GARY D. RAPPAPORT,
PRESIDENT AND CEO
THE RAPPAPORT COMPANIES
ON BEHALF OF
THE INTERNATIONAL COUNCIL OF
U.S. HOUSE JUDICIARY SUBCOMMITTEE
ON COMMERCIAL AND ADMINISTRATIVE LAW
JUNE 29, 2000
INTERNATIONAL COUNCIL OF SHOPPING CENTERS
1033 N. FAIRFAX STREET, SUITE 404
ALEXANDRIA, VA 22314
STATEMENT OF GARY D. RAPPAPORT
ON BEHALF OF THE
INTERNATIONAL COUNCIL OF SHOPPING CENTERS
Good morning. My name is Gary Rappaport, and I am President and Chief Executive Officer of the Rappaport Companies, a retail development and management company that I started in 1983. My company oversees 21 shopping centers with a combined gross leasable area of over 3 million square feet throughout the mid-Atlantic region, including North Carolina, Virginia, Maryland and the District of Columbia. I am here on behalf of the International Council of Shopping Centers, of which I am Eastern Divisional Vice President and a member of the Board of Trustees.
ICSC is the global trade association of the shopping center industry. Its 40,000 members in the United States, Canada and more than 70 other countries around the world include shopping center owners, developers, managers, investors, lenders, retailers and other professionals. The shopping center industry contributes significantly to the U.S. economy. In 1999, shopping centers in the U.S. generated over $1.2 trillion in retail sales and over $47 billion in state sales tax revenue, and employed over 11 million people.
I appreciate this opportunity you have given me to present my views, and those of ICSC, on the need to apply existing state sales and use taxes to electronic commerce.
Simply stated, we believe that all goods, regardless if they are purchased over the Internet, via catalog or in traditional retail stores, should be subject to the same state and local tax collection requirements. One form of commerce should not receive preferential tax treatment over another. Unfortunately, existing tax law is structured to favor electronic commerce over sales made in local retail stores.
Contrary to popular belief, it is not the existing moratorium on Internet taxes that precludes states from requiring out-of-state retailers to collect sales and use taxes on their behalf. Instead, it is a 1992 Supreme Court case, Quill v. North Dakota, that held that remote merchants are not required to collect sales and use taxes for states in which they do not have a substantial physical presence or “nexus”. The moratorium – which expires in October 2001 – applies only to access charges and new, multiple and discriminatory taxes on electronic commerce.
We do not support the enactment or implementation of Internet access charges, or new, multiple or discriminatory taxes on electronic commerce. Instead, we believe that existing sales and use taxes should be collected uniformly on all types of retail sales. The taxes which states should be able to require remote sellers to collect are not new taxes. Instead, they are existing use taxes which buyers are currently obligated to remit to their state and local governments. However, as a practical matter, most individuals are either unaware of their tax obligations, or simply do not bother to comply.
We support electronic commerce and believe it should be fostered. In fact, many traditional brick-and-mortar retailers are incorporating Internet commerce into their businesses in order to obtain new customers and better serve existing ones. However, as a matter of fairness and sound tax policy, Internet-based retailers should not receive a competitive advantage over traditional brick-and-mortar merchants simply because electronic commerce is a new and growing form of transacting business.
The inequitable situation that traditional retailers find themselves in is very clear to most Americans. In fact, earlier this month, ICSC commissioned Wirthlin Worldwide to survey Americans on this issue and found that two-thirds of them believe it is unfair to require brick-and-mortar retailers to collect state and local sales tax without requiring Internet-based retailers to do the same.
The reality is, as more and more Americans go online to purchase goods, the competitive tax advantage that Internet-based retailers enjoy will negatively affect many local retailers, shopping centers (including my own) and their communities in the near future. Not only will traditional retailers sell fewer goods, but their employees will suffer from reduced working hours, wages or layoffs.
In addition, state and local governments could experience a decrease in sales tax revenues that provide essential public services such as education, police and fire protection, and road repairs. Governments that rely heavily on sales tax revenues to fund key programs could potentially face severe budget shortfalls. When Wirthlin Worldwide surveyed Americans about this scenario, they found that a majority (55%) believe that reduced sales tax revenues would cause state and local governments to either raise other taxes, such as property taxes, or cut state and local programs.
Furthermore, if governments decide to increase sales tax rates to make up for lost revenues, lower-income individuals would be particularly vulnerable to paying a higher share of their income on sales taxes since they are less likely to own computers and purchase products on-line. The survey found that Americans overwhelmingly agree (62%) that this situation would be unfair.
Our critics assert that electronic commerce is a new and growing industry and, therefore, should not be saddled with “old world” sales tax collection requirements. They say we should not kill the goose that lays the golden egg. Our response is that, while electronic commerce is a growing and important part of our economy, subjecting it to the same sales tax collection requirements that traditional merchants have been subject to for decades would not harm its growth or vitality. Electronic commerce will continue to flourish, regardless of whether or not sales and use taxes are imposed on it.
These critics also claim that forcing Internet retailers to collect sales and use taxes for the thousands of state and local taxing jurisdictions across the country would be too burdensome on electronic commerce and cannot be done. We agree that all businesses, especially small businesses, should not be overburdened by sales tax collection requirements and that state and local governments should work to simplify their sales tax systems. However, relatively inexpensive software exists today that can assist electronic retailers in determining how much sales and use tax needs to be collected on their out-of-state sales.
That is why we applaud legislation such as the Fair and Equitable Interstate Tax Compact Simplification Act of 2000 introduced by Representatives Spencer Bachus, William Delahunt, Ernest Istook and Karen McCarthy and the Internet Tax Simplification Act of 2000 introduced by Representatives Henry Hyde, George Gekas, John Conyers and Jerrold Nadler. In addition to providing for a short-term extension of the moratorium, these bills would give those states that simplify their sales and use tax systems the authority to require remote sellers to collect and remit use taxes.
In closing, I would like to point out that the U.S. Supreme Court has recognized Congress’ authority to enact legislation that would allow state and local governments to require out-of-state retailers to collect sales and use taxes. Therefore, ICSC urges Congress to enact legislation that would level the playing field among Internet-based and traditional retailers.
Thank you for this opportunity to express our views on this very important matter. I would be glad to answer any questions you may have.
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