Dakota from enforcing the state’s use tax against Quill. 

In discussing the impact of the Commerce Clause with respect to state taxes, the 

Court noted that ‘‘we will sustain a tax against a Commerce Clause challenge so 

long as the ‘tax [1] is applied to an activity with a substantial nexus with the taxing 

State, [2] is fairly apportioned, [3] does not discriminate against interstate commerce, and [4] is fairly related to the services provided by the State.’ ’’ 8 The Court 

noted with respect to the first requirement that ‘‘the Commerce Clause and its 

nexus requirement are informed not so much by concerns about fairness for the individual defendant as by structural concerns about the effects of state regulation on 

the national economy.’’ 9

The Supreme Court adopted in Quill a bright-line rule that the ‘‘negative’’ or ‘‘dormant’’ aspect of the Commerce Clause, which protects against imposition by a state 

of unreasonable burdens on interstate commerce even in the absence of congressional exercise of power under the Commerce Clause, does not allow North Dakota 

to require collection and remittance of the state use tax revenue by a corporation 

whose only connection with customers in the state is by common carrier or U.S. 

mail.10 The Court noted, however, that Congress remains free, by an affirmative exercise of its power under the Commerce Clause, to change that rule.11

State supreme courts have generally construed the Quill decision narrowly and 

state taxing power broadly,12 but states remain bound by the Commerce Clause 

holding in Quill that a state cannot require collection and remittance of a sales or 

use tax on remote sales by an out-of-state seller who has no connection to the state 

other than by common carrier or U.S. mail.13 Thus, the holding in Quill continues 

to protect an out-of-state company that has no facilities, personnel, or other connection to a state, other than a common carrier or the U.S. mail, from a requirement 

to collect and remit the state’s sales or use tax on remote sales. Congress, however, 

has the authority under the Commerce Clause to take away that protection from 

the out-of-state businesses, as S. 1832 would do. 

Overriding Quill Would Cause American Businesses and Individuals to Pay 

Much More to States in Taxes 

Enactment of S. 1832 will increase the amount of tax dollars Americans pay to 

state governments. Although proponents claim that the legislation causes no ‘‘tax 

increase’’ because state laws imposing sales and use taxes are already on the statute 

books and S. 1832 does not itself change those state statutes, there is no denying 

that businesses and individuals will pay more in taxes out of their pockets as a result of enactment of S. 1832. Indeed, that increase in what remote sellers will collect 

156 

from businesses and individuals and remit to the state in tax revenues is precisely 

why many state governments want Congress to enact S. 1832. 

Enactment of S. 1832 will increase the amount of tax dollars Americans pay to state 

governments. 

The National Conference of State Legislatures (NCSL) has noted with respect to 

S. 1832 that ‘‘[t]here will be some who claim that this is a new tax’’ and that ‘‘[t]his 

legislation will not require any state to levy a sales tax on any product or means 

of buying a product.’’ Both claims miss the point. As a direct result of enactment 

of S. 1832, which allows states to require out-of-state remote sellers to collect state 

sales and use taxes that the Quill case currently prevents states from requiring, 

businesses and individuals will pay much more money to states in sales taxes. Indeed, the NCSL states that, ‘‘[a]t a time when states continue to face severe budget 

gaps states closed shortfalls totaling $72 billion leading into the FY 2012 budget 

process—it is essential states be allowed to collect the revenue generated by uncollected sales taxes,’’ noting further that ‘‘[i]n 2012, states will collectively lose an estimated $23.3 billion in uncollected sales taxes from out-of-state sales, with more 

than $11.3 billion alone from electronic commerce transactions. . . .’’14

The NCSL could not have made clearer that its objective in asking Congress to 

enact S. 1832 is to change Federal law to authorize states to force remote-selling 

businesses and individuals to pay more money as sales and use taxes to the states, 

which want more revenue. 

Overriding Quill Would Give States An Incentive to Increase Revenues 

Instead of Cutting the Size, Scope, and Cost of State Governments 

Although many state governments have faced difficulty with their budgets, especially in a weak economy, slow improvement of state finances has begun.15 As a general proposition, states should focus on cutting their spending rather than seeking 

more money in taxes as the means to balance their budgets. Especially in a weak 

economy, state governments should generally pursue pro-growth, job-creating tax 

policies rather than taking more money out of the private economy in sales tax collection. 

Whether the NCSL-cited estimate of $11.3 billion in additional money that would 

be paid to states in sales taxes on electronic remote sales is precise or not, it is clear 

that businesses and individuals will pay more money to states in such taxes as a 

result of enactment of S. 1832.16 The Federal Government should not enact legislation such as S. 1832, whose principal purpose is to allow states to reach out of the 

state and take in yet more tax money from businesses and individuals. 

Enactment of S. 1832 Would Favor Some States over Others 

The proposed Federal legislation fails to respect the traditional roles of the states 

as equal sovereign actors in the Federal system and instead has Congress, using its 

power under the Commerce Clause, favoring some states over others. The Federal 

legislation has the effect of dividing the states into three classes and gives different 

federally granted, tax-related authority to the three classes, with some states receiving more than others. 

The first class consists of a minority of states, currently numbering 21, that have 

joined as full members of the multi-state Streamlined Sales and Use Tax Agreement 

(SSUTA or Agreement), administered by an organization called the Streamlined 

Sales Tax Governing Board, Inc.17 The laudable stated purpose of the SSUTA is ‘‘to 

simplify and modernize sales and use tax administration in the member states in 

order to substantially reduce the burden of tax compliance.’’ 18 Article VI of the 

SSUTA, however, goes beyond the stated tax-simplification purpose of the agreement and encourages enactment of Federal legislation to overrule Quill and authorize states to collect sales or use taxes on ‘‘remote sales.’’ 

The SSUTA defines ‘‘Remote sales’’ as ‘‘sales into a state in which the seller would 

not legally be required to collect sales or use tax, but for the ability of that state 

to require such ‘remote seller’ to collect sales or use tax under Federal authority,’’ 

the latter referring to the Federal legislation under the Commerce Clause to overrule the Quill decision that the SSUTA member states seek.19 The first class of 

states gets Federal authority to collect its sales or use tax on remote sales under 

subsection 3(a) of S. 1832, which provides that ‘‘Each Member State under the 

Streamlined Sales and Use Tax Agreement is authorized to require all sellers not 

qualifying for a small seller exception to collect and remit sales and use taxes with 

respect to remote sales sourced to that Member State pursuant to the provisions of 

the Streamlined Sales and Use Tax Agreement.’’ 

157 

Especially in a weak economy, state governments should generally pursue progrowth, job-creating tax policies rather than taking more money out of the private economy in sales tax collection. 

The second class of states consists of states that are not full members of the 

SSUTA but that adopt state laws that impose SSUTA-like ‘‘minimum simplification 

requirements.’’ Subsection 3(b) of S. 1832 provides that ‘‘[a] State that is not a Member State under the Streamlined Sales and Use Tax Agreement is authorized to require all sellers not qualifying for the small seller exception to collect and remit 

sales and use taxes with respect to remote sales sourced to that State, but only if 

the State adopts and implements minimum simplification requirements.’’ Under 

subsection 3(b), the ‘‘minimum simplification requirements’’ are: 

• A ‘‘single State-level agency to administer all sales and use tax laws’’; 

• A ‘‘single audit for all State and local taxing jurisdictions within that State’’; 

• A ‘‘single sales and use tax return’’; 

• A ‘‘uniform sales and use tax base among the State and the local taxing jurisdictions within the State’’; 

• A requirement that ‘‘remote sellers . . . collect sales and use taxes pursuant to 

the applicable destination rate, which is the sum of the applicable State rate 

and any applicable rate for the local jurisdiction into which the sale is made’’; 

and 

• Various requirements concerning software, certification of service providers remote sellers can use to remit the taxes collected, relief from liability for mistakes not caused by the remote sellers, and 30-day notice of local tax rate 

changes. 

The ‘‘minimum simplification requirements’’ parallel to some extent SSUTA requirements.20

The third class of states under the proposed Federal legislation are those that neither wish to join the SSUTA nor wish to adopt the SSUTA-like minimum simplification requirements. Examples of states likely to fall into the third class are Delaware, Montana, New Hampshire, and Oregon, which do not levy general sales taxes. 

If S. 1832 were enacted, other states could collect sales taxes on remote sales by 

remote sellers located in those four states even though those four states do not impose general sales taxes on anyone, either in-state or out-of-state. As a result, any 

remote-seller businesses in Delaware, Montana, New Hampshire, and Oregon, 

whose state legislatures have made conscious decisions not to impose a general state 

sales tax, would nevertheless have to collect and remit such sales taxes to other 

states. 

Under S. 1832, the first class of states and the second class of states get Federal 

authority, the Quill decision notwithstanding, to require remote sellers—that is, 

out-of-state businesses that obtain sales in a state by Internet, mail order, or telephone without having any facilities or personnel in the state—to collect and remit 

the state’s sales or use tax on remote sales. The first class of states that is, the 

SSUTA full members—get greater flexibility, however, than the second class of 

states. States in the first class can, acting in concert through the SSUTA governing 

board, establish their own alternative small seller exceptions, but the second class 

of states must follow the small seller exception specified in the Federal legislation.21

Also, states in the first class can, again acting in concert through the SSUTA governing board, change their rules with respect to ‘‘sourcing’’ remote sales (that is, deciding where to treat the sale as having occurred, such as at the point of a product’s 

origin or at its destination, and therefore what state will tax the sale), whereas the 

other states must follow the sourcing rules set forth in S. 1832.22

The third class of states remains covered by the Quill decision unless they enact 

the ‘‘minimum simplification requirements’’ to enter the second class of states or decide to become full members of the SSUTA to enter the first class of states. Clearly, 

enactment of S. 1832 would pressure the current majority of states that have stayed 

out of the SSUTA to join the minority of states that are members of the SSUTA. 

Enactment of S. 1832 to override Quill, authorize state governments to require 

out-of-state remote sellers to collect sales taxes, and allow SSUTA full member 

states to have the power to change their sourcing rules from time to time, creates 

the potential for multiple taxation of the remote sellers in some circumstances, with 

the same sales transactions taxed by the state of the customer who used the Internet to place the order and the state in which the remote seller is located. Current 

law prohibits such multiple taxation, but that prohibition expires on November 1, 

2014.23

158 

As the U.S. Supreme Court has stated, ‘‘[P]reservation of local industry by protecting 

it from the rigors of interstate competition is the hallmark of the economic protectionism that the commerce clause prohibits.’’ 

Enactment of S. 1832 Would Discourage Free-Market Competition 

The National Conference of State Legislatures has said with respect to state sales 

taxes that ‘‘[a]llowing some remote sellers to avoid collecting this tax is unfair to 

the main street merchants that make up the lifeblood of our local communities.’’ 24

The SSUTA member states complain that ‘‘[a]t a time when Main Street retailers 

face enormous competitive challenges it is appropriate for Congress to end this unfair treatment.’’ 25 The Federation of Tax Administrators believes ‘‘the current system disadvantages ‘bricks and mortar’ stores to the advantage of out-of-state businesses and this Act will help improve business activities in our states and the employment these in-state businesses generate.’’ 26

From these statements, it appears that these organizations seek enactment of S. 

1832 so that states can prefer in-state businesses over out-of-state businesses in the 

kind of anti-competitive economic discrimination the U.S. Constitution was in part 

adopted to prevent. As the U.S. Supreme Court has stated, ‘‘[p]reservation of local 

industry by protecting it from the rigors of interstate competition is the hallmark 

of the economic protectionism that the Commerce Clause prohibits.’’ 27

The Constitution of the United States has set the legal baseline—the level playing 

field—around which the American free-market economy has built itself. The Constitution, as reflected in the Quill decision, is the source of the present arrangement 

regarding collection of state sales and use taxes by remote sellers. Ever since the 

Supreme Court decided Quill in 1992, American businesses have made millions of 

business decisions in the competitive marketplace based in part on settled expectations regarding state taxation affecting their sales transactions. The states and businesses advocating S. 1832 seek to change the current, constitutionally prescribed 

playing field. They seek to use governmental power to intervene in the economy to 

help in-state, store-based businesses by imposing a new tax-collection burden on 

out-of-state competitors who sell over the Internet, through mail order catalogs, or 

by telephone. Free-market principles generally discourage such government intervention in the economy to pick winners and losers based on legislative policy preferences. 

