Frank Julian, chairman of the Direct Marketing Association's Sales and Use Tax Steering Committee, urged the Senate Commerce Committee last week not to levy additional tax burdens on remote sales.
The hearing, presided over by Sen. John McCain, R-AZ, was called to hear testimony on whether Congress should allow states to require all remote sellers to collect and remit sales taxes on deliveries to that state, provided that states and localities significantly simplify their sales and use tax systems.
Julian, who is also operating vice president and tax counsel at Federated Department Stores Inc., Cincinnati, said the new taxation would put another brake on an already slowing economy.
“It would place intolerable burdens on interstate commerce if new tax regulations mandate merchants to collect remote sales taxes, which are taxes in states where retailers do not have a physical presence, or nexus,” Julian said.
“Remote sellers, such as Internet-based companies and catalogers, do not enjoy the benefits of local taxation, such as fire and police protection and schools,” he said. “As a result, they should only be required to pay remote taxes, if they are mandated, after there is substantial simplification of the more than 7,600 tax codes in the U.S.”
Julian also voiced his support last month for S. 288, the Internet Tax Nondiscrimination Act, which was introduced by Sens. Ron Wyden, D-OR, and Patrick Leahy, D-VT.
The legislation would extend the moratorium on new Internet taxes for five years and would make the ban on Internet access taxes permanent. The moratorium on new Internet taxes is scheduled to expire in October.
Additional provisions in the Senate version of the bill would help states and localities streamline tax collection to avoid burdening the e-commerce sector, the lawmakers said.
The legislation also would create a set of tax simplification criteria that state and local authorities could use to implement less burdensome tax collection systems for remote sales such as Internet and catalog transactions. Once a sufficient number of states have simplified collection, Congress would work on an expedited basis to codify the new system.
“Unless Congress substantially simplifies the myriad of confusing and inconsistent sales tax regimes, growth in the borderless marketplace will be thwarted,” Julian said.
He told the committee that the number of taxing jurisdictions has tripled since 1967.
“This proliferation of taxing jurisdictions is symbolic of the ever-increasing complexity of the existing sales and use tax systems,” he said.
On behalf of the DMA, Julian urged the senators to:
• Establish one sales tax rate for all commerce — remote and over the counter.
• Provide a reasonable collection allowance to compensate all sellers (remote and over the counter) for the cost they incur in collecting sales and use tax.
• Enact nexus standards for business activity taxes, thus eliminating uncertainty and the potential for double taxation.
• Place a permanent moratorium on Internet access fees.
• Extend the application of traditional tax rules to remote commerce, thus preventing multiple and discriminatory taxes.
Julian said many states have made strides in simplifying their sales tax systems. But some proposed simplification efforts do not go far enough, he said.
Many state tax administrators have been working since March 2000 on the Streamlined Sales Tax Project, which is designed to develop a simplified tax system, Julian said. He applauded those efforts but said they are inadequate, since the project's proposal fails to include one tax rate per state, business activity tax nexus standards and simple definitions for items such as clothing.
For example, a pair of sneakers might be considered sportswear — and thereby taxable — in one state, while they may be considered clothing and nontaxable in another state. To compound the problem, each state and thousands of substate jurisdictions have varying tax rates.
“The sales and use tax laws must be substantially simplified and made more uniform,” Julian said. “The sales tax system developed by the SSTP falls into the category of 'simplification light.' While it alleviates some burdens on sellers, it would nonetheless result in undue burdens on interstate commerce if all sellers were required to collect in every state under this system. It also relies too heavily on software that does not yet exist.”
Meanwhile, DMA president/CEO H. Robert Wientzen told the organization's members in a letter that President Bush seems to favor a moratorium rather than a permanent ban on Internet tax.
Wientzen said Bush “is close to the governors and is likely to support their effort to achieve a 'level playing field' for on- and offline at-distance sales transactions. We believe the bricks-and-mortar folks have achieved a fair amount of support in Washington and that many legislators are buying into their plea to keep them from being disadvantaged by an 'unfair' sales tax program.”