NCSL Statement to the House Judiciary Committee on the Marketplace Equity Act


Committee on Judiciary
United States House of Representatives
 
July 24, 2012
 
Statement of Senator Pamela Althoff, Illinois; Delegate Sheila Hixson, Maryland; Senator Curt Bramble, Utah
Executive Committee Task Force on State & Local Taxation
National Conference of State Legislatures
 
Chairman Smith, Ranking Member Conyers and members of the Judiciary Committee, we are pleased to submit this statement on behalf of the National Conference of State Legislatures  and respectfully request that you submit it for the record. The National Conference of State Legislatures is the bipartisan national organization representing every state legislator from all fifty states and our nation’s commonwealths, territories, possessions and the District of Columbia.
 
We are pleased to have the opportunity to inform you of the concerns of state legislators about state and local taxation in the new economy, specifically, the ability of state and local governments to collect the sales and use tax presently owed on transactions with remote sellers, which occur primarily through electronic commerce.  We want to express our full support for the Marketplace Equity Act, H.R. 3179 as introduced by Representatives Womack of Arkansas, Speier of California and 47 of their colleagues.  The Marketplace Equity Act will provide those states that comply with the simplification requirements outlined in the legislation, the authority to require remote sellers to collect those states’ sales taxes.
 
Let us make this very clear, state legislators are not advocating any new or discriminatory taxes on electronic commerce.  We desire, however, to establish a simplified sales and use tax collection system that allows sellers, regardless of where they are located, to collect and remit the legally owed sales and use taxes.  
 
The new economy or if you prefer, electronic commerce, which is not bound by state and local borders, makes it critical to simplify the collection state and local taxes to ensure a level playing field for all sellers, to enhance economic development, and to avoid discrimination based upon how a sale may be transacted.  Government can not allow a tax system that was designed for an economy that existed almost 80 years ago, to be the deciding factor as to where our constituents make a transaction. 
 
As many of you may know, state legislators and governors have been seeking the ability to collect sales taxes on out of state transactions for many years.  With the growth of electronic commerce, the current financial and economic situation, and the effort to address the federal deficit, the urgency to act is even more immediate.
 
As you know, the recent recession has had a debilitating impact on state budgets.  According to NCSL’s survey of state legislative fiscal officers, between FY2008-FY2013, states closed a cumulative $527.7 billion budget gap, primarily through program reductions.  While some states have showed a slight increase in revenues, other states are still facing budget deficits and sluggish revenues.  For FY 2012, states have closed over $72 billion in state budget deficits.
 
With the enactment of the federal Budget Control Act and the resulting sequestration, states are preparing for additional reductions to many state federal programs. The likely $400-$500 billion in reductions in federal funds as a result of deficit reduction coupled with the over $500 billion in state budget reductions during the recession will mean that states have $1 trillion less for many essential programs than states had only five years ago.  Raising taxes in sluggish economy is not a viable option for most states, and closing the loophole on sales tax collection will provide states with additional revenue without having to raise new taxes.
 
According to the Center for Business and Economic Research at the University of Tennessee, in 2003, the estimated combined state and local revenue loss due to remote sales was between $15.5 billion and $16.1 billion.  For electronic commerce sales alone, the estimated revenue loss was between $8.2 billion and $8.5 billion.  The report from the University of Tennessee further estimates that the revenue loss will grow and that this year, 2012, the revenue loss for state and local governments could be as high as $23 billion, of which it is estimated that $11.4 billion would be from sales over the Internet. (See Table 1)
 
Table 1
Combined State & Local Revenue Losses
from E-Commerce and All Remote Commerce – 2012
 
Source: Dr. Donald Bruce & Dr. William Fox, Center for Business & Economic Research
University of Tennessee

 
  Total
All Out of State
Electronic Sales
 Total
All Out of State Sales
 Alabama 170,400,000 347,734,399
 Alaska 1,500,000 3,035,981
 Arizona 369,800,000 708,628,254
 Arkansas 113,900,000 236,311,930
 California 1,904,500,000 4,159,667,947
 Colorado 172,700,000 352,563,574
 Connecticut 63,800,000 152,367,405
 District of Columbia 35,500,000 72,517,182
 Florida 803,800,000 1,483,690,010
 Georgia 410,300,000 837,610,389
 Hawaii 60,000,000 122,514,495
 Idaho 46,400,000 103,120,482
 Illinois 506,800,000 1,058,849,588
 Indiana 195,300,000 398,817,708
 Iowa 88,700,000 181,012,560
 Kansas 142,900,000 279,224,028
 Kentucky 109,900,000 224,484,309
 Louisiana 395,900,000 808,311,357
 Maine 32,100,000 65,430,824
 Maryland 184,100,000 375,944,240
 Massachusetts 131,300,000 268,002,460
 Michigan 141,500,000 288,954,339
 Minnesota 235,300,000 455,219,250
 Mississippi 134,900,000 303,286,360
 Missouri 210,700,000 430,191,928
 Nebraska 61,300,000 118,052,068
 Nevada 168,900,000 344,923,618
 New Jersey 202,500,000 413,390,425
 New Mexico 120,500,000 245,989,786
 New York 865,500,000 1,766,968,251
 North Carolina 213,800,000 436,517,492
 North Dakota 15,300,000 31,274,219
 Ohio 307,900,000 628,613,189
 Oklahoma 140,800,000 296,348,658
 Pennsylvania 345,900,000 706,241,542
 Rhode Island 29,000,000 70,436,458
 South Carolina 124,500,000 254,290,538
 South Dakota 29,800,000 60,826,849
 Tennessee 410,800,000 748,480,889
 Texas 870,400,000 1,777,090,593
 Utah 88,500,000 180,658,961
 Vermont 25,100,000 44,759,329
 Virginia 207,000,000 422,651,971
 Washington 281,900,000 540,968,704
 West Virginia 50,600,000 103,284,206
 Wisconsin 142,100,000 289,006,114
 Wyoming 28,600,000 61,744,705
 Total 11,392,700,000 23,260,009,564
 States in Bold are members of the Judiciary Committee
 

We believe that the Marketplace Equity Act would allow the states to close this significant and growing loophole in our sales tax revenue and level the playing field for all sellers regardless of the medium used to conduct a transaction.  H.R. 3179 also ensures that our constituents do not fall guilty to tax avoidance.  While the $23.3 billion in uncollected sales taxes will not much any funding reductions from the federal government, it will provide state with some fiscal relief. 
 
Conclusion
In closing, states have made unprecedented progress to eliminate the burdens and costs to retailers that the Quill decision outlined.  It is now Congress’ opportunity to ensure that the simplified system that the states have developed for the seamless collection of transactional taxes in the new economy is not impeded by those who merely are trying to avoid paying legally imposed taxes.  
Thank you.