Skip to main content

tv   Hearing on Online Sales Tax  CSPAN  August 10, 2022 2:00am-3:39am EDT

2:00 am
coming up on c-span. next, senate finance committee members examine the challenges of business is collecting sales tax for out-of-state purchases. then an update on the spread of monkeypox and vaccination efforts. and the homeland security director and other leaders of national law enforcement agencies address the rise in violent crime across the u.s. also, a conversation on u.s. military relations and the economy in the indo pacific.
2:01 am
>> small businesses are also dealing with the impact of 2018's supreme court ruling, in this case south dakota versus wayfarer. in the wayfarer decision, the courts gave the greenlight to small businesses becoming tax collectors when they sell online. collecting taxes for state's
2:02 am
even where businesses had no brick-and-mortar presence. small businesses had never been responsible for this kind of tax collection before. almost immediately after the ruling came out, state states across the country became -- began passing these laws. speaking out alongside them were those in new hampshire, montana, also states without sales tax. that is why montana senator has been a leader on this issue. but it's not just the burden of states without sales taxes. it's a burden for small businesses everywhere. let me repeat that. it is a burden for small businesses everywhere. sales taxes in america are very complicated. 45 states and different
2:03 am
localities have different tax rates, different tax definitions for taxable product. in illinois you will pay sales tax on a twix bar, but not on a snickers. if you take up sewing in new jersey, you will not be able to do your sewing without confusion, yarn purchased for our projects gets taxed, but yarn for sweaters is tax-free. after the wayfarer decision, small businesses are on the hook for navigating that complex task. my view is, as long as the wayfarer ruling stands, congress often -- congress should step in and get relief to these small businesses that are really hurting.
2:04 am
that would start with exempting small businesses that have revenue under a certain threshold. congress ought to create standardized rules for states outside of their borders. that is what we thought to accomplish when we introduced the online sales complicity and sales act. my belief is that we will see increasing numbers of organ small businesses --oregon small business is taxed over liabilities that they cannot dispute. oregon and other states will not be particularly interested in helping our residents move forward. our point is that small
2:05 am
businesses have plenty of challenges today just keeping their doors open. they should not have to spend on sales tax consultants and software. this is an opportunity for us to lower the cost of small business and reduce their headaches. again, i want to thank the senator for her leadership, she has discussed this issue with me many times. i want to thank the witnesses for joining the committee today. >> thank you mr. chairman, welcome to our witnesses, thank you for being here today. the supreme court's 2018 wayfarer decision significantly changed the landscape first dates and online businesses. post wayfarer, states can require online sellers to collect and remit sales taxes from sales tax states.
2:06 am
it creates challenges for public and private sectors to evolve with commerce. the share of commerce conducted online has increased due to tackle no logical -- technological innovation. covid-19 and the pandemic have fueled this increase. buyers are no longer limited to brick-and-mortar retailers in their physician 80. -- in their vicinity. as wayfarer acknowledged, it put small business at risk for collecting sales tax. state governments were losing out on billions of sales tax revenue as a result of online sales in the pre-wayfarer environment. many states and municipalities rely on sales tax revenues to
2:07 am
fund essential services. in fact, 45 states and the district of columbia impose taxes on remote sales that -- and 32 states, the sales taxes account for more than 1/5 of total state and local tax collection. in 11 states, general sales taxes account for one third of total tax collection. by allowing to -- notably it does not result in the sales tax being imposed on residents of non-sales tax state. however, in light of states expanded rights and sellers rights to new access. small businesses in particular face new responsibilities and challenges. the difference hundreds of threshold between states and
2:08 am
localities can create a burdensome and complex system that can make business difficult for small businesses. sellers must now learn to comply with the myriad of checks -- tax jurisdictions where there consumers reside, or higher tax consultants. this can be time-consuming and expensive for small businesses who do not collect sales taxes but must remit sales taxes to other state. with the attempt to ease these burdens, a comprehensive solution to this problem remains evasive. the right of states to levy taxes and to empowerment into polities to do the same is well-founded founded on the principle of sin eight sovereignty. on the other hand -- on the principle of state sovereignty.
2:09 am
on the other hand, there must be a balance struck between states collecting sales tax due and ensuring that business activity is not stifled, particularly as the risk of recession rises. they should be able to collect taxes due, and remit them to relevant authority with minimal headaches. more consistent thresholds and standards would allow businesses to more efficiently comply, and reduce the risk of future audits and penalties. our the post wayfarer landscape. i look forward to hearing how congress could play a role in creating a less burdensome
2:10 am
approach. thank you. >> thank you thank you senator. he first joined jal in 1990 one and we have appreciated working with him in the past, the second witness is -- thank you ranking member crapo for holding the hearing today. and i'd like to thank you for being here to testify. this is the ceo of littleton coin company. they are a retailer of
2:11 am
collectible coins that sells in all 50 states. the company employs 270 five people in the community and is one hundred percent employee owned to a employee stock ownership plan. john has been with the company for 15 years and as we will seen -- as we will see from his testimony he has seen a significant burden that states have imposed on small businesses along the wayfarer decision. i look forward to hearing from you today. >> thank you. i would like to recognize the senator to introduce her. >> thank you. it is my distinct honor to introduce a shell who is the founder and ceo of compression leg were -- leg where -- vim and vigor compression leg where.
