December 6, 2007

The Honorable Linda T. Sánchez  

Chairwoman, Subcommittee on Commercial and Administrative Law

1007 Longworth House Office Building

Washington, DC 20515


Subject: Hearing on H.R. 3396, the “Sales Tax Fairness and Simplification Act”


Dear Chairwoman Sánchez and members of the Subcommittee:


Thank you for permitting me to submit this statement on behalf of NetChoice, a coalition of trade associations and e-Commerce businesses who share the goal of promoting convenience, choice and commerce on the Net.  NetChoice members include the Association for Competitive Technology, the Electronic Retailing Association, AOL, eBay, VeriSign, and Yahoo. 


In your evaluation of H.R. 3396, please consider the larger question of whether the Streamlined Sales Tax Project (SSTP) has shown that it deserves a Congressional mandate that would impose significant and new tax collection burdens on catalog and online businesses across the nation.  Because that’s precisely what the SSTP is asking Congress to do with this legislation.


SSTP Member states have always known that they could go back to the Supreme Court and attempt to prove that they have truly eliminated the unreasonable burden on interstate commerce that was found in the 1992 Quill ruling. Instead, the SSTP states chose to avoid the harsh judgment of the Court, by asking Congress to grant them the power to impose these unreasonable burdens on out-of-state businesses. 


Despite six years of effort, the actual simplification achieved by the SSTP is not nearly sufficient to convince Congress that it should abandon its role in protecting interstate commerce.   Rather, the SSTP has shown that simplification has become just a slogan – not a standard. Consider these examples of how the simplification campaign has come unraveled:


1.    The SSTP Governing Board is now working on a new dual-sourcing scheme to accommodate both origin and destination based taxes at the same time.  The Governing Board openly acknowledges that this would be two steps removed from the original simplification vision of one-rate-per-state. The “first step removed” was to allow differential tax rates and rules for over 7,500 individual local jurisdictions, by using destination rates for both interstate and intrastate deliveries. 


But that system was still too complex and troublesome for states that base their sales tax on where shipments originate, not where they are delivered.  To help those origin-based states join the SSTP, the Governing Board wants to retain origin-based rules for intrastate shipments while requiring out-of-state sellers to collect sales tax based on the destination jurisdiction. 


To convince us that this is any sort of “simplification” would be a feat of Orwellian ‘Newspeak’. Moreover, this could hardly meet the minimum simplification requirements in H.R. 3396, where Sec. 6 (a)(3) calls for “Uniform rules for sourcing and attributing transactions to particular taxing jurisdictions”.


2.    The cost to businesses that would be forced to implement new systems and to collect, file, and remit the Streamlined Sales Tax could be substantial, a fact that SSTP advocates would prefer to avoid.   Ironically, these new burdens would fall most heavily on smaller businesses that depend on the Internet to reach customers in states where they have no physical presence.  Moreover, these costs would fall on smaller businesses who are learning to use the internet to compete with the shopping malls and big-box national retailers who are supporting SSTP.


The minimum simplification requirements embodied in H.R. 3396 would require that “each Member State shall provide reasonable compensation for expenses incurred by a seller …”  6(a)(14).  However, the Agreement adopted by Member states does not now require that states compensate sellers for their system integration costs or their ongoing costs of collection.  


Proponents of SSTP should be required to demonstrate whether and how they would compensate sellers in accordance with H.R. 3396.  They should also deduct these seller compensation costs from estimates of the new taxes they hope to collect under SSTP.


Above are just two of the most apparent examples of how complex this simplification effort has become. There are other examples involving “replacement taxes” and definitional gymnastics designed to get around simplification requirements.  In addition, state tax administrators have used the SST agreement as a way to impose sales tax on items that were not previously taxed.


Still, SSTP member states are again urgently pressing Congress for a nationwide mandate to force all out-of-state retailers to collect and remit sales tax for any goods sold to residents of sates using their so-called “simplified” sales tax system.  Their urgency is understandable, since the simplification effort is proving to be much more difficult than anyone imagined.  Moreover, the holiday shopping season is upon us, so tax officials are anxious to collect any unpaid sales & use tax on purchases made from out-of-state catalogs and websites.  


However, consumers are doing more and more of their online shopping at websites of multi-channel retailers—who already collect sales tax for all the states where they have stores or other facilities.   Just last week, this trend was acknowledged by a University professor who was responsible for initial over-estimates of unpaid sales tax.  William Fox told that his latest surveys show that half the sales taxes owed by consumers on their online purchases were being collected anyway.  Fox added, “I was surprised to find it was so high.  And if anything, it’s growing.”  (, November 28, 2007)


In other words, trends in multi-channel retail indicate that unpaid use taxes will become less of an issue—without Congress forcing truly remote retailers to collect for thousands of taxing jurisdictions in other states.


In conclusion, it’s apparent that SSTP states have not gone nearly far enough to simplify a system that the Supreme Court found to be an unreasonable burden on interstate commerce.   With so much unfinished simplification in sourcing, collection systems, and seller compensation, it is inconceivable that Congress would grant these states the authority they seek to require sellers across the nation to bear their tax collection burdens – even sellers in states that are not SSTP members and particularly sellers in those states that don’t have any sales tax at all. 


A more reasonable approach would be to amend H.R. 3396 to give Member States some of the authority they seek, but stop short of a national mandate on sellers in every state.  Congress could, for instance, require collection not by all sellers, but instead by sellers in the other SSTP Member States – essentially approving a voluntary multi-state tax compact.  That would at least give Member states a chance to prove they can develop and sustain true simplification. If their efforts are successful, other states will undoubtedly join the SSTP and thereby expand the compact and enlarge their tax revenues.


Thank you for considering our views, and please let me know if I can provide further information for your deliberations on this important issue.



Steve DelBianco

Executive Director, NetChoice