DMA Cautions Senators on Sales Tax

The Direct Marketing Association argued in a U.S. Senate subcommittee hearing July 25 against a bill making the Streamlined Sales and Use Tax Agreement mandatory.

Created by the Streamlined Sales Tax Project, the SSUTA took effect Oct. 1, letting remote sellers selling to people or businesses in member states voluntarily collect taxes on sales that occur via the Internet, telephone or catalog. For the agreement to take effect, 10 states representing 20 percent of the population of states with sales taxes needed to enact legislation. So far, 19 states have done this, and 350 businesses have voluntarily agreed to begin collecting sales tax.

S. 2152 and S. 2153, introduced Dec. 20 by Sens. Michael Enzi, R-WY, and Byron Dorgan, D-ND, respectively, would let states that become voluntary members of the SSUTA require remote sellers to collect and remit sales and use tax. The bills were referred to the Finance Committee.

The two senators are longtime supporters of mandatory sales tax collection. Sen. Enzi’s bill releases companies with sales of less than $5 million a year from collecting the tax. Sen. Dorgan’s bill instead asks the Small Business Administration to initiate a rulemaking as to the dollar amount for the exemption.

Testifying before the Finance Committee’s subcommittee on international trade, DMA tax counsel George S. Isaacson said that “taxation without borders results in cost, complexity, confusion and conflicts.” He argued that the SSUTA conflicts with constitutional provisions to prevent state and local tax laws from hindering interstate commerce.

Mr. Isaacson criticized the SSUTA as failing to simplify the complex system that governs the collection of state and local sales taxes.

“There are literally thousands of different sales and use tax jurisdictions in the United States,” he said. “Of the 30,000 state and local jurisdictions with authority to impose sales and use taxes, more than 7,500 have adopted this kind of tax, and the number grows every year. These thousands of different jurisdictions generate an enormous variety of tax rates, taxable and exempt products, excluded transactions, filing requirements, audit arrangements and appeal procedures.”

The DMA long has held that the SSUTA creates a barrier to entry for small entrepreneurs and a barrier to growth for midsize businesses seeking to expand a customer base.

During the hearing, Gary Imig of Sierra Trading Post, a DMA member company, testified that online selling “allows somebody with a bright idea and very little money to get in the game.” He warned that “significant additional financial and governmental red tape and roadblocks will dampen this entrepreneurial engine.”

Sen. Enzi called for swift passage of his bill, saying his Sales Tax Fairness and Simplification Act would treat all retailers in a similar fashion so each has the same collection responsibility. By addressing this collection inequity, he said, “the bill will also help states ensure the viability of the sales tax as a major revenue source for state budgets by closing a growing loophole that encourages tax avoidance. It will help both consumers and states by reducing the burden on consumers and providing a mechanism that will allow states to systematically and fairly collect the taxes already owed to them.”

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