Derived from the transcript of a Tax Analysts conference entitled, “State TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es on Internet Sales: Are ‘Amazon’ Taxes The Answer?.”
Participants cited below include Michael Mazerov from the Center on Budget and Policy Priorities (CBPP) and Scott Peterson from the Streamlined Sales TaxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. Governing Board.
MR. HENCHMAN: Joe Henchman from the Tax Foundation. I’d like to predictably ask a tough question for Mr. Mazerov.
We submitted a brief in the Amazon case—you can look at it on our website—where we go into the Scripto-Tyler Pipe analysis where, our view, of course is that what’s going on in Amazon goes far beyond Scripto-Tyler Pipe, which themselves are the furthest extension of nexus, as the Court called it. That’s sort of the legal thing we haven’t really touched on too much here. But there’s that argument going on, of course.
As far as the policy goes, I was wondering what the panelists and Mr. Mazerov especially think about implying or supposing that this is a way to solve short-term state budget problems. I think George mentioned in his opening remarks that these bills are introduced because states think that it’s a way to solve their short-term budget problem. But I think there’s been sort of a consensus from the panelists that, if anything, this is just going to be lots of litigation. And if they ever see money it’s not going to be seen recently.
I’m sure Mr. Mazerov doesn’t have nice things to say about Amazon and the related companies pulling out of Rhode Island and North Carolina, but, I mean, that’s what’s going to happen. I think it’s good — important that we be truthful to state legislatures and say Amazon taxes are not the way to solve this year’s budget problem. But I’m curious to hear what the panelists have to say on that.
MR. MAZEROV: Well, of course, I mean, I don’t — Michael Mazerov — I don’t, you know, I would never say that they’re a solution to state budget problems. The question is can they potentially raise any additional revenue toward state budget problems. And the answer may very well be in the short term, no, they won’t. I mean, I think — I mean, I think of New York, you know, if New York wins the case at the Appeals Court level I think additional states are likely to adopt it. And I think we would be emboldened to adopt these laws. And I think if a sufficiently large number of states adopt the laws and hang together that, you know, I think there’s a reasonable prospect that the companies that are basically choosing to play hardball and basically treat their, you know, in-state affiliates as pawns in this conflict, you know, we’ll begin to start collecting. I mean, this is a major marketing venue for many, many of these companies.
I mean, over 200 of the 250 largest Internet retailers have affiliate programs. You know, my paper cites quotation from Amazon saying that, you know, they pay hundreds of millions of dollars a year in affiliate commissions. And their 10K said that their worldwide marketing expenses were about half a billion dollars. So these programs are a major form of marketing. If the states hung together and a lot of states adopted this — these laws — I think there is potential for them to raise additional revenue.
But, you know, and if they don’t, I mean, if, you know, if companies continue to pull out their affiliate programs, you know, the affiliates themselves have the option to join affiliate programs of other companies that are selling the exact same items that are collecting tax in the states. If they’re doing less affiliate marketing, you know, some of those sales, they’re going to lose some market share. That market share is going to shift back to companies that are collecting tax or perhaps even to local businesses that are collecting tax. So, you know, this is, you know, as I said this is fundamentally about moving, you know, trying to solve this problem and chip away at this problem.
And, you know, clearly, you know, a small state like Rhode Island can, you know, this was a godsend to Amazon that Rhode Island enacted this. But if a number of other large states had, you know, I think there’s a reasonable prospect that in the long run these companies will start collecting.
MR. PETERSON: […] I’m not as pessimistic as some are about the likelihood of [the Streamlined Sales Tax implementing legislation] getting done. There’s no chance this will ever be introduced and go through the committee process and come out and be a standalone piece of legislation. That’s just not the way — first of all, that’s not the way Congress does business.
But second, it does. I mean, if this were a piece of standalone legislation that got introduced and went through the committee process and got to the President’s desk, I’d be dumbfounded because it would attract the exact same kind of debate that Michael very well — described very well. But, no, our discussions with members of Congress are we know states are hurting. We know that this is not the right way of enacting and administering a tax law. And that there needs to be a federal solution. And we get that from — we get that from members of both political parties. And from the left and the right on both political parties. This isn’t — this is not a Republican and Democrat issue. This is an antitax versus responsible — and I’ll be blunt — anti-tax versus responsible government issue. And the overwhelming majority of the people in this country are responsible people. The overwhelming majority of state legislators and members of Congress are responsible people regardless of their political party.
So, yes, we are very optimistic. For us it’s a function of timing. 2009 would have been a lot better. 2010, our window for getting things done before things become strictly politics is very quickly evaporating. But, no, we get very positive responses from members of both political parties. Frankly, I’d be more concerned about those who think that the sales taxes are regressive and aren’t going to do anything to help you have a regressive sales tax. That group has bothered me a lot more than the anti-tax people because the anti-tax people have to get in their car and drive somewhere. And eventually they’ve got to accept the fact that they’re driving on something that’s paid for by taxes.
MR. HENCHMAN: Joe Henchman, Tax Foundation. I don’t want some of the comments that were just made to go unchallenged. That’s why I’m just going to throw something out here.
Mr. Mazerov, and to some extent, Mr. Peterson, characterized it as an anti-tax versus responsible government, sort of angels versus demons argument of, if everybody was just rational we would all do this. But, you know, we’ve got these crazy, anti-tax people out there that are stopping it. I mean, there’s a — I favor responsible taxation to pay for the services society needs, but in a way that doesn’t impose unnecessary costs on society. And I think that’s sort of the economic perspective on it and that’s why I think these Amazon taxes are a bad idea and why I think a lot of sales taxation needs a lot of reform.
You know, I’ve been kind of mixed on the SSTP. I think you guys have done wonderful stuff on uniformity. I’m more sympathetic to sort of George’s arguments on the simplicity side of things, but, I mean, who could really oppose uniformity. But that’s the real problem here. It’s not so much that people just don’t want to pay taxes, it’s that we have offered them a system that is so complicated and so terrible that it’s easier to opt out of it and get away — to just leave it and find something else. So the solution is uniformity and simplicity, which are the mantras of the SSTP.
But I don’t want it to go unchallenged, this notion that it’s just people who favor responsible government versus these people that don’t want to pay for the services they use because I think that’s a mischaracterization and I think it leads to — I mean, it doesn’t lead to honest debate between two sensible, intellectual points of view.Share