2:12 am
they sold 750,000 pairs of compression socks locally. she is currently working on in -- on a venture called shop.. she earned a ba from the university of chicago economics and mba from the northwestern school of management. we are proud to have you here. thank you for being here. we all look forward to your testimony. >> thank you senator. our fourth witness, mr. johnson has been an executive due to rector streamlining sales, -- an executive director streamlining sales. mr. johnson has been involved with the streamlined sales tax project since 2006. our sixth witness is the
2:13 am
president of sales tax consultant and technology firm. she is also the founder of a sales tax institute which allows -- which provides classes for small businesses to comply with sales tax. she was a professional with quaker johnson -- with quaker oats, johnson & johnson, we are very glad you are here. mr. mckee, it is your turn to start us off. i would like each witness to take five minutes or so, we will put their remarks in their entirety and are congressional transcript. go ahead. >> thank you for the opportunity to discuss the work on remote sales tax collection, including states and business experiences. sales tax are important to our
2:14 am
states it accounting for one third of all sales tax -- on all collected red new. -- tax revenue. states move quickly to put in legal requirements for remote sellers. our current work has determined that 45 states have required collecting sales tax based on -- whether local taxes apply. what these variant d sheet -- these variations add to the burner for businesses. for example, the collection and remit in -- the collection and remit requirements vary
2:15 am
significantly. more than a dozen states have root -- have adopted requirements in the months leading up to this supreme court decision, these laws went in effect immediately or soon after. another factor that businesses still need to contend with, there are thresholds that exempt many businesses from remote sales tax requirements. there are also types of sales that are in -- local sales tax creates another lay -- another layer of complexity. while alaska does not have a statewide sales tax, it has local taxes. in some states, only certain jurisdictions may impose a sales tax, while in others, a broad range of jurisdiction such as counties, municipalities, and
2:16 am
various local authorities can impose a sales tax. it is estimated that 30,000 jurisdictions have the authority to impose sales taxes and between 10 and 12,000 actually do so. in 2017, we estimated that if given expanded authority, states could give an average of 200 million dollars in revenue with larger states giving more than $1 billion annually. this spring, sales tax states were surveyed in the district of columbia. 30 states reported remote sales tax collections totaling about $20 billion for -- representing about 41% of collections under the new laws. in our prior work, we have
2:17 am
identified three areas of costs that businesses encounter related to sales tax collection. software caused, audit costs, and costs associated with research and liability. in our ongoing work, businesses confirmed that they encounter cost and all of these areas, including software related costs. purchasing software is required in navigating the complexities of local sales tax collection. businesses must apply tax rates, collect taxes and send certificates. regarding the second category, audit and assessment costs. businesses confirmed that state-level audits are taking place at that they have spent substantial resources responding to these audits.
2:18 am
as we heard in our earlier work, there are many enforcement tools such as compliance and informational questionnaires that create burden for businesses is for those selling to multiple states. lastly, regarding the third caret -- root guarding the third category, -- still exposed to risks including liability. today's remote sales talks laws have resulted in more revenue to local galleys -- to low cloud he dashed to localities at the expense of small businesses. this concludes my prepared statement and i look forward to answering any questions that the committee may have. >> good evening. >> a second witness will be mr.
2:19 am
hennessey, excuse me. >> ranking member crapo, and members of the committee, thank you for the opportunity to speak with you about this matter that's very important to small businesses. we bring the joy of coin collecting to his many americans as possible. we serve collectors in all 50 states by mail order directly to their homes from our single physical location in new hampshire. prior to the wayfarer ruling we had never been subject to the collecting of state and local sales taxes. it created a situation where we are tax collector to many jurisdictions with no way to calculate the tax rate, force is to be -- to become compliant ourselves. we hired outside tax experts. paid third-party software developers. and rewrote our computer
2:20 am
systems. we became compliant to the best of each of our interpretation in january 1 20 19. even after getting up and running we spent 50,000 -- $50,000 per year on legal advice, software, and our own customer service ip time to remain in compliance. some taxes we pay out of our own pocket totaling 40,000 dollars per year in total we have paid half $1 million in companies funds since 2018 to comply with the wayfarer ruling. we regularly file k paxson
2:21 am
opec's to -- while we've purchased and customized the commercial software package to assist us, the sheer complexity is a risk to our business. just last month, routine software update caused an error caused -- causing a problem that we owed to states and could not collect from customers. just last month, we experience what we believe is the tip of the iceberg of states reaching beyond sales taxes to an unlimited number of new taxes and fees. the state of california sent us notice to pay income tax for doing business in california despite having no cash we must now incur legal fees to defend
2:22 am
ourselves. if we are forced to go to court, legal fees would exceed $100,000. there is now a retail sale fee to -- we must read write our --rewrite our computer systems to comply. regarding retroactive taxation, we have received notices for payments as far back as 2018. because we are unable to collect taxes for that time, we are forced to pay the taxes ourselves. we have settled with three states, totaling 100 $40,000. regarding state and local audits, going forward we are subject to 45 state audits and
2:23 am
countless local audits. each will take time to support our compliance. if there is a question as to whether we have interpreted correctly, we may be half to 4 -- we may be forced to foot the bill ourselves. the landscaper remote sellers continues to be burdensome. the supreme court left the door open for congress to act, we need congress to level the playing field to help small businesses while continuing to operate and grow our businesses. we need to create a bipartisan solution to this as quickly as possible. thank you for the opportunity to testify today, i look forward to responding any questions you may have. >> thank you for the opportunity to share my experience in trying to meet sales tax compliance.
2:24 am
i was determined to solve a problem and bring everyday wellness to more people. a few years after launching my company i quit my corporate job and what 100% into growing bigger. any business owner can tell you that the journey to entrepreneurship is not linear. it is full of ups but more downs. with covid, supply chain and managing cash flow, over the past four years trying to understand and comply with sales-tax regulation area i became aware of the south dakota wayfarer case from my accountant. i immediately understood the impact it would have on my business and thousands of e-commerce sellers. though i live in it state with no sales tax, most my revenue comes from montana. i needed to understand how to comply with these regulations. the more i learned, the less i
2:25 am
knew and the more complicated it became. there are many challenges that make collecting and remitting sales-tax difficult. the criteria range from revenue, transaction volume, physical volume, how a product is used, what makes it even more complicated is that even -- all states have varying sales tax rates. and they have hundreds per jurisdiction. you can understand this became overwhelming. i didn't start my business to collect sales tax, but i wanted to be compliant. they determined i was at next is for 22 states, which was a surprise because most of my revenue came from wholesale and resellers. e-commerce only countered -- e-commerce only accounted for 30% of my business.
