Congress Must Level the Sales Tax Playing Field for Small Businesses
Washington, DC, November 30, 2011
Today, the House Judiciary Committee held a hearing on “Constitutional Limitations on States’ Authority to Collect Sales Taxes.” In the 1992 Quill Decision, the Supreme Court struck down a North Dakota law that required an out-of-state business to remit sales taxes on in-state customers because the business in question did not have a substantial enough presence in the state. However in the opinion, the Justices specifically stated that Congress is in a better position to resolve the issue and possessed the Constitutional authority to do so.
Since the Quill Decision, there has been tremendous growth in online commerce. The number and diversity of goods purchased from large online retailers with little physical presence in the buyer’s state has dramatically increased. The result is online retailers have an unfair advantage over local and small business who are required to collect sales taxes. Today’s hearing explores the need for legislation to level the playing field between small businesses and online retailers.
“Main Street retailers, local mom-and-pop stores, and even big-box retailers suffer when they have to collect a sales tax but online retailers do not,” Conyers said. “And fewer purchases at local retailers means less local jobs. Lower sales at local retailers also translate to lower revenue for local and state governments as sales taxes constitute a significant revenue source.
“With ever increasing online sales, states and local governments anticipate huge revenue losses as a result of uncollected sales and use taxes. The state of Michigan, for instance, estimates that it lost around $368 million during fiscal year 2010 and that it will lose more than $450 million in fiscal year 2013. The impact of such lost revenue is reflected in school programs and extracurricular activities being slashed, roads and bridges remaining in disrepair, and reduced services, such as police and firefighter protection. For these reasons, several of my colleagues and I introduced H.R. 2701, the ‘Main Street Fairness Act.’
“This bill would grant the consent of Congress to the Streamlined Sales and Use Tax Agreement, which was drafted by local and state governments and the business community to simplify sales tax rules and administrative requirements. The Agreement makes it much easier for businesses to collect sales taxes across state lines. Already, 24 states have changed their laws to comply with the Agreement. “The bill also protects small businesses by including an exemption for small businesses from having to collect sales taxes.
“This is commonsense legislation that would simplify collection rules and increase compliance. In addition, it would ensure fairness for small businesses and provide a national solution that would apply to all sellers, regardless of their business model or location. And, it will not lead to any new taxes.”