The Constitution has not set up a system that is ‘‘unfair’’ to ‘‘Main Street’’ or 

‘‘brick and mortar’’ retailers. The issue is not ‘‘taxable’’ instate businesses selling 

from stores competing with ‘‘untaxable’’ out-of-state businesses selling through the 

Internet. Both types of businesses are taxable through some form of tax in some 

state (or in many states). 

Every sale of goods, whether to a business consumer or an individual consumer, 

has an order (‘‘I’ll take it’’), payment (‘‘Cash, check, debit, or credit?’’), and a delivery 

(‘‘Here you go; have a nice day’’). If a consumer chooses to go to a store to buy a 

product, the ordering and delivery typically occur in the seller’s physical facility (the 

store) in a state. If the consumer chooses to go online to buy the product, the ordering occurs online without the involvement of a physical facility of the seller (i.e., the 

order does not occur in a store), but the sale and delivery require that the seller 

(directly or through agents) have a physical facility (for example, a warehouse) in 

some state from which the seller sends goods via common carrier or U.S. mail to 

the consumer who ordered them online. 

Thus, every sale of goods involves at least one physical facility located in one state 

or another, which provides a basis for taxation by that state. No one has become 

completely ‘‘untaxable.’’ 

A consumer’s preference between two methods of purchase, such as buying in a 

store or buying over the Internet, on a given occasion may involve consumer 

thoughts about price, quality, commercial loyalty, geographical convenience, temporal convenience, perceived pleasantness of the sales method chosen, other reasons, 

or not much thought at all. A consumer’s choice between buying in a store or buying 

online does not necessarily mean a conscious choice between an in-state and an outof-state seller, as consumers rarely know the state in which an Internet operation 

is located. The consumer’s choice between buying in a store or buying online does 

not necessarily even mean a choice between two different sellers. Many companies 

sell both from stores and through the Internet.28 Consumers should be free to 

choose how and where they will buy goods they seek without interference from a 

state trying to steer that purchase to a local store. 

In the long run, the national economy as a whole benefits from allowing consumers to choose freely what they wish to buy, of whatever quality they wish, at 

whatever prices they choose to pay, and from whatever seller they wish, whether 

in the same state as the consumer or not. Intervention by the Federal Government 

159 

and the states in the consumers’ choices by enactment and implementation of S. 

1832 would increase the revenues of states, but hobbling out-of-state businesses that 

sell through the Internet or mail order catalogs does not help the national economy. 

Conclusion 

Congress should not override the Supreme Court’s decision in Quill Corporation v. North Dakota that the Commerce Clause prohibits a state from requiring out-ofstate sellers over the Internet, by catalog, or by telephone that have no connection 

to a state other than a common carrier or the U.S. mail to collect and remit the 

state’s sales and use taxes. Enactment of S. 1832 would simply encourage state governments to take more money from taxpayers and spend it instead of getting the 

size, scope, and cost of state governments under control. 

The independent decisions of millions of consumers in the free marketplace should 

decide the appropriate allocation of sales between the store-based model of selling 

and the non-store-based model of selling, such as Internet sales, and between sellers 

who are local and sellers who are elsewhere in America. To support a stronger national economy, Congress should reject economic protectionism for local businesses, 

reject state government bloat, and reject S. 1832. 

—David S. Addington is Vice President for Domestic and Economic Policy at The 

Heritage Foundation. 

End Notes 

1. Quill Corporation v. North Dakota, 504 U.S. 298 (1992). 

2. A useful definition of ‘‘sales or use tax’’ is ‘‘a tax that is imposed on or incident 

to the sale, purchase, storage, consumption, distribution, or other use of tangible 

personal property or services as may be defined by laws imposing such tax and 

which is measured by the amount of the sales price or other charge for such property or service.’’ Section 1105(6)(C) of the Internet Tax Freedom Act (47 U.S.C. 151 

note). 

3. See letters, all dated November 9, 2011, from the National Conference of State 

Legislatures, Streamlined Sales Tax Governing Board, Inc., National Association of 

Counties, Federation of Tax Administrators, and heads of the National League of 

Cities, United States Conference of Mayors, and Government Finance Officers Association to Senators Durbin (D–IL), Alexander (R–TN), Enzi (R–WY), and Johnson 

(D–SD), available as inserted in the Congressional Record at http://thomas.loc.gov/ 

cgi-bin/query/C?r112:./temp/∼r112MkIcsa. 

4. See letter dated November 7, 2011, from the International Council of Shopping 

Centers, Inc., to Senators Alexander, Durbin, and Enzi; letter dated November 8, 

2011, from the National Retail Federation to Senators Durbin, Alexander, Enzi, and 

Johnson; and letter dated November 9, 2011, from the Retail Industry Leaders Association to Senator Enzi, available as inserted in the Congressional Record at http:// 

thomas.loc.gov/cgi-bin/query/C?r112:./temp/∼r112MkIcsa. 

5. See, for example, Direct Marketing Association, statement of November 9, 2011, 

available at http://www.the-dma.org/cgi/disppressrelease?article=1521; Computer 

& Communications Industry Association, statement of November 9, 2011, available 

at http://www.ccianet.org/index.asp?sid=5&artid=270&evtflg=False. 

6. The Commerce Clause of the Constitution (art. I, sec. 8) provides that ‘‘The 

Congress shall have Power . . . To regulate Commerce with foreign Nations, and 

among the several States, and with the Indian Tribes. . . .’’ The Compact Clause 

(art. I, sec. 10) provides that ‘‘No State shall, without the Consent of Congress . . . 

enter into any Agreement or Compact with another State. . . .’’ The Compact 

Clause ‘‘does not require congressional approval of every agreement between or 

among States.’’ Star Scientific, Inc. v. Beales, 278 F. 3d 339, 359 (4th Cir. 2002), 

cert. denied sub nomine Star Scientific, Inc. v. Kilgore, 537 U.S. 818 (2002). In 

United States Steel Corporation v. Multistate Tax Commission, 434 U.S. 452, 468 

(1978), the U.S. Supreme Court adopted the standard, first stated in Virginia v. 

Tennessee, 148 U.S. 503, 519 (1893), that interstate agreements requiring congressional consent are those ‘‘which may encroach upon or interfere with the just supremacy of the United States.’’ Courts might find that the Streamlined Sales and 

Use Tax Agreement (SSUTA), to which S. 1832 refers, does not encroach upon or 

interfere with just Federal supremacy and therefore does not require congressional 

approval under the Compact Clause. 

7. Quill Corporation, 504 U.S. at 308. 

8. Quill Corporation, 504 U.S. at 311, quoting Complete Auto Transit, Inc. v. 

Brady, 430 U.S. 274, 279 (1977). 

9. Quill Corporation, 504 U.S. at 312. James Madison, writing near the end of 

his life, looked back and identified state tax discrimination against interstate commerce as one of the sources of dissatisfaction with the Articles of Confederation: 

160 

‘‘The other source of dissatisfaction was the peculiar situation of some of the States, 

which having no convenient ports for foreign commerce, were subject to be taxed by 

their neighbors, thro whose ports, their commerce was carryed on. New Jersey, 

placed between Phila & N. York, was likened to a cask tapped at both ends; and 

N. Carolina, between Virga & S. Carolina to a patient bleeding at both arms. The 

Articles of Confederation provided no remedy for the complaint: which produced a 

strong protest on the part of N. Jersey; and never ceased to be a source of dissatisfaction & discord, until the new Constitution, superseded the old.’’ James Madison, Debates in the Federal Convention of 1787, ‘‘Preface to Debates in the Convention: A Sketch Never Finished Nor Applied’’ (New York: Prometheus Books, 1987), 

p. 5, also available at http://www. teachingamericanhistory.org/convention/debates/preface.html. 

10. The Court has stated succinctly the nature of the ‘‘dormant’’ or ‘‘negative’’ 

Commerce Clause: ‘‘The Commerce Clause provides that ‘Congress shall have Power 

. . . [t]o regulate Commerce with foreign Nations, and among the several States.’ 

Although the Constitution does not in terms limit the power of States to regulate 

commerce, we have long interpreted the Commerce Clause as an implicit restraint 

on state authority, even in the absence of a conflicting Federal statute.’’ United 

Haulers Association, Inc. v. Oneida-Herkimer Solid Waste Management Authority, 

550 U.S. 330, 338 (2007) (citations omitted). The Court has made clear that 

‘‘[p]reservation of local industry by protecting it from the rigors of interstate competition is the hallmark of the economic protectionism that the Commerce Clause 

prohibits.’’ West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 205 (1994). The interpretation that the clause imposes an implicit restraint on states, although longstanding, is not without critics. Justice Thomas has said that ‘‘[t]he negative Commerce Clause has no basis in the Constitution and has proved unworkable in practice. . .. Because this Court has no policy role in regulating interstate commerce, 

I would discard the Court’s negative Commerce Clause jurisprudence.’’ United Haulers Association, 550 U.S. 349 (Thomas, J., dissenting) (citations omitted). Justice 

Scalia has said that ‘‘[t]he historical record provides no grounds for reading the 

Commerce Clause to be other than what it says—an authorization for Congress to 

regulate Commerce.’’ Tyler Pipe Industries, Inc. v. Washington State Department of 

Revenue, 483 U.S. 232, 263 (1987) (Scalia, J., concurring in part and dissenting in 

part). 

11. Quill Corporation, 504 U.S. at 318. 

12. See, for example, Lamtec Corporation v. Department of Revenue, 170 Wash. 

2d 838, 851 (Washington 2011)(en banc), cert. denied, 132 S. Ct. 95 (2011) (business 

and occupation tax) (‘‘Although Lamtec did not have a permanent presence within 

the state, by regularly sending sales representatives into the state to maintain its 

market, Lamtec satisfied the nexus requirement. We . . . hold that the Department 

had authority under the commerce clause to impose a B & O tax.’’); KFC Corporation v. Iowa Department of Revenue, 792 N.W. 2d 308, 328 (Iowa 2010), cert. denied 

132 S. Ct. 97 (2011) (‘‘. . . we hold that a physical presence is not required under 

the dormant Commerce Clause of the United States Constitution in order for the 

Iowa legislature to impose an income tax on revenue earned by an out-of-state corporation arising from the use of its intangibles by franchisees located within the 

State of Iowa. We hold that, by licensing franchisees within Iowa, KFC has received 

the benefit of an orderly society within the state and, as a result, is subject to the 

payment of income taxes that otherwise meet the requirements of the dormant Commerce Clause.’’); Truck Renting and Leasing Association v. Commissioner of Revenue, 433 Mass. 733 (2001) (state corporate excise tax applies because Commerce 

Clause nexus exists when out-of-state truck-leasing company rents out vehicles, 

knowing that they will enter Massachusetts, and they do, in fact, enter Massachusetts); Tax Commissioner of the State of West Virginia v. MBNA America Bank, 

N.A., 220 W. Va. 163, 171 (2007), cert. denied sub nomine FIA Card Services, N.A. 

v. Tax Commissioner of West Virginia, 551 U.S. 1141 (2007) (‘‘. . . we now hold that 

the United States Supreme Court’s determination in Quill Corp v. North Dakota, 

504 U.S. 298 (1992), that an entity’s physical presence in a state is required to meet 

the ‘substantial nexus’ prong of Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 

(1977), applies only to state sales and use taxes and not to state business franchise 

and corporation net income taxes.’’ (parallel citations omitted)). 

13. As a practical matter, many of the decisions construing or applying the U.S. 

Supreme Court’s Quill decision occur in the courts of the several states, because 

Federal law (28 U.S.C. 1341) prevents Federal courts from issuing injunctive remedies against state tax collection in many cases. The law states: ‘‘The district courts 

shall not enjoin, suspend or restrain the assessment, levy or collection of any tax 

under State law where a plain, speedy and efficient remedy may be had in the 

courts of such State.’’ Decisions of state supreme courts construing or applying the 

161 

Quill decision may reach the U.S. Supreme Court under the statute that permits 

the Court to review by writ of certiorari final decisions of the highest courts of a 

state in which a decision could be had in a case in which ‘‘the validity of a statute 

of any State is drawn in question on the ground of its being repugnant to the Constitution, treaties, or laws of the United States.’’ 28 U.S.C. 1257(a). 

