Multistate – April 13, 1994: US Congressional Hearing on Interstate Use Tax Collection

SALT Report 3167 – Twenty years ago, next April 13, the United States Senate (103rd Congress), Committee on Small Business, with the Honorable Dale Bumpers as Chairman of the Committee, held hearings to address the growing issue of interstate use tax collection in the early 1990’s.  Quill had just been decided May 26, 1992 in the US Supreme Court, setting the standard of nexus for the next two decades in the area of sales and use tax.  The discussion points in the hearing document sound very familiar (if not identical) to our present issues of interstate commerce.  A search for the word “mail order” and a replace with the word “internet” very closely resembles a well articulated discussion of the points pertinent to the Marketplace Fairness Act, Amazon Laws and state legislative issues of today…20 years later.  The internet has grown considerably.  The marketplace has changed drastically.  Technology has advanced substantially.  Compliance is achieved more easily.  We have inserted updated technological references [internet] or [online] in bold, italics for a comparison read in the quotes noted below:

Quotes from Dale Bumpers opening statement (pages 1 and 2):

“The collection exemption enjoyed by the mail order [internet] companies creates a number of problems. First, it gives them a significant price advantage over local retail competitors.”

“The second problem with exempting mail order [internet] companies from collecting taxes is that it creates a loophole that is draining State and local revenues.  The Advisory Committee on Intergovernmental Relations estimates that the revenue loss is around $3 billion a year.  The Direct Marketing Association says that it is less – around $1.3 billion a year.”

“A third problem with the exemption is that the consumers are misled into believing that mail order sales are tax free.”

“Most States already have a tax on mail order [internet] but it is the responsibility of the individual purchaser to pay the tax directly to the states.  Most consumers don’t know the tax exists, don’t pay it, and there really is no suitable way to enforce it.  This problem requires congressional action.”

Quotes from Senator Carl Levin prepared statement (pages 3 and 4):

“The basic issue underlying this legislation is one of fostering an even playing field for small businesses whose customers come off the street and make purchases.  As ordering by mail [online] has become more common, these small businesses are facing stiffer unfair competition from mail order [internet] purchases.”

Quotes from Senator Howell Heflin prepared statement (page 4):

“As for the specifics of the bill, it is important to note that Senator Bumpers has taken great care to ensure that S. 1825 does not place an undue burden on small businesses.  For instance, the “de minimus” provisions of S. 1825 will exempt a mail order [internet] company from the burden of tax collection if its nationwide sales are less than $3 million.”

“However, it is only fair that the playing field be level for all retailers.”

Quotes from Jerry Hux prepared statement – S. 1825 Anticipates the Future (page 13):

“As we enter an interactive television era in which conventional merchandising will be turned upside down by TV shopping networks, Congress should be thinking about changing the climate to allow states to make a demand on out-of-state firms to remit a use tax on these sales.  Otherwise, Congress by its inaction will continue the inherently unfair system that places “Main Street” firms at a competitive disadvantage.”

Quote from Charles W. Scholz, Mayor, Quincy, IL (Page 32):

“First, the proposal before the committee is not a new tax.  In fact, consumers are certainly required currently in my state by law to pay sales taxes when they purchase goods from out-of-state retailers.  However, many do not.”

Quote from Walter C. Logan II, VP Mail Order Stark Bro’s Nursuries (Page 97):

“The initial concern with the imposition of a sales tax for sales made in a state wherein Nexus has not been established is rooted in the additional administrative costs to collect, monitor changes and remit the sales tax.  With over 6,000 sales tax rates across the country, this task would be daunting.”

Quote from Rebecca Maccardini, International Council on Shopping Centers (Page 103):

“However, the words “tax free” are misleading.  In actuality, merchandise purchased from a direct marketing [online] is not tax free.  Although the direct marketing [internet] company is not required to collect sales taxes on each sale, the consumer is, by law in 45 states, required to pay a use tax on these purchases.  Most consumers do not pay this tax, and, in fact, few are aware of the requirement to do so.  In addition, few states enforce use tax laws because of the difficulty in obtaining direct marketing [online] information regarding consumer purchases.”

For Further Information:

103rd Congress Committee on Small Business – Hearing on Interstate Use Tax April 13, 1994