U.S. Senate Online Sales Tax Hearing Derails as Witnesses Show Collecting is Not Easy

August 01, 2012

Today’s U.S. Senate Commerce Committee hearing on online sales tax did not take the approach of last week’s House Judiciary Committee hearing on the same subject. In the House, the committee took the attitude that there’s a problem out there and some solution is necessary, but was open to the exact parameters of the solution. They took testimony from a number of different perspectives (including yours truly) and asked some thoughtful questions. The consensus was that the proposed bills need some work.

By contrast, at today’s Senate hearing, 6 of 7 invited witnesses support the Senate bill as it stands, without any changes. The one contrary witness, Steve Del Bianco of the NetChoice coalition, quickly fell into a David-and-Goliath role as senators like Sen. Dick Durbin (D-IL) attacked his statements without giving him any chance to respond.

The hearing derailed completely for the bill’s proponents, however, after the testimony of one of the witnesses, a bookstore owner in Austin, Texas. The bookseller collects sales tax on all of his sales all over the country, describing his sense of civic obligation to these jurisdictions all over America that enable a market for his goods. He noted that collecting and remitting all these sales taxes is neither burdensome nor complicated.

That’s noble of him, but it’s only easy because he's apparently doing it wrong. Del Bianco revealed during the hearing that he bought a book online from the witness bookseller to ship to Virginia, and he was charged the Austin, Texas sales tax rate of 8.25 percent rather than the Virginia sales tax rate of 5 percent. Presumably, the witness is not collecting the sales taxes of 9,600 jurisdictions across America, but just Austin’s. (Two weeks ago, we caught Maryland Gov. Martin O’Malley also quoting the wrong sales tax for Virginia, and he also relied on a sales tax lookup service. This is a tough one to get wrong: Virginia has a uniform statewide 5 percent sales tax and no local sales taxes.)

Proponents went into damage control, as everyone admitted that it wasn’t the case that sales tax lookup software is currently available, easy, and reliable. Scott Peterson of the Streamlined Sales Tax Board admitted that while the software doesn’t exist now, the bill will create demand for it. (Peterson now denies this.) Other witnesses said the bill would immunize the bookseller from legal action by the state (although it would not immunize him from class-action lawsuits by his probably overcharged customers).

Attendees thus walked out of the hearing with the knowledge that it’s not as simple as proponents say it is. Meaningful simplification is needed beyond what is present in the Senate bill. Despite the hearing being designed to cheerlead the bill as it presently is, it only showed that more work is needed to come up with a realistic solution.

A summary of our written testimony to the Senate is here.

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