14. Letter dated November 9, 2011, from the National Conference of State Legislatures to Senators Durbin, Alexander, Enzi, and Johnson, available as inserted in 

the Congressional Record at http://thomas.loc.gov/cgi-bin/query/C?r112:./temp/ 

∼r112MkIcsa. 

15. See ‘‘The Fiscal Survey of States: Fall 2011, Executive Summary,’’ National 

Governors Association and National Association of State Budget Officers (‘‘The slow 

improvement in state finances began in 2011 as highlighted by 38 states reporting 

that they had higher general fund spending in fiscal 2011 compared to fiscal 2010 

and continued with 43 states enacting fiscal 2012 budgets with increasing general 

fund expenditures as compared to fiscal 2011. However, 29 states still have lower 

general fund spending in fiscal 2012 compared to the pre-recession levels of fiscal 

2008, illustrating how significantly state fiscal conditions were affected by the recession.’’), available at http://www.nasbo.org/sites/default/files/2011%20Fall%20Fis 

cal%20Survey%20of%20States.pdf. 

16. For the details of the NCSL-cited estimate, see Donald Bruce, William F. Fox, 

and LeAnn Luna, ‘‘State and Local Government Sales Tax Revenue Losses from 

Electronic Commerce,’’ The University of Tennessee (April 13, 2009), available at 

http://cber.bus.utk.edu/ecomm/ecom0409.pdf. Note that inclusion in the study title 

of the phrase ‘‘Tax Revenue Losses’’ reveals a certain mindset about the issue: The 

inability to have a remote seller collect state sales tax on remote sales is a ‘‘loss’’ 

of revenue to the state only if one assumes that the state is entitled in the first 

place to force a remote seller to collect and remit such money. But the Quill decision 

holds plainly that a state is prohibited by the Commerce Clause of the U.S. Constitution from forcing the remote seller to do so (absent enactment of Federal legislation authorizing it). Thus, the question involved in considering S. 1832 is not 

whether a state is ‘‘losing’’ revenue absent Federal legislation, but rather whether 

Congress should pass such legislation to allow the state to ‘‘gain’’ revenue that the 

Constitution, as construed in Quill, does not now allow the state to require the remote seller to provide. Note also that the University of Tennessee’s study bears on 

its cover page the note that ‘‘the authors are grateful to [name of the Executive Director] of the Streamlined States Governing Board.’’ 

17. Streamlined Sales and Use Tax Agreement, adopted November 12, 2002, and 

amended through December 19, 2011, available at http://www.streamlined 

salestax.org/index.php?page=modules. The Streamlined Sales Tax Governing Board, 

Inc., headquartered in Nashville, Tennessee, lists 21 states as members (Arkansas, 

Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Oklahoma, Rhode Island, South 

Dakota, Vermont, Washington, West Virginia, Wisconsin, and Wyoming) and three 

states as associate members (Ohio, Tennessee, and Utah). Section 801.1 of the 

SSUTA defines a ‘‘full member’’ as ‘‘a state that has been found in compliance pursuant to Sections 804 and 805 and the changes to their statutes, rules, regulations 

or other authorities necessary to bring them into compliance are in effect.’’ Section 

801.3 of the SSUTA defines ‘‘associate state’’ as ‘‘a state that has achieved substantial compliance with the terms of the Agreement taken as a whole, but not necessarily each provision as required by section 805, measured qualitatively.’’ Section 

804 of the SSUTA provides that the ‘‘governing board shall determine if a petitioning state is in compliance with the Agreement’’ and that ‘‘[a] three-fourths vote 

of the entire governing board is required to approve a state’s petition for membership.’’ Section 805 states in full: ‘‘A state is in compliance with the Agreement if 

the effect of the state’s laws, rules, regulations, and policies is substantially compliant with each of the requirements set forth in the Agreement.’’ The Internet website 

address of the corporation known as the Streamlined Sales Tax Governing Board, 

Inc., is http://www.streamlinedsalestax.org. Under section 3(a) of S. 1832 and the 

definition of ‘‘Member State’’ in section 6(3) of the legislation, the Federal authority 

granted by section 3(a) extends only to full members of the SSUTA and not to associate states. For an early discussion of concerns with the idea of a state sales tax 

cartel, see ‘‘Why Congress Should Not Authorize a State Sales Tax Cartel,’’ The Heritage Foundation, Executive Memorandum No. 778 (September 26, 2001), available 

at http://s3.amazonaws.com/thflmedia/2001/pdf/em778.pdf. 

18. SSUTA, section 102. 

19. SSUTA, section 605. The definition of ‘‘Remote sales’’ applies to sections 606 

to 613 in Article VI of the SSUTA. 

162 

20. See, for example, SSUTA sections 301 (single agency), 302 (uniform tax base), 

and 318 (single tax return). 

21. Subsection 3(a) of S. 1832 excludes SSUTA member states from collecting 

sales and use taxes under the legislation from sellers ‘‘not qualifying for a small 

seller exception.’’ Subsection 3(b) excludes SSUTA non-member states from such collection from sellers ‘‘not qualifying for the small seller exception’’ (italics added to 

emphasize the distinction between the articles ‘‘a’’ and ‘‘the’’). Courts assume that 

the use of different terms within related provisions in a statute generally implies 

that different meanings were intended. See Russello v. United States, 464 U.S. 16, 

23 (1983) (‘‘We refrain from concluding here that the differing language in the two 

subsections has the same meaning in each. We would not presume to ascribe this 

difference to a simple mistake in draftsmanship.’’) Subsection 3(c) of the bill, captioned ‘‘SMALL SELLER EXCEPTION,’’ protects small businesses from having to 

collect state sales and use taxes on remote sales if they do not have ‘‘gross annual 

receipts in total remote sales in the United States in the preceding calendar year 

exceeding $500,000.’’ The most reasonable construction of the phrase ‘‘the small seller exception’’ in subsection 3(b) is that it refers to the small seller exception set 

forth in subsection 3(c). In contrast, the most reasonable construction of the phrase 

‘‘a small seller exception’’ in subsection 3(a) is that it refers to the small seller exception set forth in subsection 3(c) or a present or potential alternative small seller 

exception. The alternative small seller exception may be that contemplated by section 610 of the SSUTA. Section 610 of the SSUTA states that, taking various factors 

into account, the SSUTA governing board ‘‘shall develop a sales volume threshold 

for determining which small ‘remote sellers’ qualify for an exemption from the requirement to collect sales or use taxes on ‘remote sales’.’’ Section 610 of the SSUTA 

gives a further instruction that ‘‘[t]he exemption threshold shall be set at a relatively low level and over time adjusted downward so that only sellers making isolated or occasional sales are excluded from the collection requirement.’’ In light of 

subsections 3(a) and 3(b) of S. 1832 and section 610 of the SSUTA, courts may well 

construe the reference to ‘‘a small seller exception’’ in subsection 3(a) as indicating 

that the SSUTA member states could, if they wish, adopt (through concerted action 

in a vote of the SSUTA governing board) a small seller exception of whatever sales 

volume threshold and follow that state law–based small seller exception instead of 

following the small seller exception in subsection 3(a) of S. 1832. Under that construction of S. 1832, SSUTA member states would be free under subsection 3(a), by 

acting in concert in a vote of the SSUTA governing board, to require remote sellers 

with total U.S. remote sales gross annual receipts under $500,000 to collect and 

remit state sales and use taxes, but SSUTA non-member states could not do so 

under subsection 3(b). 

22. Subsection 3(a) of S. 1832 grants authority to require sellers (excluding those 

within the small seller exception) to collect and remit sales and use taxes with respect to remote sales ‘‘sourced to that Member State pursuant to the provisions of 

the Streamlined Sales and Use Tax Agreement.’’ Then subsection 6(8) of the bill repeats that ‘‘[a] State granted authority under section 3(a) shall comply with the 

sourcing provisions of the Streamlined Sales and Use Tax Agreement.’’ Lastly, section 6(10) defines the term ‘‘Streamlined Sales and Use Tax Agreement’’ to mean 

‘‘the multi-State agreement with that title adopted on November 12, 2002, as in effect on the date of enactment of this Act and as further amended from time to time.’’ 

Subsections 6(8) and 6(10), including the phrase ‘‘as further amended from time to 

time,’’ read with the text of section 3(a), allow SSUTA member states, acting in concert through a vote of the SSUTA governing board, to change sourcing rules applicable to them under S. 1832 by making changes (without any involvement by Congress or any of the rest of the Federal Government) in the SSUTA sourcing rules. 

In contrast, states in the second class are bound by the unchanging sourcing rules 

set forth in section 6(8) of S. 1832. Courts might not uphold the congressional delegation to the private party Streamlined Sales Tax Governing Board, Inc., which by 

three-fourths vote has the power to amend the SSUTA under section 901 of the 

SSUTA, of legislative power to change the sourcing rules applicable under Federal 

law (S. 1832 if enacted) for SSUTA member states. The ability of the Streamlined 

Sales Tax Governing Board, Inc., to change from time to time the Federal law rule 

on sourcing applicable to SSUTA member states might be construed as creating 

Federal law without following the constitutional requirements of bicameral passage 

by the Houses of Congress and presentment to the President required for the making of a Federal law. For an early recommendation on sourcing, see ‘‘After the Net 

Tax Commission: The Gregg–Kohl Nexus Solution,’’ The Heritage Foundation, 

Backgrounder No. 1363 (April 25, 2000) (‘‘. . . by making it clear that 

extraterritorial taxation would be prohibited in virtually all cases, S. 2401 would encourage state and local governments to adopt an ‘origin-based’ tax methodology 

163 

under which they would levy sales taxes only on companies whose principal place 

of business resided within their taxing jurisdiction. Sourcing all sales to the location 

of origin instead of the destination of sale would enable state and local governments 

to impose taxes on Internet (and catalog) sales in the same way they impose them 

on traditional Main Street retail sales.’’), available at http://www.heritage.org/re 

search/reports/2000/04/after-the-net-tax-commission?query=After+the+Net+Tax+Co 

mmission:+The+Gregg-Kohl+Nexus+Solution. 

23. Section 1101 of the Internet Freedom Tax Act (47 U.S.C. 151 note) provides 

that ‘‘[n]o State or political subdivision thereof shall impose any of the following 

taxes during the period beginning November 1, 2003 and ending November 1, 2014: 

. . . (2) Multiple or discriminatory taxes on electronic commerce.’’ Section 1105 of 

the Act defines ‘‘discriminatory tax’’ and ‘‘multiple tax’’ for purposes of the Act. A 

‘‘multiple tax’’ is ‘‘any tax that is imposed by one State . . . on the same . . . electronic commerce that is also subject to another tax imposed by another State . . ., 

without a credit . . . for taxes paid in other jurisdictions.’’ 

24. See letter dated November 9, 2011, from National Conference of State Legislatures to Senators Durbin, Alexander, Enzi, and Johnson, available as inserted in the 

Congressional Record at http://thomas.loc.gov/cgi-bin/query/C?r112:./temp/∼r112 

MkIcsa. 

25. See letter dated November 9, 2011, from Streamlined Sales Tax Governing 

Board, Inc. to Senators Durbin, Alexander, Enzi, and Johnson, available as inserted 

in the Congressional Record at http://thomas.loc.gov/cgi-bin/query/C?r112:./temp/ ∼r112MkIcsa. 

26. See letter dated November 9, 2011, from Federation of Tax Administrators to 

Senators Durbin, Alexander, Enzi, and Johnson, available as inserted in the Congressional Record at http://thomas.loc.gov/cgi-bin/query/C?r112:./temp/∼r112 

MkIcsa. 