2:26 am
administrative costs and time continued. i had to register with the department of revenue for each of those states. i had to collect sales tax from customers purchasing products in those estate. -- purchasing products in those states. in total, i have spent close to $50,000 in out-of-pocket costs in order to comply with tax legislation. i know many e-commerce sellers, we want to be compliant and pay our taxes accordingly. the current conditions make it excessively complicated and add many costs and fears that we are doing something incorrectly. i have known businesses that closed because the complexities and costs were too much for many business odors -- business owners. this shift to online commerce does not work for existing
2:27 am
regulations. there are a few things that could make it easier for e-commerce sellers. a uniformity around criteria, this would make things more transparent for businesses. the second is for states to provide one sales-tax for e-commerce sales area this would make calculating sales-tax amounts much easier and could help reduce reliance on expensive technology, one seller recently allowed sellers to calculate one sales-tax rate for the remit amount. you may hear people say that there are technology platforms that help with these -- with this, that's a costly band-aid for an issue that will continue to grow. they help but they cause -- they cost tens of thousands of
2:28 am
dollars. shopping behaviors have changed behavior -- shopping behaviors have changed forever. here is a reality, e-commerce is a $1 trillion industry growing at around 16% annually. complexities around sales-tax limit e-commerce owners. this is a time to simplify the sales tax process. this would help create dollars that could be reinvested in people and their businesses. if you would like more, please reach out. i am also available to collaborate in any way possible. chair wyden: thank you. mr. craig johnson. >> thank you for the opportunity
2:29 am
to testify today regarding the south dakota versus wayfarer decision and allowing me to share what our member states have done to make implementation of the decision easier for remote sellers nationwide. i am executive director of the streamlined sales tax governing board, referred to as sst, make out -- made up of 24 states committed two simplification and uniformity. sst represents a collaboration between states, local governments and the business community to simplify taxes and level the playing field for sellers. the result is a streamlined sales and use tax agreement, a voluntary agreement that represents a blueprint for allstate to reduce the burden of tax compliance. in 2016, south dakota enacted legislation to require remote sellers who engaged in 200 or more transactions or who had one
2:30 am
of the thousand dollars revenue in a calendar year, to collect and remit tax. the wayfarer decision determined remote sellers who exceeded south dakota thresholds had substantial nexus in the state. all the sst states have adopted similar economic thresholds. the wayfarer decision brought about significant changes for remote sellers nationwide, so we worked was just them in complying with their collection and remittance obligations. we are committed to continuing to work with business community to resolve issues that may arise. the supreme court determined three features of south dakota law which appeared designed to prevent discrimination or undue burdens against interstate commerce, unquote. it was a safe harbor to protect businesses with limited liability in south dakota pin second, the law could not be
2:31 am
applied retroactively and third, south dakota adopted streamlined sales tax and use agreement. all sst member states voluntarily enacted the provisions contained in the agreement. the supreme court though also recognized in the wayfarer decision some key provisions from the agreement including a single, state level administration of state taxes imposed. second, uniform definitions of products and services and third, simplified tax fractures. among other things, ss t -- sst states offer a free online registration system any seller can use to register in any member state. tax matrices that indicate what is taxable or exempt in each state. and uniform exemption rules. the court recognized sst service providers that allows remote sellers to reduce their compliance burdens by outsourcing sales and use tax
2:32 am
collection and remittance obligations. operating successfully in sst states and based on contracts sst has with each csp, the csp program covers the software and services necessary to integrate the csp tax engine with the seller system, calculate the tax due, file each state return, make necessary remittances and handle notices or audits conducted by the state. csp's are compensated by sst states, not remote sellers, for providing these services to remote sellers. over 18,000 sellers are currently registered through sst. this number continues to increase by 150-300 sellers every month. sst's success though is more about the number of those registered in the tax dollars
2:33 am
collected, it is about making tax simpler and more uniform throughout the u.s., it is about providing guidance to remote sellers so they can comply. sst states developed materials to make sst members aware up and remove the tax burden in number states. i encourage you to visit our website. the sst states want sellers to be successful and are committed to making their state sales tax systems more simple and uniform so that businesses can easily comply. provisions enacted by sst state make this process easier for sellers and our member states will continue to use the authority they were granted in the wayfarer decision in a fair and reasonable manner. i thank you for the opportunity to testify and explain what the sst has accomplished over the last 24 years. we are proud of the streamlined sales tax program and i don't it is helping thousands of businesses in our 24 member
2:34 am
states. thank you. chair wyden: thank you. >> thank you for the opportunity to talk with you today. i am the president and founder of the sales tax institute and of a woman owned small business. we provide sales tax education, resources and consulting to businesses and every industry around the world. my professional career of almost 38 years has been spent in the sales tax field. i am a licensed cpa and member of the business advisory council of the streamlined else tax advisory board. my remarks today are my own, not on behalf of any client or association. i have long been a proponent of rules that promote equitable collection responsibility of sales tax. to replicate requires greater uniformity with clear requirements and guidance by the
2:35 am
state which will foster compliance, reduce burden on all sellers, whether local or remote, to promote reasonable enforcement. it is inherent in our sales tax structure that rules will vary by state. however, states should make every effort to reduce complexity of the laws that can create avoidable burdens on sellers. the obligation of a business owner is complying with a variety of tax and regulatory requirements. cost related to collection of sales tax is not dissimilar to other costs but together, they all create a significant cost to being in business. i have three key points to share. first, the economic nexus rules enacted as a result of the wayfarer decision made it harder for some businesses to comply with sales tax. compliance burdens still exist or all businesses. third, there are actions congress and states can take to further reduce burdens on business. economic nexus has made it
