October 21, 2011
RE: League Position on Internet Sales Taxation
You may have seen recent Press reports regarding possible State legislation to require internet merchants to collect New Jersey sales taxes. We want you to know that the League has a long history of involvement in this issue.
We have not yet seen a Draft of the bill about which the Press reports. So far as we know, it exists only as a concept, at this time. Accordingly, we have not established a position on this particular initiative. For your consideration, we provide the following.
A recent study by Rutgers Economists Nancy Mantell, Joseph Seneca, Michael Lahr and Will Irving, commissioned by the Retail Merchants, indicates that: “Some portion of the economic activity associated with the purchases of goods and services that are now made from out-of-state internet vendors could return to New Jersey if Sales and Use Tax collections were enforced on those transactions. Estimates of the impacts from this additional economic activity include up to 1,440 jobs, up to $44 million in income, and up to $95 million in gross domestic product for the state annually.”
The study also estimates state sales tax revenue gains of up to $171 million, based on 2009 data.
While the lion’s share of the Sales Tax is used to finance State government operations, ½ of 1 penny of the 7% sales tax is constitutionally dedicated to property tax relief.
The League has long supported a Federal fix to the disparity. Our statements and letters on this have consistently made the following points:
- The Internet tax exemption gives electronic merchants a competitive advantage over our Main Street businesspeople.
- Merchants who maintain a physical presence in our communities pay property taxes, which are used to pave and police our roads, to build and staff our schools and libraries, to secure and preserve our parks and recreational facilities.
- They also employ our fellow citizens, who, in turn, pay income taxes, and who buy or rent homes and pay their own property taxes.
- But that is just the start of what our hometown merchants contribute to the community. They contribute to local charities, sponsor youth sports teams and, in a thousand other ways, they give life to the communities that contribute to their prosperity.
In response to efforts by Congress to permanently prohibit states from collecting sales taxes on online commerce, the Streamlined Sales Tax Project (SSTP) was organized in March 2000. Its objective is to simplify and modernize sales and use tax collection and administration in the United States. Because such a ban would have serious financial consequences for states, the SSTP began as an effort to try to minimize the many differences between the sales tax policies and practices of states.
Currently, there are 24 states participating in the project, along with the District of Columbia. The state of New Jersey became a full member of Streamlined Sales Tax Project on October 1st, 2005. In addition to New Jersey, the following states have passed legislation to conform to the Streamlined Sale and Use Tax Agreement (SSUTA): Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming.
The SSTP is setting up a system by which Internet retailers can voluntarily pay state taxes to the states in which their customers reside. The incentive the SSTP is offering companies is that, rather than try to work out how much tax a company owes for each locality, they can instead use a Certified Service Providers (CSP).
Based on voluntary participation by the merchants, the SSTP does not represent a comprehensive remedy. And, to date, Congress has failed to address this issue. This has led to a movement for state legislation. New York, Illinois, Texas and California have all enacted some version of such legislation, with bi-partisan legislative support.
To our knowledge, the Courts have not yet ruled on the Constitutionality of any of these State laws.
Also at this time, two bills have been introduced in Washington to address this matter.
The Main Street Fairness Act, an online sales tax bill introduced over the summer by Senator Dick Durbin (D-Ill.), would give states flexibility in how they craft their tax systems to conform to the law. It would condition state enforcement on membership in the SSTP. It allows a compliance board to set standards for the exemption of small internet businesses from the collection requirements.
The bi-partisan Marketplace Equity Act, recently introduced by Representatives Jackie Speier (D-Calif.) and Steve Womack (R-Ark.), would give states authority to compel remote merchants to collect sales tax. This bill gives states options, including one basing collection on a buyer’s address, as long as the state provides software to the retailers.
Under either of these approaches, state action would need to follow Federal action before remote merchants would be required to collect the tax.
We will continue to monitor developments in both Trenton and Washington, and continue to support a response to the problem. As always, we will keep you posted on these matters.
Very truly yours,
William G. Dressel, Jr.