27. West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 205 (1994). 

28. For example, the well-known retailers Wal-Mart Stores, Inc., and Target Corporation sell from stores in nearly every state (all states in the case of Wal-Mart 

as of December 31, 2010, and all but Vermont in the case of Target Corporation as 

of January 29, 2011) and also accept customer orders electronically over the Internet at the company sites on the World Wide Web at www.walmart.com and 

www.target.com. Wal-Mart Stores, Inc., ‘‘Fiscal 2011 Unit Count,’’ available at 

http://walmartstores.com/sites/annualreport/2011/financials/Fiscal2011lUnitl Count.pdf; Target Corporation, Annual Report for 2010, Securities and Exchange 

Commission Form 10–K, Item 2. Properties, available at http://www.sec.gov/Archives/edgar/data/27419/000104746911002032/a2201861z10-k.htm. 

TIKI PUG MUSIC

July 30, 2012 

Hon. DEAN HELLER, United States Senate, 

Washington, DC. 

Dear Senator Heller, 

I understand that the Senate Commerce Committee has scheduled a hearing later 

this week to examine legislation that would impose new taxes on sales made over 

the Internet. We have met previously to discuss this issue when I was in Washington, DC, but since you are a member of the Commerce Committee, I wanted to 

restate my continued opposition to the Marketplace Fairness Act. 

First, I must thank you for your leadership on this issue. I know you are a small 

business supporter and understand the challenges this legislation would create for 

start-up entrepreneurs, including me. You have been a solid advocate for small businesses that use the Internet, and I appreciate your forward-looking perspective on 

this issue. 

I started using the Internet to sell my wares about 13 years ago, focusing on selling CO’s through eBay.com. Then, about four years ago, an illness prompted me to 

change my course and pursue my dream of becoming my own boss. I ramped up 

my activity on eBay, and today I have a business partner, employ an assistant, and 

use my expertise to teach my fellow eBay sellers how to successfully thrift and profit from it. 

I have plans to bring my business to the next level, but worry that new sales tax 

requirements would block my ability to grow my store. As you know, small businesses are less capable of dealing with sales tax collection requirements that would 

be imposed on them under the Marketplace Fairness Act. I don’t have a fulltime 

accountant, and I can’t afford to hire someone. And while I know that the bill would 

164 

require states to help small businesses afford sales tax collection costs, I sincerely 

question whether Nevada—with its record budget deficits—will be able to help me 

manage the costs associated with the new tax. 

This is also a competition issue. Small businesses will always be smaller than the 

super retailers that do the vast majority of all retail sales in this country and 

abroad. It hardly seems fair that a small business like mine should be held to the 

exact same 9,500+ sales tax laws as really large businesses that have stores in almost every American city. Plus, protecting small businesses from sales tax collection 

liabilities would give them just a little bit of room to grow their operations, and 

when they get big enough, they too would take on the collection requirements. 

Lastly, I appreciate your view that Internet sales tax legislation would increase 

taxes. The Marketplace Fairness Act’s collection requirement means that ultimately 

small businesses would be subject to a new tax. I know that use tax has always 

been payable and small businesses have to collect in states where they have locations. But make no mistake about it—the proposed law would be a tax on my business and I would have to endure a new burden. 

In conclusion, I want to again thank you for your leadership and foresight on this 

issue. It’s good to know that there are some Members of Congress that truly seek 

to do the right thing. Thank you for all you do. 

Sincerely, 

JASON T. SMITH, 

Owner, 

TikiPug Music. 

cc: The Honorable John D.Rockefeller, Chairman,Senate Committee on Commerce, 

Science, and Transportation 

The Honorable Kay Bailey Hutchison, Ranking Member, Senate Committee on Commerce, Science, and Transportation 

CONSERVATIVES SUPPORT E-FAIRNESS

New Jersey Governor Chris Christie: 

Governor CHRIS CHRISTIE. ‘‘I just want to make clear that I have been working 

on this issue in my role on the executive committee of the National Governors Association because it is an important issue to all the Nation’s governors. And I too— 

along with governors like Governor Daniels and others—urge the Federal Government and the Congress in particular to get behind Senator Lamar Alexander’s legislation to allow states to be able to make these choices for themselves. And I think 

Senator Alexander’s legislation would be a great step forward in that regard. It 

would give states options to decide how they want to deal with this and not have 

to any longer deal with the Federal prohibition on dealing with it. So, it would allow 

us to do it in a much more uniform and broader way. So, I’m with Governor Daniels 

on this and other Republican governors—Governor Snyder of Michigan and others 

who feel strongly about it. And we’ve been working on it at the National Governors 

Association and I know we will continue to and hope to get some type of resolution 

to it by the end of this year.’’ (Press Conference, Governor Chris Christie, 5/31/12) 

Maine Governor Paul LePage: 

‘‘Last week, Gov. Paul LePage, R-Maine, wrote his state’s two U.S. Senators, Republicans Susan Collins and Olympia Snowe, to urge them to back legislation introduced by Sens. Mike Enzi, R–Wyo., Dick Durbin, D–Ill., and Lamar Alexander, R– 

Tenn., that would close a loophole left by a 1992 Supreme Court decision. The high 

court ruled that states can’t require retailers such as catalog and now online retailers to collect sales taxes from customers in states where those companies have no 

physical presence. ‘There’s no denying that passing the bill would give thousands 

of small Maine businesses a real boost,’ LePage wrote. ‘Through no fault of their 

own, Federal policy now gives some out-of-state corporations an unfair advantage 

over other Maine retailers.’ ’’ (Juliana Gruenwald, ‘‘Tea Party Governor Is Backing 

Net Sales Tax Bill,’’ National Journal, 3/20/12) 

Tennessee Governor Bill Haslam: 

‘‘The National Governors Association applauds your efforts to level the playing 

field between Main Street retailers and online sellers by introducing S. 1832, the 

‘Marketplace Fairness Act.’ This common sense approach will allow states to collect 

the taxes they are owed, help businesses comply with different state laws, and provide fair competition between retailers that will benefit consumers.’’ (National GovVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00170 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
165 

ernors Association Letter To Sens. Durbin, Enzi, Tim Johnson And Alexander Endorsing S. 1832, The Marketplace Fairness Act, 11/28/11) 

Al Cardenas, Chairman, American Conservative Union (ACU): 

‘‘When it comes to sales tax, it is time to address the area where prejudice is most 

egregious—our policy towards Internet sales. At issue is the Federal Government 

exempting some Internet transactions from sales taxes while requiring the remittance of sales taxes for identical sales made at brick and mortar locations. It is an 

outdated set of policies in today’s super information age, when families every day 

make decisions to purchase goods and services online or in person. Moreover, it’s 

unfair, punitive to some small businesses and corporations and a boon for others.’’ 

(Al Cardenas, ‘‘The Chief Threat To American Competitiveness: Our Tax Code,’’ National Review Online, 11/8/11) 

William F. Buckley, Editor At Large, National Review: 

‘‘The mattress maker in Connecticut is willing to compete with the company in 

Massachusetts, but does not like it if out-of-state businesses are, in practical terms, 

subsidized; that’s what the non-tax amounts to. Local concerns are complaining 

about traffic in mattresses and books and records and computer equipment which, 

ordered through the Internet, come in, so to speak, duty free.’’ (William F. Buckley, 

‘‘Get That Internet Tax Right,’’ National Review Online, 10/19/01) 

Indiana Governor Mitch Daniels: 

‘‘[S]ales taxes that [states] impose ought to be paid, and paid by everybody equally 

and collected by everybody in the retail business . . . We’re not talking about an 

additional or new tax here—we’re talking about the collection of a tax that’s existed 

a long time.’’ (Jeremy Hobson, ‘‘Indiana Makes A Deal With Amazon On Sales 

Taxes,’’ Marketplace Business, 1/12/12) 

Former Mississippi Governor Haley Barbour: 

‘‘. . . [E]-commerce has grown, and there is simply no longer a compelling reason 

for government to continue giving online retailers special treatment over small businesses who reside on the Main Streets across Mississippi and the country. The time 

to level the playing field is now . . .’’ (Letter To Sens. Enzi And Alexander Endorsing S. 1832, The Marketplace Fairness Act, 11/29/11) 

Former Florida Governor Jeb Bush: 

‘‘It seems to me there has to be a way to tax sales done online in the same way 

that sales are taxed in brick and mortar establishments. My guess is that there 

would be hundreds of millions of dollars that then could be used to reduce taxes 

to fulfill campaign promises.’’ (Letter To Florida Governor Rick Scott, 1/2/11) 

Indiana Representative Mike Pence: 

‘‘I don’t think Congress should be in the business of picking winners and losers. 

Inaction by Congress today results in a system today that does pick winners and 

losers.’’ (House Judiciary Committee, Hearing On ‘‘Constitutional Limitations On 

States’ Authority To Collect Sales Taxes In E-Commerce,’’ 11/30/11) 

Virginia Governor Bob McDonnell: 

‘‘ ‘This bill helps to ensure that online retailers with a physical presence in Virginia are treated the same as traditional brick-and-mortar retailers who are already 

required to collect and remit existing sales taxes on goods sold in the commonwealth.’ ’’ (Press Release, ‘‘Governor McDonnell Announces Agreement Reached On 

Tax Fairness Bill,’’ Governor Bob McDonnell, 2/22/12) 

Michigan Governor Rick Snyder: 

‘‘Technology currently exists to quickly and effectively calculate taxes due on sales 

and can be easily be integrated into online retailers’ operations,’’ wrote Snyder, a 

onetime venture capitalist and former executive at the computer company Gateway. 

‘‘It is time for Congress to grant states the authority to enforce sales tax and use 

laws on all retailers doing business in their state.’’ (Bernie Becker, ‘‘Michigan Governor Joins Online Sales Tax Chorus,’’ The Hill, 5/11/12) 

Alabama Governor Robert Bentley: 

‘‘Alabama’s Republican governor has urged lawmakers from his state to support 

online sales tax legislation, adding to the growing roster of GOP officials who are 

on board with the idea. Gov. Robert Bentley told Alabama’s two senators and seven 

House members the online sales tax bills would improve the state’s fiscal situation, 

and stressed that the legislation would not create a new tax. ‘The bills will give Alabama the authority to collect sales taxes—as we currently do from local brick-andVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00171 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
166 

mortar retailers—that are already owed from online retailers,’ Bentley wrote in a 

letter dated April 19. ‘Allowing us to effectively close this sales tax loophole would 

help both our state’s finances and our state’s small businesses.’ ’’ (Bernie Becker, 

‘‘Alabama Governor Gets Behind Online Sales Tax Push,’’ The Hill, 4/25/12) 

South Dakota Governor Dennis Daugaard: 

‘‘On March 11, South Dakota enacted S.B. 146, sales tax legislation that requires 

out-of-state retailers that sell to in-state residents to notify their customers of their 

personal use tax obligation. Under the law, online sellers are required to provide 

clear notice to consumers during the checkout process that a South Dakota use tax 

is due.’’ (Rosemary Hawkins, ‘‘Sales Tax Bills Pass In Arkansas And South Dakota,’’ 

American Booksellers Association, 3/3/11) 

Georgia Governor Nathan Deal: 

‘‘Gov. Nathan Deal is considering extending the state sales tax to online purchases, he told newspaper publishers Thursday morning . . . ‘In the absence of congressional activity on that . . . I think there will be some appetite to act on that 

in the legislature,’ he said.’’ (Walter C. Jones, ‘‘Ga. Considers Online Sales Tax,’’ The 

Augusta Chronicle, 1/12/12) 

Nevada Governor Brian Sandoval: 

‘‘ ‘The only way to completely resolve this issue is for Congress to enact legislation 

that, within a simplified nationwide framework, grants states the right to require 

collection by all sellers,’ Sandoval said in a statement.’’ (Ed Vogel, ‘‘Gov. Sandoval 

Reaches Sales Tax Deal With Amazon,’’ Las Vegas Review-Journal, 4/24/12) 

Idaho Governor C.L. ‘‘Butch’’ Otter: 

‘‘Gov. C.L. ‘Butch’ Otter backs taxing Internet sales to level the playing field between virtual businesses and brick-and-mortar establishments on Idaho’s Main 

Street. Otter made the remarks to Idaho chamber of commerce leaders meeting in 

Boise on Monday.’’ (‘‘Idaho Governor Supports Internet Sales Tax,’’ The Associated 

Press, 1/30/12) 

South Carolina Governor Nikki Haley: 

‘‘ ‘And I will tell you regardless of what happens with Amazon, we want them. I 

have told them we want you to do business in this state, but we want you to do 

it on a level playing field. They got free property, they got tax incentives, they got 

plenty of things. Don’t ask us to give you sales tax relief when we’re not giving it 

to the book store down the street or we’re not giving it to the other stores on the 

other side of town, it’s just not a level playing field.’ ’’ (Press Conference, Governor 

Nikki Haley, 4/28/11) 

Iowa Governor Terry Branstad Supports Federal E-Fairness Legislation: 

‘‘Gov. Terry Branstad of Iowa this week became the latest in a string of top Republican state officials to back Federal legislation giving states more freedom to collect online sales taxes. Branstad’s letter of support, obtained exclusively by The Hill, 

comes not long after another prominent Republican governor, Chris Christie of New 

Jersey, also urged Congress to get moving on sales tax legislation . . . In a letter 

sent Thursday, Branstad encouraged his home-state senators to support a solution 

that he said would close a longstanding loophole. ‘I understand that the coalition 

supporting this legislation is now very broad which gives me hope that, under your 

leadership, this legislation can be passed yet this year,’ Branstad wrote to Sens. 