2:36 am
harder on some small businesses, particularly those with limited physical presence in multiple states and even more so on businesses located in one of the state without a general sales tax, delaware, montana, new hampshire and oregon. these businesses may never have had to understand and comply with sales tax calculation or may have only dealt with it in their home state. for these businesses come of the challenges to comply have been hard. i have clients who have shared their frustrations with me. but we have seen simplification efforts by states including that are taxpayer services to support significant increase in registrations in the wake of the wayfarer decision. the decision in state law changes helped clarify when sales tax collection as required. in addition, adoption of the marketplace facilitation collection provisions produced burden on the smallest online sellers that utilize these platforms, by shifting burden of tax collection to the larger
2:37 am
marketplace participants. some states also adopted beneficial tax rate structures that minimize local tax jurisdiction compliance challenges. however, there are still burdens that impact small businesses and remote sellers. states continue to enforce standards against taxpayers who fall below the threshold. inventory held in a third-party warehouse on the seller's behalf can create nexus even if the sellers below the sales tax threshold, and can result in significant assessments against small sellers per the lack of uniformity across state on everything from economic nexus threshold to definitions in compliance creates a significant burden on businesses of all sizes. local taxes, particularly in states with local home rule authority, create chaos for businesses. there are actions congress can take in conjunction with state
2:38 am
to reduce burdens on businesses. focusing on uniformity across state while protecting state sovereignty through widespread membership in the streamlined sales tax product -- project would have the greatest impact on minimizing burdens for sellers. 24 states are active bailey dissipating the streamlined sales tax agreement, however, none of the largest states participate. efforts to encourage participation by large state and other, non-streamlined states should be evaluated. four states that are already members of streamlined, texas -- efforts on uniformity for nexus threshold and common definitions into centralized function should be supported. finally, the elimination of physical presence nexus standards in conjunction with uniform nexus standards will eliminate barriers to business growth by limiting registration
2:39 am
requirements for the smallest businesses. thank you. i welcome questions. chair wyden: thank you, all. let's begin by trying to put ourselves in the shoes of a small business, say in new hampshire, oregon, across the country. here you are coming getting clobbered by inflation. you have got supply chain challenges and the like. and you listen to something like this and are told you ought to be an accounting houdini and figure out some system to collect taxes for most of america. i cited the example shows how bazaar this is -- how bizarre this is, that in the center of the u.s., you pay a tax on a
2:40 am
snickers, but not a twix. and anybody who understands the nuances of chocolate policy can tell me exactly how that works. mr. hennessey, what you said is not unlike what i hear from my folks in oregon. they are usually more salty than the statements here. they usually start with, how the hell did oregonians become tax collectors for most of america? and they understand how others in other states would want them to do it, but they say, how was that fair for us to be in the tax collection business? you said, mr. hennessey, you spent over half $1 million just on accurately collecting and remitting sales tax since the wayfarer decision. -- wayfair decision. that sounds like a big crunch in
2:41 am
the middle of rising expenses small businesses doubt everybody they face with inflation. how do you navigate this? what do do -- what do you do in terms of having to take that money for sales tax compliance, and you can't have it for other things that are going up in a time of inflation? >> about half of the 500,000 dollars we spent in 2018 becoming compliant, and the other half, two hundred $50,000 still representing ongoing costs we face. that is a significant burden. that represents about half of what we collect and remit one in annual basis. -- on an annual basis. those funds, we would otherwise invest back into our business for the benefit deborah -- benefit of our employees. we are constantly trying to modernize and remain competitive in today's online environment.
2:42 am
every dollar we divert for spending on sales tax compliance is a dollar we can't invest in remaining competitive in this landscape we face. as an employee-owned company, every dollar that goes to reduce profit also serves to reduce retirement accounts of our employee owners. it remains a significant burden. chair wyden: so, you had challenges before hand and inflation in effect makes this even more treacherous? >> yes, it has a compounding effect. chair wyden: we have heard senators supportive of wayfair, and that raises the question of whether you are able to go back to the way things were before wayfair. dallas top couple of steps you would like to see this committee working on, on a bipartisan basis? what steps would you like the committee to take that would
2:43 am
make your life easier, reduce your costs? you are representative of a big chunk of america, a big chunk of organ, a remote seller trying to perform this remote function that to me defies common sense, to turn you into a tax collector for america. but that is the court decision. what are a couple things that can reduce your costs best? >> the first is simplification in a number of areas, including rights to be no more than one right state. very important is uniform product classification and definition across states. that is an extremely high burden for our business. rejection for retroactivity, we have already paid -- projection for retroactivity, we have already paid 140 thousand dollars trying to comply with retroactive demands for states. and finally, audits. we propose that we are subject simply to one audit that encompasses all states on an
2:44 am
annual basis. finally, protection from reach beyond sales tax. it is very burdensome that not only we have to pay sales tax, but states are now contacting us and asking for taxes that are far-reaching beyond sales tax come into new areas we haven't heard of before. chair wyden: i want to make one point on the days ahead. i am very interested in working with you five to see if we can find common ground working with senator crapo and our colleagues to do mr. hennessey is talking about, to simplify this to make these transactions something that don't take a toll on small businesses across america. everybody has to dig in and find common ground because going back to the days when i wrote the internet tax nondiscrimination act, we have been hearing this was going to get simplify. so, we all have to dig in and
