E-Fairness Addressed at Regulatory Reform Hearing

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On Tuesday, June 2, the issue of e-fairness was addressed at a meeting of the House Judiciary Subcommittee on Regulatory Reform, Commercial, and Antitrust Law. The hearing agenda focused on three bills tackling nexus issues regarding digital goods, income, and business activity taxes. Though marketplace fairness legislation was not on the formal hearing agenda, members of Congress and key witnesses made clear that it remains the top issue for Congress to address on state taxation issues. 

Testifying at the hearing was Grover Norquist, president, Americans for Tax Reform; Arthur R. Rosen, Esq., partner, McDermott Will & Emery LLP; Douglas L. Lindholm, CEO and executive director, Council on State Taxation; Lawrence F. Leaman, vice president, taxes, Masco Corporation; Jot Carpenter, vice president, government affairs, CTIA – The Wireless Association; Julie P. Magee, commissioner, Alabama Department of Revenue; and Dan L. Crippen, executive director, National Governors Association.

In his testimony before the committee, NGA’s Crippen stressed that before Congress passes anything regarding state taxes it must address the current sales tax inequity by passing federal e-fairness legislation.

“It is unfortunate that the subcommittee was unable to discuss the tax issue of greatest importance to states: the need to create parity between in-state and out-of-state retailers regarding the collection of state and local sales taxes,” he said. “Governors maintain that before any federal legislation regarding state tax legislation is passed, Congress must first address this disparity.”

Crippen pointed out that all of the bills before the committee had a common goal of “balancing the sovereignty of states to set their own tax and revenue systems versus the benefits of uniformity for an ever-growing digital and mobile economy.” He noted that for states to accomplish this goal, “Congress must first work with states to establish a level playing field for all retailers, both in-state and out of state. Specifically, NGA calls on Congress to authorize states to require remote vendors to collect state sales taxes.”

Rep. Hank Johnson (D-GA) questioned Norquist about his opposition to the Marketplace Fairness Act, a Senate bill that would give states the right, if they so choose, to require remote retailers to collect and remit sales tax in the state. Norquist said states had no business demanding taxes from out-of-state retailers. He noted, “States have the power to tax their own citizens and they can abuse them as much as they can get away with and still get elected in the next election…. [Under the Marketplace Fairness Act, states would be] exporting their state power into another state and that leads to tremendous opportunities for auditing harassment.”

Following the hearing, the Marketplace Fairness Coalition, a national group that includes businesses of every size, sector, and channel of product distribution, including the American Booksellers Association, issued a statement urging Congress to restore “the rights of states to enforce their tax laws and [close] an antiquated loophole that gives online businesses a government-sponsored tax advantage over Main Street businesses.” The coalition stressed that this is “one of the most important issues for states and small businesses alike.” 

MFC expressed its disappointment that there still isn’t a bill before the committee to publicly debate. “Failure to find a workable solution undermines both the local business community, and the governors and state lawmakers across the country who are balancing their books, funding badly needed infrastructure products, and, in many cases, trying to cut taxes,” the coalition said.