J.C. Penney Urges Congress To Tax E-Tailers
Written by Evan SchumanAn in-house attorney for J.C. Penney testified before a congressional committee Thursday that e-tailers should be taxed, to "level the playing field" with brick-and-mortar retailers who already have to pay such taxes.
"We are here to ask you to level the playing field between sellers that collect sales tax and those who cannot be required to collect the tax because they do business in the community on a virtual rather than physical basis," J.C. Penney Corporation Inc. Vice President and Associate General Counsel-Tax Wayne Zakrzewski said. "Many of our competitors do not collect, which gives them a competitive advantage. This is not because they are innovative or provide incremental value to the consumer, but because the states do not have the ability to require collection of a tax that is due from the consumer."
Zakrzewski testified Thursday before the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law during a hearing on H.R. 3396, the Sales Tax Fairness and Simplification Act of 2007.
The National Retail Federation, which has been lobbying in favor of the act, said it would require out-of-state "remote seller" merchants to collect sales tax on merchandise sold to residents of their states. Retailers would be compensated for the cost of sales tax collection and collection could be outsourced to certified service providers, the NRF said, adding that retailers with less than $5 million in annual gross remote sales would be exempted.
-Marc
December 7th, 2007 at 10:51 am
Wanting to tax direct marketing companies goes back to the 1960’s. It was wrong then, just as it is now. There are at least eight myths that are being spread by the retailers and tax mongers.
I’ll point out a few here:
MYTH: Internet sales are tax-free.
REALITY: Internet sales are subject to tax, just as storefront, catalog and telephone order sales are subject to tax. Internet sales already are subject to sales tax, just like catalog and telephone order sales. All retailers, whether online or on Main Street, are required to collect sales tax on goods delivered in any state where the retailer has a physical presence or .nexus.. That is why you pay sales tax on catalog or online orders from a company that owns and operates stores in your home state.
Consumers are obligated to pay a .use tax. on purchases even if the seller is not required to collect the sales tax.1 States have complained for decades that few consumers pay use taxes on purchases from out-of-state sellers, even though nearly all business purchasers do pay use taxes for catalog, telephone or Internet purchases out-of-state. Nevertheless, most states have done little to educate consumers about their use tax obligation or to provide them with an easy mechanism for compliance. This suggests there may not
be enough revenue involved for the states to invest time and resources in its recovery.
A use tax is a type of excise tax assessed upon tangible personal property purchased by a resident of the assessing state, regardless of where the purchase took place. The use tax typically is assessed at the same rate as the sales tax that would have been owed (if any) had the same goods been purchased in the state of residence.
MYTH: The Supreme Court has said Congress can approve tax collection by out-of-state companies.
REALITY: However, the Supreme Court said National Bellas Hess still is good law and collection requirements may impose a burden on interstate commerce.
Two Supreme Court cases have shaped the law on sales tax collection. In 1967, the Court in National Bellas Hess2 determined that the interstate commerce clause of the Constitution bars a state from compelling an out-of state retailer from collecting taxes on sales to its residents. A quarter century later, the Court in Quill3 said National Bellas Hess remains good law, and the state of North Dakota cannot compel Quill to collect taxes from North Dakota purchasers.
The Court in Quill concluded that collection is a burden on interstate commerce and continued to endorse the importance of a bright-line rule for out-of-state retailers. The decision was guided by the principles that taxes must be fair and nondiscriminatory, that there must be substantial nexus with the jurisdiction and a relationship between the tax and any state-provided services.
However, the Supreme Court went on to say that Congress is free to disagree with the Court.s conclusions regarding the burden on interstate commerce, and even cited instances in which the Congress previously has considered the impact on interstate commerce when it rejected legislation that would have given the states authority over remote sellers.
The states again have elected to mount a campaign, in coordination with Main Street retailers, to persuade Congress that requiring remote sellers to collect taxes is not a burden on interstate commerce. Before they can do this they first must demonstrate to Congress that they are capable of and committed to simplifying compliance, reducing multiple rates and reaching common agreement on the definition of taxable items, real simplification and a real reduction of the burden on interstate commerce. Thus far, the states have only been able to characterize this as a goal, a goal they are far from reaching under the current Streamlined Sales and Use Tax agreement.
MYTH: Streamlined sales tax will level the playing field between traditional retailers and retailers who sell online.
REALITY: The SSTA will tilt the playing field against retailers who sell over the Internet and through catalogs.
In fact, the SSTA would unfairly discriminate against remote sellers. First, the burdens are much greater for remote sellers who must compute, collect and remit tax for thousands of jurisdictions, as compared to an in-state retailer who collects at just one tax rate. Second, a direct marketer must eat the difference if a customer fails to remit the correct tax when paying by check a problem that traditional retailers do not confront. Third, in-state retailers benefit from a wide variety of state and local government services and programs (including tax incentives) that are not available to out-of-state merchants.
Fourth, delivery charges on Internet and catalog purchases usually exceed the amount of sales tax on those same goods so the remote seller has no price advantage.
MYTH: The Streamlined Sales Tax agreement makes everything simple.
REALITY: The plan proposed by proponents of the SSTA will make commerce more complicated for merchants and consumers.
To start with, mandatory tax collection under the SSTA would cause thousands of merchants throughout the United States to be confronted with the entirely new obligation of collecting tax for over 7,500 local tax jurisdictions (including school districts, transportation districts, sanitation districts, sports arena districts, etc.) This will create an enormous increase in the complexity of doing business for interstate marketers certainly not a move towards simplification.
To make matters worse, the drafters of the SSTA failed in their original mission to reduce the number of tax jurisdictions. Under the terms of the SSTA, the number of tax rates could actually increase to over 15,000 (each tax jurisdiction is permitted to have two rates) Similarly, the SSTA failed to reach its goal of uniform definitions for taxable products.
Instead, the SSTA allows each state to create its own, gray area with respect to every term defined in the Agreement. Individual states only have to use substantially the same language.. This is an invitation to confusion and litigation.
For consumers, the confusion and complexity may be even more problematic. Shoppers who pay by check for catalog purchases (a common form of payment among the elderly and low income wage earners) must self-compute the applicable state and local sales tax for each jurisdiction to which a mail order purchase is sent. Again, these are major new burdens, not simplification.
And there’s much more…don’t be fooled.