2:45 am
find ways to get this simplicity in place. it was important before the pandemic, it is even more important that when we are dealing with covid still and with inflation. senator crapo: thank you, you follow the line i was going to pursue with mr. hennessey, but before i do, let me go to you, miss healy -- hughey. is there anything more to mr. hennessey's answer to add as what -- as to what you think we should focus on? >> i agree with what he said in terms of his proposals. i would further add the unified single tax rate per state. that would help reduce reliance on expensive technology. we spent a lot of money on technology to calculate sometimes hundreds of tax rates
2:46 am
per jurisdiction per state. that is one main reason why that is often use, it becomes impossible to calculate, especially as they change all the time. i would emphasize that point. and i mentioned in my testimony, a more centralized clearinghouse in order to register per state and also remit payment. right now, if you hit this for state, we have to register with a department of revenue for every state and that is something technology can do for you, instead of something individually on your own. i would add that. senator crapo: for the issues you raised, would those be resolved if all 50 states were a member of streamlined, and working in the system mr. johnson is working in? >> i appreciate the efforts mr. johnson and his team put towards
2:47 am
this issue. there is, based on what i heard from testimony of the research i have done, the fact that they can have many tax rates. that is something the sst is able to make transparent, and those boundaries and those rights are really helpful, but there tends to be a lot of sales tax rates per state. and also, there is still reliance on the technology itself and we mentioned that is an expensive burden for a lot small businesses. senator crapo: mr. hennessey? >> many provisions are sound. one additional would be to uniformly classify and define products across states, not just within states. senator crapo: mr. johnson, i am looking at the map on your website of which states are
2:48 am
member states. my stay, idaho, is an advisory state, but why are those states that are not members assistant to joining -- not members resistant to joining? >> i can't speak for all the states that are not participating. i can't tell you that we have reached out to states encourage them to join the organization. there is great benefits by having allstate involved in it. some things mr. hennessey mentioned as far as simplification and uniform definitions, that is something we have and we continue to work with business community on uniform definitions when the community -- when the business community brings it to us. that is an important piece, getting input of the business community and realizing what is causing those burdens per the central registration system, we have that. in miss wei's situation, if she is registered in streamlined and
2:49 am
needs to add additional states, it is a matter of logging into her account and checking a box and we take care of getting that information once she registers with them. and we are working on a central piling -- central filing portal. we believe that is something that could be helpful to remote sellers. senator crapo: my last question relates to this discussion. this is nothing first time we faced an issue in congress with regard to the complexity that can be imposed on a particular industry. in your case, on an entire part of the world, because of the complexity of states and local jurisdictions. and not just with guard to taxes, with regard to licensing, permits and so forth. and always run into the difficulty, but we live in a republic which as 50 states,
2:50 am
each of which have sovereignty. guys like me like to protect my state's sovereignty. the question that comes up in this hearing is, is there a proper role that respects the right of state sovereignty that congress should engage? and should congress force chum minimum standard -- force some minimum standard? should congress pass laws that actually interfere with state sovereignty on this or should we incentivize states to voluntarily join a compact or system like streamlined? >> one benefit of the streamlined sales tax agreement is that states retain the state sovereignty, and with coordination of having common definitions. the example german wyden you -- chairman wyden used of the candy bars, those are a defined term
2:51 am
in the sales tax agreement. so, all 24 states define food safe. now, each state can decide whether to tax it fully, tax at a reduced rate or exempt it. but if i am a seller of a twix bar or snickers bar across those 24 states, i classify it the same way and that retains that state's sovereignty while providing consistency of definitions, which miss hughey referred to as one of the big challenges. chair wyden: thank you, senator. senator carper. senator carper: to our witnesses, welcome, thanks for joining us. i don't know if my colleague from new hampshire had a sense of deja vu, but i was a governor from 1993 to 2001 and i can remember meetings where we talked about sales tax and how
2:52 am
it was being collected or not collected. i feel like i have seen this movie before. the five states that have no sales tax, we are not a big state, just north of us we have pennsylvania two, west, maryland. we have a lot of folks who lived not far away from us, millions of people. the fact we have no sales tax means a lot of people come to delaware to shop, and it is one of the reasons why, among our major industries, retail is a significant one. and that helps tourism as well. so this is something that is of more than a little interest to us in the first state. i want to thank you for testifying before the committee on the effect of the wayfair decision on state and businesses
2:53 am
alike. we are the home for one of the largest apple retail outlets in the country, in the northern part of our state. that means 70 can drive to delaware from pa, purchase a computer or piece of furniture sales tax-free. under the wayfair decision, someone who decides to buy a piece of furniture online rather than visiting delaware has to pay the tax. having no sales tax continues to help our small state, 100 miles north to south, 50 miles east to west, one million people. it helps our state and small businesses punch above our right -- above our weight. however, there is more than we can do to help our small businesses. my question, has your name
2:54 am
ever been mispronounced, miss hughie? >> always. senator carper: what challenges are you facing when it comes to state sales tax remittance. >> all the things i mentioned, my process over the past four years of number one, researching and determining his and conducting a study on each of my states and where i am reaching the. rick -- reaching nexus. registering in each of the departments of revenue and understanding the requirements for each state are top of mind. and from there, remitting payments to various departments of revenue, sometimes monthly, sometimes quarterly, sometimes annually and keeping track of all that in making the decision, what do i do in-house, what do i work with the consultant on?