Chuck Grassley (R) and Tom Harkin (D). ‘The Internet is now a robust, mature and 

dynamic marketplace that does not warrant special protections,’ he added. ‘The application of sales taxes only to ‘brick-and-mortar’ retailers, many of which are small 

businesses, puts those very entities at a competitive disadvantage.’ ’’ (Bernie Becker 

& Kevin Bogardus, ‘‘GOP Governors Bolster Sales Tax Push,’’ The Hill, 6/10/12) 

Christopher Caldwell, Senior Editor, The Weekly Standard: 

‘‘California governor Jerry Brown killed two birds with one stone last month when 

he signed a law that would require Internet retailers to collect the state’s 7.25 per 

cent sales tax. He was raising needed revenue. And he was addressing a great injustice of the information age. State and Federal legislators made a big mistake when 

they exempted e-commerce from taxes in the 1990s. They were giddy with the rhetoric of cyberanarchism and inspired by anti-tax yahoos convinced raising revenue 

is an optional part of running a government. The kindest thing one can say about 

the policy is that it constituted an overgenerous subsidy to an infant industry.’’ 

(Christopher Caldwell, ‘‘Why Amazon’s Tax-Free Landscape Needs Bulldozing,’’ Financial Times, 7/15/11) 

167 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. FRANK R. LAUTENBERG TO

PAUL MISENER

Question. Senator Enzi’s bill would exempt businesses with less than five hundred 

thousand (500,000) dollars in out-of-state sales nationally. An alternative would be 

to exempt businesses from having to collect in a given state if their sales in that 

state are below a certain level. Based on your experience with Amazon Marketplace 

sellers, would they prefer such a state-by-state exemption? 

Answer. We believe that mid-sized sellers—those with about five hundred thousand dollars of annual interstate sales—want simplicity, including a small seller exception (SSE) threshold that is easy to understand and implement. A national 

threshold for the SSE would be easiest for these sellers to administer. 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. MARK BEGICH TO

PAUL MISENER

Question. We have heard small brick-and-mortar stores raise concerns about how 

customers come into their store, look around for a particular item, ask for advice 

from retail associates and then take that information and buy the same product online to evade paying the sales tax. Do you think evading sales taxes is one of the 

primary reasons customers choose to shop online? Do you believe that the Internet 

marketplace has negatively impacted Main Street America? Do you think that the 

customers, when they buy online, are buying from small businesses or mainly large 

businesses? 

Answer. We believe that customers choose to shop at Amazon because of our low 

prices, vast selection and fast delivery. As analysts have noted, we offer customers 

the best prices with or without sales tax. 

Further, we believe that the Internet has empowered consumers and Main Street 

retailers alike. At Amazon, we help over two million sellers (most of them small and 

medium sized) grow and reach customers across the globe. Forty percent of the 

items purchased by Amazon customers are sold by these small businesses and independent sellers. Also, a recent study reported by the National Retail Federation 

shows that ‘‘the percentage of shoppers who research products before purchasing 

them is considerable: 91 percent regularly or occasionally turn to the Internet to do 

some investigating before heading out to the store to make a purchase.’’ (BIGinsight, 

Media Behaviors and influence Survey, June 2012.) 

WRITTEN QUESTIONS SUBMITTED BY HON. JIM DEMINT TO PAUL MISENER

As of September 27, 2013, the date the record for this hearing closed, Mr. Misener 

had not responded to the following questions which Senator DeMint submitted to 

Mr. Misener more than one year previous. 

Question 1. Does Amazon collect sales taxes for third parties that use its platform 

to make sales? Does Amazon receive any compensation for providing this service? 

Would the use of this service increase if the Marketplace Fairness Act were enacted? 

Question 2. How many third party sellers sell exclusively through the Amazon 

platform? Will Amazon’s sales tax collection services apply to third party vendor 

sales on other web platforms? Will such vendors have to acquire [and presumably 

pay for] another service and/or software to comply with sales tax laws for transactions not made on the Amazon platform? 

Question 3. In testimony before the Committee, one of the sponsors of the Marketplace Fairness Act indicated that taxation would be applied based on the credit card 

billing address of a purchaser. Do you believe this is accurate, and that the question 

of appropriate tax application is that simple? 

Question 4. We have heard the term ‘‘showrooming’’ often spoken of in a negative 

way. It has been stated that consumers ‘‘showroom’’ in order to purchase from online sources primarily or exclusively to ‘‘avoid’’ paying sales tax. Do you think it is 

wrong that consumers are empowered by technology and retail competition to locate 

what they consider the best price for the product they seek? How often does 

‘‘showrooming’’ lead to a purchase being made online, but from a source required 

to collect sales tax? Do you believe there are reasons other than sales tax collection 

that lead consumers to purchase from an online source versus a physical retailer? 

Question 5. It has been stated that, without the interstate regulatory authority 

granted to states by the MFA, income and/or property taxes will likely be increased 

by states. Has Amazon received any property tax or sales tax collection incentives 

168 

from state and/or local governments? If so, could you provide the Committee with 

the estimated value of those incentives? 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JIM DEMINT TO

STEVE BERCU

Question 1. You write in your testimony that, ‘‘A sale is a sale no matter where 

it takes place.’’ The MFA, however, does not treat all sales equally. In fact, it applies 

a wholly different taxation regime to remote sales versus what is applied to brick 

and mortar sales. If the goal of the MFA is fairness, shouldn’t the outcome be to 

tax all sales under the same regime? 

Answer. I believe that the question of sales tax fairness should be left to the 

states. I also believe that the residence of the consumer should control the sales tax. 

So fairness dictates that the rate in each consumer’s state of residence would apply. 

Question 2. In your testimony you state, ‘‘. . . BookPeople already collects for 

every jurisdiction that has a sales tax. . . . We do so because it is the right thing 

to do. . . .’’ 

Question 2a. Do you believe it would be fair for other states to require you to obtain their business licenses, comply with their labor laws, or pay them income taxes 

in order to sell products to consumers in those states? 

Answer. As I understand it I am required to obtain business licenses, comply with 

labor laws and pay income taxes in states where I conduct business. I am not required to comply when consumers come to my state to do business with me. However it makes sense for me to act as a collection agent for remote states just as I 

do for Texas when someone buys something from me. 

Question 2b. Do you believe states should be prohibited from imposing any taxes 

and regulations outside of their own borders? If not, which ones should be allowed? 

Answer. I agree that states should not impose any taxes and regulations outside 

of their own borders. Getting help collecting sales tax due from their own residents 

is something very different. 

Question 3. In testimony before the Committee, one of the sponsors of the Marketplace Fairness Act indicated that taxation would be applied based on the credit card 

billing address of a purchaser. Do you believe this is accurate, and that the question 

of appropriate tax application is that simple? 

Answer. I believe that the credit card billing address is the appropriate address 

for sales tax purposes. 

Question 4. We have heard the term ‘‘showrooming’’ often spoken of in a negative 

way. It has been stated that consumers ‘‘showroom’’ in order to purchase from online sources primarily or exclusively to ‘‘avoid’’ paying sales tax. 

Question 4a. Do you think it is wrong that consumers are empowered by technology and retail competition to locate what they consider the best price for the 

product they seek? 

Answer. I believe that consumers should use whatever tools they have at hand 

to get the best deal they can, but I do not believe that they should be able to use 

those tools to avoid paying sales tax in their home states. 

Question 4b. How often does ‘‘showrooming’’ lead to a purchase being made online, 

but from a source required to collect sales tax? 

Answer. I do not have the data necessary to answer this question. 

Question 4c. Do you believe there are reasons other than sales tax collection that 

lead consumers to purchase from an online source versus a physical retailer? 

Answer. Yes and as I noted in Q.4A above I agree with their ability to do so if 

sales tax avoidance is not the reason. 

Question 5. It has been stated that, without the interstate regulatory authority 

granted to states by the MFA, income and/or property taxes will likely be increased 

by states. Are you aware of any property tax exemptions received by your competitors (or your business), if so how much revenue has been ‘‘lost’’ by Texas and its 

local governments from those exemptions? 

Answer. I am unclear about this question because it is internally inconsistent. 

I am unaware of property tax exemptions received by anyone in particular, but 

that has nothing to do with sales tax collection. The Texas Comptroller of Public 

Accounts has stated that Texas is losing about $750,000,000 a year in uncollected 

sales tax for Internet purchases. 

169 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. FRANK R. LAUTENBERG TO

SCOTT PETERSON

Question 1. This year, my state of New Jersey will lose out on an estimated two 

hundred million dollars of sales taxes owed but not collected on out-of-state purchases. Do you believe it’s feasible to collect sales taxes directly from residents who 

owe but haven’t paid them? 

Answer. No unless New Jersey imposes extraordinary requirements on its citizens. Because only the retailer and the consumer know anything about a purchase, 

New Jersey will have to presume that every citizen makes untaxed purchases. To 

collect that tax New Jersey will have to presume that every consumer filing an income tax owes use tax. Anyone who hasn’t made an untaxed purchase will have to 

prove the negative. In addition to imposing this burden on its citizens it will not 

be able to collect the tax owed by people who do not file income tax returns as there 

is no feasible way of collecting from them. This will be the case for states without 

an income tax that have no feasible way of collecting their use tax. 

Question 2. Of the forty-five states that levy sales taxes, only twenty have simplified their sales taxation by adopting the ‘‘Streamline Agreement.’’ Why have so 

many states been unwilling to adopt these uniform standards? 

Answer. Twenty-three have enacted all the simplifications. The others haven’t for 

reasons that vary from old fashion politics to changes that would reduce current tax 

collections. Not every state is impacted the same from the Streamline simplification 

requirements and in a couple states adopting all the changes would reduce their 

current tax collections. 

Question 3. My state of New Jersey has simplified its sales tax system to fully 

comply with the Streamline Agreement. But Senator Enzi’s bill would authorize 

states that haven’t met the Streamline Agreement standards to require New Jersey 

businesses to collect sales taxes for them. Could this uneven treatment put my 

state’s businesses at a disadvantage? 

Answer. The non-Streamline ‘‘alternative path’’ in Senator Enzi’s legislation includes many of the critical simplifications found in the Streamline Agreement. 

Clearly, the more simplification requirements in the legislation the better it will be 

for New Jersey businesses as they start to collect sales tax in other states. 

Question 4. I am concerned that the current approach to collecting sales taxes unfairly discriminates against low income individuals and the elderly. These individuals often lack Internet access, and cannot take advantage of online purchasing that 

is in effect tax-free. Would you agree that this makes our tax system more regressive? 

Answer. Yes. Those without broadband Internet access or a credit card are at a 

serious disadvantage shopping on the Internet. It follows that those folks must 

make a greater percentage of their purchases locally, and all of those purchases will 

be fully taxed. Future sales tax regressivity studies will have to include access to 

broadband Internet service and access to a credit card, both of which are required 

for Internet shopping and less prevalent with the low income and the elderly. 

