A bill that would limit states’ ability to enforce sales tax collection laws on online retailers that do not have a physical presence in those states had its first hearing on Capitol Hill today.
H.R. 2887, introduced by Rep. James Sensenbrenner (R-WI) and titled the “No Regulation Without Representation Act,” went before the House Judiciary Committee’s Subcommittee on Regulatory Reform, Commercial, and Antitrust Law this morning. The bill would prohibit states from forcing businesses that do not have a physical presence in the state to collect sales tax from in-state shoppers that buy from them.
The proposal is a response to the attempts of several states to force out-of-state online retailers to collect sales tax, even though the U.S. Supreme Court has ruled that only companies with an office, store, warehouse or other physical presence in a state can be required to collect and remit a state’s sales tax.
States including Colorado and South Dakota have passed legislation that would require out-of-state retailers to comply with state sales tax collection laws, while state revenue departments in Alabama and Massachusetts have issued regulations that have the same effect. In some cases the backers of these bills have made clear they are inviting the Supreme Court to revisit the 1992 Quill Corp. vs. North Dakota case that exempted out-of-state companies from having to collect sales tax.
Christopher Cox, outside counsel for NetChoice, a national trade association that represents online retailers, testified today that Congress should act to keep small online retailers from having to assume the expense of applying the sales tax laws that vary from state to state.
“Even a business located in a single jurisdiction is now threatened with having to comply with 46 different state regulatory regimes for definitions, tax rates, rules, and audits,” Cox said in his prepared testimony. “Customers too find much of this confusing, but the real cost to individuals will come in the form of fewer choices (as smaller companies on the Internet fall away) and higher prices (as costs of regulatory compliance are passed on to consumers).”
Among those arguing against the bill was South Dakota state senator Deb Peters who said it represents an overreaching of the federal government’s authority.
“With respect to interstate sales tax collection, the No Regulation Without Representation Act unjustifiably preempts state authority as it goes beyond the physical presence standard established in the Supreme Court’s Quill decision of 1992, a decision that Justice Kennedy has written was ‘questionable even when decided,’” Peters wrote in prepared testimony on behalf of the National Conference of State Legislatures.
Peters bricks-and-mortar retailers are disadvantaged when they have to collect sales tax in states where they have stores, when out-of-state online retailers do not.
“Today’s consumers now visit stores, compare products in person, ask questions and obtain help from the store’s employees, and then shop online to avoid paying tax, sometimes even while in that store,” she wrote in her testimony. “Failure to level the playing field for all retailers is signaling to the retailers in your communities that you care more about remote businesses, and their employees, than you do about your Main Street sellers.”
Lobbying group The Alliance for Main Street Fairness, which represents mainly smaller retailers, also argued against the bill.
But Andrew Moylan, executive vice president of the National Taxpayers Union Foundation, said in his testimony that it is the states that are exceeding their authority. “The pernicious effects of cross-border reach are growing, and the time has come for Congress to bring clarity and sanity to the situation,” he said. ““The internet is vast, powerful, and borderless. We must not let it become the vehicle for state governments to become similarly so.”
Other witnesses to testify at today’s hearing along included Chad DeVeaux, an attorney at California law firm Atkinson, Andelson, Loya, Ruud & Romo; and Neil Dierks, CEO of the National Pork Producers Council.
A spokeswoman for the House Judiciary Committee said she had no information on when the committee might take further action on H.R. 2887.