2:55 am
how much administrative burden do i want to take on in that regard? as well as the technology component and making sure that is aligned and integrated with how we collect money from our customers and send out product to them. the overall process with complying with state sales tax. senator: mr. hennessey, what challenges are you facing when it comes to state sales tax remittance? >> the same things miss hughie spoke about and also product definitions and 45 states can be overwhelming with the vast number of product that we sell. so, uniformity across states in product categories including collectible coins, technology, candy and many others would be helpful in allowing us to comply with lower costs then we incurred today. senator: mr. hennessey, what can
2:56 am
policymakers including us do, working with small business owners, to help alleviate these challenges? >> much of what we were discussing before, in terms of simplified sales tax rates for state. not necessarily uniform, just simplified instead of a state having hundreds. may be having one would be helpful, as well as a centralized clearinghouse to register and remit payment of sales tax. those other two main ones for me. senator thank you. -- senator: thank you. how can small business owners alleviate these challenges? >> a phase-in for any new taxes, including sales taxes, would be extremely helpful. as we saw from the wayfair ruling in no way to collect
2:57 am
taxes from our customers, that put us on the hook with no way to collect taxes ourselves. as states contemplate new taxes and fees, we would ask for a minimum one year phase in, including for wayfair as well as other new taxes and fees. senator: i would like to ask mr. johnson to respond in writing and take as much time as they need to tell us what barriers exist for states? chair wyden: this has to be done briefly. we have many colleagues. senator: and what steps should be taken to encourage more state to join the agreement? mr. johnson, thank you. chair wyden: our next two will be senator grassley and senator cardin. senator grassley: i have figures where we thought x number of
2:58 am
dollars would come to the states under this and it has come in short in many instances. in general, has additional revenue collected matched gal's -- gao's expectations? >> yes, senator. $24 billion were collected from remote sellers that had economic taxes in 2021. that is more than what we suggested when we looked at 2017. the pandemic has been mentioned, inflation, the growth in e-commerce has been mentioned, there are a lot of factors that have gone into an apparent increase in the amount of collections that states have been able to reap. senator grassley: miss, if you
2:59 am
have any information on this, how are states monitoring remote sellers and how onerous are those audits? >> we are seeing states to audits of remote sellers. this may be in part due to the pandemic and the ability to not visit in person, but we are seeing most of these audits happening remotely with requests for data. and then, the states are rough and doing most of the work themselves to come up with that liability. as a consultant, would typically help facilitate that for our clients and try to do>> since t, every state has adopted the collection of sales taxes. in your experience, have states provided sufficient outreach to
3:00 am
remote sellers to help them understand their legal obligations? >> i can speak to several years ago when the wayfair case first passed. i cannot find information regarding thresholds. i was looking into it to be compliant as soon as that law passed and it was difficult to find information at that time regarding what the threshold levels were. >> i do not recall instances where estate reached out to us. we did the research on our own with hiring outside experts. notices from the state come in that relate to other issues, like taxes that we owe. >> is certainly has varied
3:01 am
depending upon the state. i think the streamlined sales tax member states have done the best job. in some of the states, was not clear, so we have dug into that. i certainly feel for the small businesses who have struggled to understand the definitions. our organization has attempted to simplify that by providing resources, but has very greatly across all the states. >> whether or not the laws discriminatory, do you two based in your work, have states enforced their online sales tax rules in a neutral and nondiscriminatory manner?
3:02 am
>> in my experience, they have been particularly consistent across sellers that are in the same situation. so certainly sellers that may have physical presences have been treated differently. but sellers that have been strictly economic have been treated for the most part fairly. >> senator grassley, we have not seen many instances of discrimination as you described. states are grappling with how to enforce this new power that they have been given as traditional sales tax continue to decline. chair wyden: thank you, senator
3:03 am
grassley. next is senator cardin. >> i have another responsibility in addition to being on this committee. i am particularly interested on the impact that on small businesses of the wayfair decision. we have two competing goals. one, i come from a state that applies the sales tax. our retailers need to compete around the country with other retailers. they want a level playing field. we want to have a level playing field so that you are not discriminated against because of online customers. i am extremely sensitive to the problems of small businesses. mr. hennessey, your testimony was powerful in terms of the costs that you incur. i am interested as to how we can act, the federal government, to
3:04 am
preserve both of those. a level playing field and removing unnecessary burdens on small businesses. we have threshold issues. there are other areas that we can access. i am interested as to your assessment as to how effective the streamlined sales tax agreements are. and whether congress can do something to encourage that as part of the collection process. that compliance with those standards may be a prerequisite for a certain level of liability. i say that with my own state of maryland not part of that. but i welcome your thoughts.
3:05 am
as to what we can do in congress to eliminate unnecessary burdens on small businesses. >> i do believe that some of the biggest benefits of streamlined are the common definitions. being able to go to one place to look for a definition of those terms makes it much easier. there is a centralized ability to submit a request for a ruling. there is uncertainty about how to classify certain items. there is a formal process businesses can go through to submit that.
3:06 am
the liability protections if sellers rely on the information published by streamlined, all of those are significant benefits. they also have the centralized registration system. it is simple to go women register. there are very few questions. you compare to others that are 20-30 pages long. if you go through the streamlined, there is just a couple of questions. as mr. jensen mentioned, centralized compliance where you actually file a return would be the next step that would help simplify a lot of that filing and burdens on small businesses. >> i agree with you completely. my point is, is there something we can do in regards to the streamlined sales tax agreement
3:07 am
infrastructure to get them into a place where the software information necessary for compliance becomes rather simplified and therefore not as expensive. >> i think what this congress could do is actually provide incentives for the nonmember states to join the streamlined sales tax project through offering benefits to them, potentially making it more lucrative for businesses at different levels to be required to collect the tax. i think setting up the different things like that thresholds and the definitions and having that be a requirement for the states
3:08 am
to enforce remote collection. >> thank you. chair wyden: senator hassan. >> thank you, mr. chairman. i have some questions for mr. hennessey. the supreme court's decision in the wayfair case has put undue burdens on small businesses. the wayfair decision made small businesses responsible for following complex tax rules imposed by thousands of low cool taxing jurisdictions. congress must help small businesses by reversing the supreme court's misguided decision. we also need to focus on
3:09 am
immediate ways to help businesses hurt by this decision. i am very thankful that mr. hennessey is here today to talk about the ways this decision has impacted his business. you set your business has paid $500,000 to comply with these tax obligations. i would like to talk to you about the specific factors driving back. you mentioned different states have different filing processes, including different websites and different forms. with some even requiring you to maintain a physical address in the state. what is the cost imposed by this patchwork of filing requirements in terms of money and time? >> the sheer volume to file taxes in 45 states on a monthly basis is quite overwhelming.
3:10 am
it is 500 tax returns per year. the total cost of that is $20,000 for our business. what we would like to see is one single registration that covers all states, as well as one annual return per state. that would really help us comply. >> understood. you mentioned that you have to collect tax bought -- for more than 1500 jurisdictions. what difficulties do you face trying to collect sales taxes? >> software helps with the rates themselves and updating them. however our customers still like to order from catalogs and that presents a unique burden for our business, with 12,000 rates, i actually brought a simple of what we would have to print.