WRITTEN QUESTIONS SUBMITTED BY HON. JIM DEMINT TO SCOTT PETERSON

Mr. Peterson is no longer employed with the Streamlined Sales Tax Governing 

Board, Inc., and did not respond to the Senator’s written questions, submitted to 

Mr. Peterson after the hearing. 

Question 1. The MFA would potentially subject South Carolina retailers to audits 

and tax enforcement actions by any state that complies with its criteria, even if 

South Carolina chooses not to. The MFA would therefore definitively increase regulation and impose new tax obligations on South Carolina businesses by states in 

which they have no physical presence or—more importantly—representation in government. Why do you think so many governors support legislation that allows the 

intrusion of other states’ tax policies into their own? Do you believe states should 

be prohibited from imposing any taxes and regulations outside of their own borders? 

If not, which ones should be allowed? 

Question 2. Aside from adding a line item on their tax forms, could you describe 

the efforts by state governments in the last year to improve enforcement of their 

use tax laws and the increased revenue from such efforts? 

Question 3. What recourse will a South Carolina business have if they find themselves in a dispute with another states’ department of revenue? 

Question 4. Have you considered the option of allowing remote taxation only 

among and between those states that choose to comply with the MFA’s criteria? 

170 

1State Of New Jersey Income Tax-Resident Return Instruction Booklet p.38–39 

Question 5. In testimony before the Committee, one of the sponsors of the Marketplace Fairness Act indicated that taxation would be applied based on the credit card 

billing address of a purchaser. Do you believe this is accurate, and that the question 

of appropriate tax application is that simple? 

Question 6. We have heard the term ‘‘showrooming’’ often spoken of in a negative 

way. It has been stated that consumers ‘‘showroom’’ in order to purchase from online sources primarily or exclusively to ‘‘avoid’’ paying sales tax. Do you think it is 

wrong that consumers are empowered by technology and retail competition to locate 

what they consider the best price for the product they seek? How often does 

‘‘showrooming’’ lead to a purchase being made online, but from a source required 

to collect sales tax? Do you believe there are reasons other than sales tax collection 

that lead consumers to purchase from an online source versus a physical retailer? 

Question 7. It has been stated that, without the interstate regulatory authority 

granted to states by the MFA, income and/or property taxes will likely be increased 

by states. Can you provide the Committee an idea of the aggregate amount of property tax exemptions received by retail establishments and commercial developers 

over the last decade and the related ‘‘lost’’ revenue to states and localities? 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. FRANK R. LAUTENBERG TO

STEVE DELBIANCO

Question. This year, my state of New Jersey will lose out on an estimated two 

hundred million dollars of sales taxes owed but not collected on out-of-state purchases. Do you believe it’s feasible to collect sales taxes directly from residents who 

owe but haven’t paid them? 

Answer. New Jersey already makes it easy for taxpayers to self-report their unpaid sales tax on out-of-state purchases, as I describe below. 

But even if taxpayers fail to comply, the good news is that New Jersey already 

collects a majority of sales taxes generated from e-commerce, and all of the top 

twenty e-retailers will be collecting for New Jersey by 2014, including Amazon. Of 

those companies who do not yet collect for New Jersey, the state need only focus 

on the top 500 e-retailers to capture over 90 percent of the uncollected tax revenue 

from e-commerce. That way, New Jersey businesses that sell to customers around 

the country could be protected from the high costs of collecting and filing taxes for 

up to 45 additional states. 

New Jersey already makes it easy for residents to self-report their unpaid sales tax 

on out-of-state purchases. 

New Jersey added a line on its individual tax return reminding taxpayers about 

their obligation to pay Use Tax on out-of-state purchases: 

In addition, New Jersey gives residents instructions when filling out their tax returns.1 The tax form assists taxpayers by offering estimated Use Tax amounts for 

purchases made out of state, based on annual gross income. (see figure at right) 


801DELBQ1.eps
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New Jersey already collects sales taxes on most e-commerce. 

If self-reporting fails to capture most uncollected sales tax, New Jersey will soon 

be collecting the majority of sales taxes from e-commerce, as Amazon begins collecting sales taxes in 2014. 

In fact, by 2014 all of the top 20 e-retailers will be collecting sales taxes for New 

Jersey. These businesses alone account for nearly 60 percent of all e-commerce. (see 

table at right) 

Amazon will soon collect in New Jersey—covering two-thirds of all the state’s uncollected sales taxes from e-commerce 

Amazon, which accounted for nearly two-thirds of all uncollected sales taxes from 

e-commerce in 2011, will begin collecting for New Jersey in 2014, since it will be 

opening a distribution center in the state. 


801DELBQ2.eps 801DELBQ3.eps
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2 Eisenach & Litan, Uncollected Sales Taxes On Electronic Commerce: A Reality Check, 

Empiris LLC (Feb. 2010), available at http://bit.ly/EisenStudy. 3This calculation is based on 2011 e-commerce figures. However, since Amazon’s rate of 

growth was 41 percent in 2011, the amount of sales taxes that Amazon collects in 2014 will 

likely be much more than $101 million. 4 Analysis based on: Top 500 e-Retailers and total e-commerce sales from Internet Retailer, 

Top 500 Guide, p. 32 (2012 Edition), and Top 500 e-retailer tax collection from Eisenach & 

Litan, Uncollected Sales Taxes On Electronic Commerce: A Reality Check, p.17, 25 (Feb. 2010), 

available at bit.ly/EisenStudy. 

Economists Eisenach and Litan 2 researched online sales tax collections and found 

that New Jersey’s uncollected sales tax from e-commerce in 2012 is $152 million. 

Of this $152 million, we estimate that Amazon constitutes almost two-thirds of 

those uncollected sales taxes. 

This means that when Amazon begins collecting sales taxes in New Jersey, they 

will collect $101 million of the $152 million leaving only $51 million in uncollected 

sales taxes.3 Without any change in Federal law, New Jersey is already solving 

much of its uncollected sales tax problem. 

Of the uncollected sales taxes from e-commerce in 2011, the top-500 e-retailers accounted for over 90 percent the non-collected taxes. 

As I discussed in the hearing, it is unwise—and unnecessary—to burden small 

business with new costs of tax compliance, since most of the uncollected sales taxes 

come from the top-500 e-retailers—those with more than $15 million in annual revenue.4

This is especially important when you consider that small businesses are the most 

vulnerable to these new costs of collection, and as I showed in my testimony, this 

‘‘free’’ software comes with additional costs and often does not work as advertised. 

By focusing on those retailers at the top end of the graph below, states get most 

of the tax revenue while allowing smaller businesses to continue growing into larger 

ones. 

The Internet is all of us, including small main street businesses in New Jersey 

A ‘‘main street’’ store and a ‘‘remote seller’’ are often one in the same. Take for 

example Montclair Book Center in Montclair New Jersey. 

This main street store is ‘‘one of the largest independent bookstores in New Jersey, with more than 15,000 square feet.’’ 

Montclair specializes in rare and out-of-print books and vinyl records. 


801DELBQ4.eps
173 

Beyond its main street presence, Montclair Book Center’s website reaches customers from all states. And when fulfilling its online orders, Montclair Book Center 

does not collect sales taxes for any state other than New Jersey. 

This is the type of business that would be most hurt if Congress forced all remote 

sellers to collect for all 46 states. 

So when you think of ‘‘online sellers’’ please understand that term encompasses 

far more than just the top 20 e-retailers, all of whom will soon collect for New Jersey. Online sellers also include small New Jersey businesses like Montclair Book 

Center, who use the Internet to build their in-state income and employment. 

Twelve Key Simplification Provisions For Federal Legislation on Remote Sales Tax 

Collection 

If Congress were to force remote sellers to collect sales tax for all jurisdictions, 

any such legislation should contain the following simplifications: 

1. States must provide certified software for rate lookup, collection, electronic filing, and funds transfer. Users of the software would be immune from state 

and civil liability for errors in taxes collected. 

2. A single sales tax rate per state for remote sales, as was the original goal of 

the SSTP. 

3. States should compensate businesses for reasonable costs of collecting sales 

taxes, including purchase and implementation of software. 

4. A single set of definitions for taxable and exempt products for all states. 

5. A single audit conducted by the retailer’s home state on behalf of all states 

and local jurisdictions. 

6. There should be a common sales tax return for remote sellers to file. 

7. A single national rule for sourcing sales. 

8. Harmonization of sales tax holidays and thresholds or optional remote seller 

exemption from participation in sales tax holidays and thresholds. 

9. Allow remote sellers to challenge states in Federal district court for disputes 

on sales tax collection, including whether a state is following congressionally 

required simplifications. 

10. Preemption and preclusion of state laws dealing with nexus for remote sellers. 

11. Collection of sales tax under Federal legislation does not create nexus for any 

other business purpose. 

12. A congressionally-determined exception for small businesses. 


801DELBQ5.eps
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Summary 

To summarize, 

• New Jersey already takes steps to encourage and assist residents in remitting 

sales taxes on out-of-state purchases; 

• New Jersey already collects a majority of sales taxes from e-commerce with all 

of the top twenty e-retailers collecting for New Jersey by 2014; 

• Amazon will soon collect sales taxes for New Jersey; and 

• Since over 90 percent of all uncollected sales taxes from e-retail sales come the 

largest of businesses it is unnecessary to saddle small businesses with the big 

costs of collecting sales taxes. 

I am happy to answer any other questions you may have on this issue. 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. MARK BEGICH TO

STEVE DELBIANCO

Question. As a Senator of a rural state, I am truly amazed by the new opportunities Alaska businesses are able to enjoy through the use of the Internet. The Internet allows small businesses all across the country to access the global market and 

reach consumers in any corner of the world. For decades, only large businesses and 

corporations had access to the global market, but now small businesses have the opportunity to compete for those sales. However, I am concerned that the Internet 

sales tax proposal currently before the U.S. Senate might make it harder for small 

businesses to access these global opportunities. Forcing small businesses to collect 

in 9,600 tax jurisdictions nationwide will undoubtedly come with increased costs and 

legal liability. Can you elaborate on the potential costs and competitive disadvantages that would be associated with this type of change in law? 

Answer. Senator, you are right to worry about the many small Alaska businesses 

that use the Internet to reach new customers. And a new tax collection burden falls 

hardest on small businesses—especially those in non-sales tax states like Alaska, 

where most businesses don’t have the experience or systems to collect any sales 

taxes, let alone for 9,600 jurisdictions. 

Examples of Challenges faced by Alaska businesses 

Consider the example of Alaska Photo Graphics of Fairbanks. Created by an Alaskan photographer, this website sells large prints and beautiful calendars featuring 

Alaskan landscapes. 

Another example is Oomingmak of Anchorage, who has been selling hand-knit 

Alaskan qiviut scarves and clothes since 1969. 


801DELBQ6.eps
175 

5 Available at http://www.netchoice.org/wp-content/uploads/cost-of-collection-study-sstp.pdf 

Both these Alaskan businesses make their products available to customers in all 

fifty states via their online stores. However, neither business collects sales taxes for 

sales to any of these remote states. 

Moreover, neither business collects for online sales shipped to customers in Alaskan cities that have a sales tax. This makes the burden of collecting for remote 

states even greater for Alaska Photo Graphics and Oomingmak, since they don’t 

have the experience and systems to collect any sales taxes, let alone sales taxes for 

all 9,600 jurisdictions in 46 states. 

Empirical study shows that small businesses spend 17 cents for every tax dollar they 

collect. 

Aside from such anecdotal evidence, the Streamlined Sales Tax Project’s own Cost 

of Collection 5 study found that a small business (under $1M in annual sales) spends 

17 cents for every tax dollar it collects for states. And even if tax software works 

as promised, that only helps with 2 cents of the 17 cents in costs per dollar collected. That leaves small businesses with a 15 percent cost burden on every dollar 

they collect, for things such as: 

• Paying computer consultants to integrate new tax software into their homegrown or customized systems for point-of-sale, web shopping cart, fulfillment, 

and accounting 

• Training customer support and back-office staff 

• Answering customer questions about taxability of items, or sales tax holidays 

• Handling audit questions from 46 states 

• Paying accountants and computer consultants to answer all these questions 

These collection burdens will be a big problem for small businesses that collect 

only their home-state sales tax today. Ask any of your small business, on main 

street or online, and you’ll learn how hard it would be for them to create systems 

to begin collecting sales tax all 46 states. 

