Senate Considers Allowing State Taxation of Online Sales

August 01, 2012

This afternoon, we're submitting written testimony to a U.S. Senate hearing on state sales taxation of online purchases (PDF). It's an issue we've been active on for quite some time, explaining to policymakers and reporters all the moving parts and sometimes-confusing terms (SSTP, "Amazon" taxes, nexus, sourcing, and so forth). In fact, I testified on the same topic to the U.S. House Judiciary Committee last week.

Put simply, states have never been allowed to impose their sales tax on out-of-state companies because their state tax systems have always stopped at their borders. The growth of interstate commerce, particularly the recent growth of internet commerce, has created pressure on this status quo. Brick-and-mortar retailers rightfully point out a neutrality problem: they collect tax on their sales, while their online competitors often do not.

But the other extreme -- letting states foist their 9,600 sales tax jurisdictions, often with different rates and bases and definitions and categories and audits and rules -- on anyone in the world who sells into the state, would gravely threaten the national economy.

Therefore, our work on this subject in general, and today's testimony in particular, seeks to be constructive in finding a workable solution. We've emphasized that any congressional action to expand state tax authority must come with concrete, meaningful, enforceable sales tax simplification. While some of the bills before Congress do some simplification, it's not yet at the level required to protect interstate commerce from the dangers of aggressive state tax overreaching.

Below is our comparison of the three main bills currently before Congress. And here's a link to our testimony. (You can also download it as a PDF.) This is an issue that divides Democrats from Democrats, Republicans from Republicans, and businesses from other businesses. (That reminds me, I must give kudos to some of the legislators at last week's House hearing who offered thoughtful and constructive comments on the issue, including Reps. Lamar Smith (R-TX), Elton Gallegy (R-CA), Bob Goodlatte (R-VA), Bobby Scott (D-VA), Zoe Lofgren (D-CA), Sheila Jackson-Lee (D-TX), Steve Cohen (D-TN), Hank Johnson (D-GA), and Jared Polis (D-CO).) I'm hopeful a good solution for taxpayers will come out of it, and we're engaged to make sure that nothing less happens.

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