3:11 am
we would have to disclose to our customers all 12,000 tax rates. beyond that, many of our customers like to pay by check. it often causes under and overpayments. it is virtually impossible to go back and try to collect those small payments. our customer service department trying to help our customers interpret all of these various rules and up spending 300 hours per year on the phone simply answer tax questions. >> you have spent a total of 500,000 dollars to become compliant with these new obligations, get a major concern is that you could nevertheless be had with audit notices from
3:12 am
countless local governments. what other costs are you bracing for as you consider whether hundreds of tax jurisdictions might flood your business with audit notices? >> the rules for exemptions are simply a couple of lines that we must try to interpret ourselves. we feel we will spend months preparing audits with anyone state or jurisdiction, nonetheless with any that come into our business. if we are wrong on any of our classifications we cannot go back and collect tax. we would foot the bill ourselves. if we are forced to justify our position we would then incur legal costs. >> thank you. these examples are just the start of a laundry list of issues that small businesses are facing. congress needs to provide relief to small businesses.
3:13 am
i have three more areas i would ask mr. hennessey about a five time or if we have a second round. chair wyden: we are trying to determine if any colleagues are coming, but we are going to officially start the second round. i think it is appropriate that you start it. >> thank you very much. i want to continue down this line of questioning. we have gone through the supreme courts decision has resulted in significant cost to you. i would like to hear from you about ways that out-of-state governments are overreaching to try to squeeze tax revenue out of small businesses. i've introduced legislation to prevent out-of-state governments from retroactively requiring small businesses to collect
3:14 am
taxes. you talk about how your business has been forced to pay rent directive taxes out of its own pocket with no avenue to dispute these requirements. can you walk us through situations in which littleton coin has been forced to foot the bill itself for retroactive out-of-state taxes? >> with the wayfair decision providing no limitation period, took a seven months to acquire the software, customize it and institute the processes to collect sales taxes. we were on the hook during that period ourselves. we received three notices this far worse states have asked us to go back as far as 2018 to pay those taxes. the cost to defend ourselves against those demands would far exceed the settlement that we have decided to make. we have settled for $140,000
3:15 am
busbar. -- the far -- thus far. >> because of the wayfair decision, you are paying an additional $40,000 per year to out-of-state governments. what are the different kinds of taxes you are having to pay and how has it affected your bottom line? >> since wayfair, we have been notified by states we owe a right of taxes and they all go by various names, including franchise, business, commercial activity. there are quite a few. every -- it directly reduces our profit. it prevents us from growing our
3:16 am
business and paying our employees. >> thank you. last question for you this morning. you received a notice from california claiming that because of wayfair, you have to pay california state income taxes. what kinds of legal costs will you incur to work through this california notice and income tax notices for many other states? >> for our business, the cost to defend ourselves could potentially be unlimited. we do not have a lawyer on staff. we are not a big enough company so we have to higher third-party counsel to help advise us and help us defend in these matters. we have incurred costs just to research the letter sent to us related to income tax as well as the federal law that we believe protects us from having to pay.
3:17 am
nonetheless, we have to continue to defend ourselves as long as the process takes. should a state take us to court, the cost could be well over $100,000. >> thank you. john's testimony makes it clear there are many errors we need to provide small businesses relief from the burdens from the wayfair decision. to think that other states can now impose their tax structure on our state is concerning. i am very grateful for this hearing. chair wyden: thank you. you are being too logical for federal policy. thank you for making the case. i have a few additional questions. we will wait to see if any other college doing us. -- colleagues join us.
3:18 am
ms. huie, you touched on nexus. it is not just a number. it varies from state to state based on what types of sales or what time period you use and other factors. can you give us more insight on nexus calculations? some of this stuff sounds like prolonged root canal. but for small businesses, it is a big deal. >> it is very hard to navigate. they really very from economic nexus based on thresholds around revenue, round number of transactions, that varies from state to state. you also have the physical
3:19 am
address. if you have a warehouse. if you have an amazon warehouse, it is not clear, sometimes they move product from one warehouse to another warehouse with no information or no notice and that is all taken into consideration. it varies from state to state and it is difficult to navigate all of that. chair wyden: next question would be for you, ms. yetter. obviously states that have the autonomy to administer on their own taxes generally at the more complicated systems. this strikes me that it makes for even more challenges for america small businesses. we talked a lot today about sales taxes. there are thousands of local jurisdictions across the country. businesses have to figure out how to comply with 45 state sales tax systems.
3:20 am
with some states sellers have to deal with local tax compliance separately. you touched on this. can you elaborate on how these additional significant burdens affect remote sellers? >> colorado, alaska and alabama are troublesome states. they allow localities to self administer their taxes. in colorado, louisiana and alaska the locals can have their own taxability rules. that adds a significant burden. something that the wayfarer decision mentioned is a central -- centralized administration
3:21 am
about local taxes and i think that is something that should be required before any collection responsibility and out-of-state sellers is allowed. certainly, separate economic nexus is being approached by any of those individual localities, should not be allowed. it should require central registration and central administration for any of those local taxes to be enforced. chair wyden: very good. and just at the right moment. the senator has arrived. >> chairman, thank you. thanks to our witnesses for being here today. the supreme court's decision in wayfair has created a new
3:22 am
economic reality for many small businesses in montana and across the country. in the past, they only owe tax in the state they were in. however, after wayfair, they may owe tax in 45 different states. my home state of montana does not have a sales tax. the more than 99% of our businesses are small businesses. many have to deal with this unfair unilateral burden. i joined several senators in submitting an amicus brief in 2018 and i continued to believe the constitution gives sole authority to congress to regulate commerce among the states. and not the court.