Online marketplaces may impose additional costs, up to 20 percent of sales 

While Amazon says it will charge only about 3 percent for its tax collection services, Amazon won’t collect taxes for a business unless the business already pays 


801DELBQ7.eps
176 

6 Amazon Service Fees, http://www.amazonservices.com/sell-on-amazon/media-fees.htm/ref 

=ambllinkl356743102l18?ie=UTF8&pflrdlm=A2CA1KKALKCX2O&pflrdls=top-1&pfl 

rdlr=11SNTTXVHCER4S0J4KNK&pflrdlp=1328499722&pflrdlt=101&pflrdli=soa-faq 

-detail&ld=AZFSSOAAS 7Top 500 e-Retailers and total e-commerce sales from Internet Retailer, Top 500 Guide, p. 

32 (2012 Edition). Top 500 e-retailer tax collection from Eisenach & Litan, Uncollected Sales 

Taxes On Electronic Commerce: A Reality Check, p. 17, 25 (Feb. 2010), available at http:// 

bit.ly/EisenStudy 

Amazon to host its web store—for that, Amazon charges a referral fee of 10–20 percent of the sale proceeds, plus additional fees.6

So small businesses using Amazon’s tax collection services might pay up to 20 

percent of their sale proceeds, leaving little to pay employees and expand their business. And it increases the small business’ reliance on expensive and established online marketplaces. 

Congress should exempt businesses with less than $15 million in annual sales from 

any new tax collection mandate for out-of-state sales. 

One way to set a realistic small seller exception is to exempt all businesses that 

are out on the ‘‘long tail’’ in terms of e-retail sales. For example, Internet Retailer 

publishes a Top 500 Guide each year, ranking the Nation’s largest retailers on their 

U.S. e-commerce sales. For 2011, the #1 e-retailer was Amazon.com, at $48 billion 

in e-retail sales. Number 500 had just $15 million in remote e-retail sales. In total, 

the Top 500 had $181 billion in e-retail sales. 

Economists Eisenach and Litan started with this Top 500 Guide when analyzing 

where each retailer already collected sales tax under Quill’s physical presence 

standard. Using their analysis, we estimated that the Top 500 were responsible for 

93 percent of the uncollected sales tax on U.S. e-commerce in 2011, as shown in the 

graph below 7 (netchoice.org/top500collect). 

Congress could set a small seller exception that adjusts with inflation and retail 

trends by exempting sellers below the Top 500 cutoff from the previous year. Under 

this method, the small seller exception for 2012 would have been $15 million in annual sales. That would leave exempted retailers with a more reasonable gross margin to cover expenses, while allowing states to recover over 90 percent of the uncollected sales tax on e-retail. 


801DELBQ8.eps
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Twelve Key Simplification Provisions For Federal Legislation on Remote Sales Tax 

Collection 

If Congress were to force remote sellers to collect sales tax for all jurisdictions, 

any such legislation should contain the following simplifications: 

1. States must provide certified software for rate lookup, collection, electronic filing, and funds transfer. Users of the software would be immune from state 

and civil liability for errors in taxes collected. 

2. A single sales tax rate per state for remote sales, as was the original goal of 

the SSTP. 

3. States should compensate businesses for reasonable costs of collecting sales 

taxes, including purchase and implementation of software. 

4. A single set of definitions for taxable and exempt products for all states. 

5. A single audit conducted by the retailer’s home state on behalf of all states 

and local jurisdictions. 

6. There should be a common sales tax return for remote sellers to file. 

7. A single national rule for sourcing sales. 

8. Harmonization of sales tax holidays and thresholds or optional remote seller 

exemption from participation in sales tax holidays and thresholds. 

9. Allow remote sellers to challenge states in Federal district court for disputes 

on sales tax collection, including whether a state is following congressionally 

required simplifications. 

10. Preemption and preclusion of state laws dealing with nexus for remote sellers. 

11. Collection of sales tax under Federal legislation does not create nexus for any 

other business purpose. 

12. A congressionally-determined exception for small businesses. 

Summary 

Senator, you are right to be concerned about the small businesses that will be hit 

hardest by these new tax collection burdens. And we should also consider the anticompetitive nature of forcing small growing businesses to rely on their large and 

established competitors for tax collection services. However, by setting a robust Congressionally-mandated small seller threshold along with the other minimum simplifications listed here, we can protect all Alaska businesses from the high burdens 

of collection. 

I am happy to answer any other questions you may have on this issue. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JIM DEMINT TO

STEVE DELBIANCO

Question 1. If we give states this new taxing power on the basis that they simplify 

their tax codes, how do we make sure states stick to the simplification, and what 

do we do if the costs to businesses turn out to be much higher than we’re being 

told today? 

Answer. Naturally, state tax collectors would prefer new tax revenue without undertaking any simplification or standardization of their tax systems. This is why, 

as you correctly identified, there are two necessary components to legislation that 

grants new taxing powers: simplicity and accountability. 

Minimum Simplifications 

Because of the new tax burdens of compliance, previous congressional legislation 

to overturn Quill included as many as 16 minimum simplification requirements that 

SSTP states would have to honor. Congress should continue to mandate simplification in any bill that overturns Quill. 

To that end, we developed the following list of minimum simplifications that mitigates some of the new tax burdens imposed by legislation such as the MFA. 

• Remote retailers should not be subject to audits from 46 separate state tax authorities. States should respect the outcome of a single audit by any state, on 

behalf of all states. 

• Remote retailers should be allowed to use a single sales tax rate for remote 

sales made into each state, which was the original goal of the SSTP. State lawmakers would, of course, be able to allocate sales tax proceeds among local jurisdictions. 

178 

1Mass. Dept. of Revenue, A Guide to Sales and Use Tax, http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/salesuse-tax-guide.html#apparel 

• States should be required to adopt a single set of definitions for taxable and 

exempt products across all states. 

• States should compensate all businesses for the fair and reasonable cost of collecting sales taxes, taking into account such elements as credit card fees and 

costs of software implementation and maintenance. Compensation was required 

in previous Federal legislation to overturn the Quill physical presence standard, 

but was dropped in recent versions. 

• Remote businesses should not be required to file sales tax returns for all 46 

states. All states should accept a single sales tax return filed with a business’ 

home state. The home state revenue department would be responsible for distributing funds to remote states. 

• Remote retailers should not be required to honor, but may observe, thresholds 

for sales tax calculation. (an example of a threshold is Massachusetts, where the 

first $175 of any clothing item is exempt from sales tax.1) 

• Remote retailers should not be required to honor state-specific sales tax holidays. 

• States should be required to adopt a single rule for sourcing sales. The SSTP 

originally maintained destination sourcing for all sales tax transactions. But to 

accommodate origin-based states, SSTP’s Governing Board voted to allow origin 

sourcing for in-state sales while requiring destination sourcing for remote sales. 

Such ‘‘dual sourcing’’ should not be permitted as part of any Federal legislation 

overturning the physical presence standard. 

• States must provide certified software for collection, filing, and remittance of 

taxes. Some proposed legislation requires only that states provide software ‘‘that 

identifies the applicable destination rate’’. That leaves remote businesses to 

bear the full cost of integrating the rate lookup into their in-house systems and 

processes. And the business would also have to pay for software to handle filing 

and remittance in 46 different states. 

Once Congress has dictated the minimum simplifications, the next challenge is 

how to hold participating states accountable for compliance. We recommend two 

ways to achieve compliance: the ability to challenge states in Federal district court; 

and creating a multi-state compact instead of a nationwide tax mandate. 

Challenges in Federal District Court 

Remote-seller tax legislation must include a mechanism for businesses to challenge a state in Federal district court if the state fails to comply with the statutory 

minimum simplifications. But under the Tax Injunction Act (28 U.S.C. § 1341), taxpayers are forced to use state courts to litigate disputes with state tax collection authorities, even on questions of whether a remote state is following Federal law. 

To ensure that states stick with required simplifications, Federal district courts 

should have jurisdiction over disputes arising between states and remote businesses 

regarding a state’s compliance with Federal law. 

Multi-State Compact 

Congress should retain the benefits of market discipline to restrain states from 

expanding the complexity of their sales tax systems and skirting the minimum simplification requirements. Fortunately, Congress has a simple way to enforce ‘‘tax 

competition’’ as part of any legislation that overturns the physical presence standard: Congress could authorize remote collections through a multi-state compact instead of a national mandate on all businesses. 

Proposed legislation to overturn Quill would impose collection burdens on businesses in all 50 states—including businesses in states that don’t even have a sales 

tax. Lawmakers in all 50 states would lose the sovereign right to protect their citizens and businesses from tax burdens imposed by other states. 

If these new collection burdens are hurting businesses in a state, their own legislators won’t be able to rescue those businesses if Congress makes collection mandatory for all. This comes as a surprise to many lawmakers who are beginning to understand the impact of a national mandate ironically described by advocates as supporting states’ rights. 

Contrast the national mandate in S. 1832 with a multi-state compact, where 

states could opt-in if they believed new tax revenues justified forcing their in-state 

business collect taxes for other states in the compact. By the same token, states 

could opt-out of the compact if remote state tax burdens were excessive. States optVerDate Nov 24 2008 13:39 Nov 01, 2013 Jkt 075679 PO 00000 Frm 00184 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\85318.TXT JACKIE
179 

2Marketplace Fairness Act § 6(8). 

ing-out would lose the power to force remote sellers to pay their sales tax, but at 

least states could protect their own businesses from unreasonable burdens on interstate commerce. 

Question 2. Have you considered the option of allowing remote taxation only 

among and between those states that choose to comply with the MFA’s criteria? 

Answer. We support a multi-state compact as the best way to ensure compliance 

and preserve states’ rights. By treating the MFA as a multi-state compact as opposed to a mandate, states maintain sovereignty over their taxes and protect their 

own businesses from tax collection obligations imposed by other states. In addition, 

states within the compact must achieve and maintain simplicity to encourage adoption and continued membership in the compact. 

With a multi-state compact, Congress can maintain states’ rights while retaining 

the benefits of market discipline to restrain states from expanding the complexity 

of their sales tax systems. To that end, Congress has a simple way to enforce ‘‘tax 

competition’’ as part of any legislation that overturns the physical presence standard: Congress could authorize remote collections through a multi-state compact instead of a national mandate on all businesses. 

Proposed legislation would impose collection burdens on businesses in all 50 

states—including those in states that don’t even have a sales tax. Lawmakers in all 

50 states would lose the sovereign right to protect their citizens and businesses from 

tax burdens imposed by other states. 

If these new collection burdens are hurting businesses in a state, their own legislators won’t be able to rescue those businesses if Congress makes collection mandatory for all. This comes as a surprise to many lawmakers who are beginning to understand the impact of a national mandate ironically described by advocates as supporting states’ rights. 

Contrast the national mandate in S. 1832 with a multi-state compact, where 

states could opt-in if they believed new tax revenues justified having their in-state 

business collect taxes for other states in the compact. By the same token, states 

could opt-out of the compact if remote state tax burdens were excessive. States opting-out would lose the power to force remote sellers to pay their sales tax, but at 

least states could protect their own businesses from unreasonable burdens on interstate commerce. 

For example, suppose South Carolina decided to opt-in to a multi-state tax compact. If, after many months of collecting new taxes, South Carolina businesses begin 

complaining of the costs of collecting and filing for 45 other states, South Carolina 

can then opt-out of the compact. South Carolina would no longer receive the additional tax revenue, but it would retain its sovereign right to protect its in-state businesses from other states’ tax collectors. 

