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Senate Considers Allowing State Taxation of Online Sales

2 min readBy: Joseph Bishop-Henchman

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" 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, 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 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. 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 auditA tax audit is when the Internal Revenue Service (IRS) conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return. s 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.