3:23 am
other concerns have arisen following wayfair. the tax injunction act was from 85 years ago. it prevents access to federal courts to resolve disputes. now that they are subject to tax across the country, we have to ask ourselves when the tax injunction act is making small as this burdens more acute. ms. huie, king you expand the compliance burdens that your business -- can you expand on the compliance burdens that your business faces? >> since the wayfair decision, we have to do audits on a regular basis, looking into which states in which we have
3:24 am
reached nexus. from there, registering with each of the departments of revenues to make sure we are in the system in order to remit payment to each of those states. from there we have to start collecting sales tax from all of our customers making purchases on her websites. -- our websites. this is something that we do all the time. as well as concerned that we have with change in legislation, letters that we receive from various states on payment, in which we may not be aware of because we are not notified proactively. >> you mentioned in your testimony that you spend close to $50,000 a year in out-of-pocket technology costs related to sales tax
3:25 am
legislation. what type of impact does that have on your bottom line? >> that is a prop of -- approximately one headcount in the state of montana. when you are dealing with e-commerce business, it is the movement of product. the money that you put into buying the product, you do not see a dollar from the investment in nine months down the line. so cash flow is very challenging when it comes to any commerce business. so that $50,000 has a massive impact on cash flow. you are also dealing with inflation, our cost of producing product has gone up considerably. we have resisted increase in our prices so far because we do not want to increases -- increase prices for our consumers. >> you are feeling that and we
3:26 am
just as well. >> we have had to evaluate wage increases at least three times within the past few months. all of these competing factors are having a massive effect on my business. >> you are in -- have you heard any wayfair horror stories that might demonstrate problems that businesses face? >> i know of people who were unaware -- there are a lot of e-commerce sellers that are not aware of collecting and remitting sales tax. if you are not aware of it and to get a letter saying you owe back taxes for the past four years, that is their entire livelihood. i have a story of someone who had to completely stop their
3:27 am
e-commerce business and move 100% onto amazon. they saw about a 35% decrease in their overall business. this gentleman is around 70 years old and was looking to retire. that is not in the cards for him . he had seen a massive decrease because he had to shut down a massive revenue channel, which was his online business, because of the tax burden. there are many more examples. >> we thank you very much. >> thank you all for being here today. i was here earlier and i had to go out for other things. i assume a lot of this has been covered. but the wayfair ruling did
3:28 am
impact consumers, businesses, states across the country. as i think you all know, we are interested in the assessment of how it has all worked out in states that have been implementing various laws. i would like to start mr. mctigue with you. with the wayfair decision issued, most states adopted requirements for remote sellers to start collecting the sales taxes in 2019. do you have any data to indicate how much these requirements impact state and local sales tax revenues during the pandemic as many consumers were forced to shift online purchases. >> in a written statement we had a graphic showing the share of
3:29 am
e-commerce, share of total retail sales and midway through 2020, there was obviously a pandemic spike. the longer-term trend is that e-commerce is accounting for a larger share of retail sales. the landscape is changing. states are reacting to that. businesses are shouldering a considerable burden in this new environment. >> do you have state-by-state percentage wise the total of revenue raised? >> we do not have that at this point. we have some data that we reported in the statement, the aggregate data that $23 billion in additional revenue in 2021 as
3:30 am
a result of the enforcement of economic nexus loss. -- laws. >> ms. huie and mr. hennessey, what presents the most significant burden to your business as a result of having to collect the sales taxes? and perhaps as a follow-up, what is the one thing you believe congress can do to help ease the burden of collecting sales taxes to the respective jurisdictions? >> in terms of the overall cost, the out-of-pocket technology cost, that is definitely a
3:31 am
burden. i would also say consulting costs. we hire firms to help us calculate nexus because it can be complicated. as well as the administrative costs. another cost that is not documented is fear and concern about and my doing something incorrectly. and an impending letter from the department of revenue. no business owner wants to receive that. it is very concerning. that is one of the emotional costs of this. there semi-things we're dealing with on a daily basis. -- there are so many things we are dealing with anna daily basis. >> i certainly echo those
3:32 am
comments. thank you for mentioning protection from liability. if we do make an error, protection against that would be helpful to our business. as well as any simplification and protection from taxes beyond sales tax would be very helpful as well. the honor process could be extremely cumbersome and we appreciate simplification in that process. one single audit that would cover all states. >> thank you. most states have -- sales tax have been traditionally imposed on tangible goods.
3:33 am
what area could present the most complications for jurisdictions extending their sales taxes and what uniform sourcing provisions enacted by congress for wireless services help address one of the main concerns in sourcing these transactions for tax purposes? >> from a streamlined perspective, you are correct there is an expansion and digital products being sold. we have in the streamlined sales tax agreement, we have sourcing rules that apply to all products. i believe we have those in place. we have uniform definitions for some of the digital products. it is not only the streamlined states that have been adept in those. but non-streamlined states as well. they are following some of those definitions.
3:34 am
>> i would echo what he said. however, i would add there are still challenges in terms of how different digital goods are defined, the rise in nft's. there is a lot of certainty on how they should be classified. having a broadening of definitions on what is considered a digital good. secondly, the sourcing is a big issue. time working with the client where one of the challenges is your selling digital goods you do not have to capture a physical address. how do we define where that is sourced? particularly with things that are utilized on a multiple employee bases, so if i sell things to a business, where are
3:35 am
those employees who are using it? how much is the buyer required to provide to the seller. those are just a couple of the challenges. >> i would just say we previously introduced a bill which would add this issue and i would say that this hearing as it reviews the wayfair decision, we shall look forward to decision is to see that businesses are able to compete in today's marketplace. we still have some work to do there, but your highlighting the challenges created by these state laws is something that
3:36 am
will be useful and guide our discussions and actions in that respect. i guess that is it. we do not have anybody else or to ask questions. members have until june 21 to submit any written questions. we would ask all of you if you could to get your responses in to those questions as quickly as possible. we appreciate you being here. we appreciate you making the time to share your expertise with the committee. thanks and with that, this hearing is adjourned.
3:37 am
3:38 am


info Stream Only

Uploaded by TV Archive on