Moreover, the multi-state compact becomes a test of whether the benefits of new 

taxes outweigh the compliance costs on local businesses. If MFA advocates are correct in their belief that compliance costs will be minimal, states would rush to join 

a Congressionally-endorsed tax compact. In the end, if the MFA advocates are correct, all 46 tax states would join the compact thereby requiring their states’ businesses to collect and remit to the other compact states. 

Question 3. In testimony before the Committee, one of the sponsors of the Marketplace Fairness Act indicated that taxation would be applied based on the credit card 

billing address of a purchaser. Do you believe this is accurate, and that the question 

of appropriate tax application is that simple? 

Answer. The Marketplace Fairness Act uses a layered approach in determining 

the appropriate tax jurisdiction. However, the steps of determining tax jurisdiction 

and rate are only a small part of the costs of compliance for businesses. 

The MFA first attempts to apply taxes based on the shipping address, or destination. If shipping address is not applicable (such as for digital media delivered by 

download), the tax is sourced to the customer’s billing address. Finally, if billing address is unknown, the transaction is sourced to the shipper’s address.2

Once sourcing is determined, the applicable tax rate can be found through a database lookup function, taking into account the date, sale amount, and product/service 

category. If the lookup software works as advertised, determining the appropriate 

tax rate is relatively easy. But identifying the applicable tax rates is only a small 

part of the new costs that a business would face under the MFA or similar legislation. 

180 

3Price Waterhouse Coopers, Retail Sales Tax Compliance Costs: A National Estimate, available at http://www.netchoice.org/wp-content/uploads/cost-of-collection-study-sstp.pdf. 4Kantar Media Complete, The State of Online Retail (Sept. 13, 2011) 5MarketingCharts (Dec. 6, 2012), available at Khttp://www.marketingcharts.com/wp/interactive/6-in-10-americans-prefer-shopping-in-store-to-buying-online-25244 6Forrester Research: Web-Influenced Retail Sales Forecast, 2010–2015 (US). 

7Top 500 e-Retailers and total e-commerce sales from Internet Retailer, Top 500 Guide, p. 

32 (2012 Edition). 

The SST’s own Cost of Collection 3 study found that a small business (under $1 

million in annual sales) currently spends 17 cents for every tax dollar it collects for 

states. And even if tax software works as promised, that only helps with 2 cents 

of the 17 cents in costs per dollar collected. That leaves small businesses with a 15 

percent cost burden on every dollar they collect for things such as: 

• Paying computer consultants to integrate new tax software into their homegrown or customized systems for point-of-sale, web shopping cart, fulfillment, 

and accounting 

• Training customer support and back-office staff 

• Answering customer questions about taxability of items or sales tax holidays 

• Handling audit questions from 46 states 

• Paying accountants and computer consultants to answer all these questions 

These collection burdens will be a big problem for small catalog and online businesses that collect only their home state sales tax today. Ask any small business, 

on Main Street or online, and you’ll learn it’s hard enough to collect sales tax for 

one state, let alone all 46 states with sales tax laws of their own. 

One of the most significant costs and challenges for remote retailers is integrating 

tax rate lookup software into their in-house information systems. This point was 

demonstrated when the Silver Gallery explained to the Streamlined Sales Tax Governing Board how they would incur nearly $22,000 in costs for design, programming, integration, testing, and employee training. This cost estimate was developed 

for the task of integrating ‘‘free’’ software into Silver Gallery’s existing information 

systems. 

Sourcing and rate lookup are only a small part of the costs of compliance imposed 

by the MFA. 

Question 4. We have heard the term ‘‘showrooming’’ often spoken of in a negative 

way. It has been stated that consumers ‘‘showroom’’ in order to purchase from online sources primarily or exclusively to ‘‘avoid’’ paying sales tax. 

Question 4a. Do you think it is wrong that consumers are empowered by technology and retail competition to locate what they consider the best price for the 

product they seek? 

Answer. Empowering consumers through technology is a net positive, since it encourages competition among businesses and saves consumers money. 

However, shoppers don’t always walk out of a store just to get a lower price at 

a different store or website. Many other factors come into play, including convenience, features, color, size, and service. 

For example, surveys show that the top consideration for people shopping online 

is free shipping,4 so consumers are not likely to leave a store and buy online if they 

have to pay additional costs for shipping. 

Even when prices are lower online, sixty percent of Americans still prefer to make 

purchases in-store rather than go online.5 And it’s essential to remember that 93 

percent of retail sales are still done in stores.6

This makes sense, since shoppers buying in stores enjoy the instant gratification 

of taking the item home instead of waiting for a delivery to arrive days later. And 

of course, returns and exchanges are far easier in store, compared to having to package and stand in line at the post-office to return items bought online. 

For American consumers who prefer online shopping, retailers are offering a 

‘‘brick and click’’ model that provides the benefits of online research and selection 

along with the convenience of in-store pickups, exchanges, and returns. Under this 

new model, Wal-Mart allows customers to buy online at WalMart.com and then 

pick-up and return in store (WalMart.com is now the Nation’s fourth largest e-retailer 7). Many other retail stores set-up in-store kiosks so shoppers can easily order 

online products that may be unavailable in the store. 

While it is beneficial to empower consumers and encourage price competition, 

businesses are not competing on price alone. 

Question 4b. How often does ‘‘showrooming’’ lead to a purchase being made online, 

but from a source required to collect sales tax? 

181 

8 Id. 

9 Id. 

10Forrester Research: Web-Influenced Retail Sales Forecast, 2010–2015 (U.S.). 11Top 500 e-Retailers and total e-commerce sales from Internet Retailer, Top 500 Guide, p. 

32 (2012 Edition). 12Tom Szkutak, CFO, in a transcript of Amazon’s Q2 2012 Earnings Call, http://seek 

ingalpha.com/article/754571-amazon-com-s-management-discusses-q2–2012-results-earnings-call 

-transcript?part=single 13 Amazon, Q3 2012 Amazon.com Inc Earnings Conference Call, available at http://phx 

.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=97664&eventID=4849777 

Answer. Evidence of showrooming is anecdotal and we have not yet seen any data 

indicate the frequency with which it occurs. 

But when showrooming does happen, buyers are increasingly turning to an e-retailer that already collects taxes. In 2011, 18 of the top 20 e-retailers collected for 

38 states.8 These top e-retailers included many big box stores: Staples.com 

Walmart.com, OfficeDepot.com and BestBuy.com. 

At the top of the list is Amazon.com with 25 percent of total U.S. e-commerce.9

However, by the end of next year, Amazon will be collecting for over half the country. And as Amazon moves to a same day-delivery model, it will continue increasing 

the number of states in which it has a distribution center and thus increasing the 

number of states for whom Amazon must collect. 

An often-ignored aspect of online retail is ‘‘reverse showrooming’’ where online 

stores influence in-store purchases. More and more shoppers are doing Internet research before their in-store purchases—relying on online retail sites’ descriptions 

and reviews. Over the next year, in-store sales influenced by online research is expected to rise by $120 billion to $1.2 trillion.10

It would seem that in the end, most taxes from online sales, whether compelled 

by showrooming or not, will be collected. 

Question 4c. Do you believe there are reasons other than sales tax collection that 

lead consumers to purchase from an online source versus a physical retailer? 

Answer. There are many factors that lead a consumer to shop online, such as convenience, selection, lower prices, and the ease of finding research and reviews. Online shopping provides in-depth product information and reviews, eliminates having 

to drive to the store or deal with long checkout lines, and lets buyers have hardto-carry items delivered to their doorstep. 

While sales taxes may be a factor, we have not seen any data showing that consumers shop online in order to avoid paying sales taxes. Taxes are just part of the 

total cost of a product, and only one factor among many that would lead a consumer 

to shop online. 

These non-price factors are driving more and more people to shop online. More 

and more sales are occurring through e-retailers who already collect sales taxes, including Staples.com Walmart.com, OfficeDepot.com and BestBuy.com.11

As evidence that sales tax avoidance is not a major driver of online sales, consider 

the case of Amazon.com in the growing list of states where it collects sales tax. 

In a conference call with equity analysts on July 26, 2012, Amazon executives 

fielded questions about the sales impact of collecting sales tax in more and more 

states. The company’s CFO said: 

‘‘We have also certainly added some new geographies or new jurisdictions that 

we clocked during that time period. But you see that we have seen very very 

strong growth even while collecting.’’ 12

There’s additional evidence that sales tax is not the driving factor for buying on 

Amzon.com. Amazon began collecting sales tax in California on September 15, 2012 

because it has physical presence there with its Kindle labs and new distribution 

centers. Even though customers in one of Amazon’s largest markets saw an 8 percent effective price increase, the company did not warn analysts about any impending drop in sales. 

On Amazon’s October 25, 2012 conference call to discuss Q3 results, an analyst 

asked, 

‘‘I know it’s early, but is there a noticeable impact on sales of having to collect 

sales tax in California?’’ 

Amazon’s CFO replied, 

‘‘You’re right that it’s early. The only thing I can say is that we collect sales 

tax or value-added tax on over 50 percent of our revenue today. We have very 

good businesses in those states and geographies where we do collect.’’ 13

182 

14 U.S. Census Bureau E-Stats, http://www.census.gov/econ/estats/2010/2010reportfinal.pdf 15 Id. 16 Eisenach & Litan, Uncollected Sales Taxes On Electronic Commerce: A Reality Check, 

Empiris LLC (Feb. 2010), available at http://bit.ly/EisenStudy 

This helps demonstrate our contention that American consumers go online seeking better selection, convenience, and lower prices—they don’t shop online to avoid 

paying sales taxes. 

Question 5. It has been stated that, without the interstate regulatory authority 

granted to states by the MFA, income and/or property taxes will likely be increased 

by states. Can you provide the Committee an idea of the aggregate amount of property tax exemptions received by retail establishments and commercial developers 

over the last decade and the related ‘‘lost’’ revenue to states and localities? 

Answer. It should first be noted that the amount of new tax revenue that would 

come from bills like the MFA is grossly over-stated. A simple calculation using government data shows that the maximum sales tax potential for consumer e-commerce 

is less than one percent of total state and local tax revenue: 

Start with the U.S. Department of Commerce’s 2010 Electronic Commerce Industry Assessment, which reported total retail e-commerce of $169 billion.14

Apply an average tax rate of 7 percent, giving total potential sales tax of $11.8 

billion. 

Divide that by total state and local tax revenue in 2010, reported as $1.3 trillion 

by the Commerce Department.15

The result is clear: the maximum potential sales tax on all e-commerce is less 

than one percent of state & local tax revenue—assuming that no sales taxes are collected by e-retailers. 

But under today’s Quill standard, e-retailers already collect sales tax for states 

where they have physical presence. NetChoice commissioned a study by economists 

Robert Litan and Jeffrey Eisenach to determine where e-retailers were already collecting sales tax for web sales. 

They concluded that uncollected sales tax on e-commerce in 2010 was $4.2 billion 

nationwide, or less than one-third of one percent of total state and local tax revenue.16 This relatively small incremental revenue does not justify a dramatic expansion of state taxing powers and new collection burdens on remote businesses. 

Second, as you correctly noted, state and local governments often provide incentives and benefits to in-state retailers, such as tax increment financing, transportation improvements, worker training subsidies, grants, tax credits, property and income tax incentives, etc. None of these benefits are available to out-of-state businesses. 

While we do not have specific data on the total ‘‘lost’’ revenue, we can provide the 

following examples of state benefits: 

• In January 2002, the State of Maine agreed to provide Wal-Mart with $16.7 

million in subsidies. In return, Wal-Mart decided to build a 480,000 square foot 

distribution center in Lewiston. 

• In 2003, Millerville, NJ agreed to provide Target with $1 million toward the 

costs of improving existing infrastructures for the under-developed area for a 

new Target store. 

• And most recently we have seen examples of tax forgiveness and deferrals of 

tax obligations given to Amazon for the construction and continued operation 

of distribution centers in Pennsylvania, Virginia, and Texas. 

Please note that NetChoice respects the rights of states to offer incentives to businesses as the states expect to gain new jobs and associated tax revenue. 

Nonetheless, when weighing benefits and burdens of Main Street versus the Internet, we ask Congress remember that brick-and-mortar stores enjoy significant service and tax benefits—benefits not available to out-of-state retailers. 

Æ